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Form N-2/A Franklin BSP Private

August 19, 2022 3:51 PM EDT

 

As filed with the Securities and Exchange Commission on August 19, 2022

 

Securities Act File No. 333-234759

 Investment Company Act File No. 811-23492

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM N-2

 

 

x REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

x PRE-EFFECTIVE AMENDMENT NO. 4

x  REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

x AMENDMENT NO. 4

 

FRANKLIN BSP PRIVATE CREDIT FUND

(Exact name of Registrant as Specified in Charter)

 

9 West 57th Street, 49th Floor, Suite 4920

 New York, NY 10019

(Address of Principal Executive Offices)

 

Registrant’s Telephone Number, including Area Code: (212) 588-6770

 

Richard J. Byrne

Franklin BSP Private Credit Fund

9 West 57th Street, 49th Floor, Suite 4920

 New York, NY 10019
(Name and Address of Agent for Service)

 

Copies of information to:

 

Thomas J. Friedmann, Esq.
Dechert LLP

 

One International Place, 40th Floor

100 Oliver Street
Boston, MA 02110
Telephone: (617) 728-7120
Facsimile: (617) 426-6567

 

Jonathan H. Gaines, Esq.
Dechert LLP

 

1095 Avenue of the Americas
New York, NY 10036
Telephone: (212) 698-3500
Facsimile: (212) 698-3599

 

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.

 

¨ Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans.

 

x Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan.

 

¨ Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto.

 

¨ Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act.

 

¨ Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act.

 

It is proposed that this filing will become effective (check appropriate box):

 

¨ when declared effective pursuant to section 8(c).

 

Check each box that appropriately characterizes the Registrant:

 

x Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)).

 

¨ Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act).

 

x Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).

 

¨ A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).

 

¨ Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).

 

¨ Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”).

 

¨ If an Emerging Growth Company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.

 

¨ New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).

 

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

  

Pursuant to the provisions of Rule 24f-2 under the Investment Company Act, the Fund declares that an indefinite number of its shares of beneficial interest are being registered under the Securities Act of 1933 by this registration statement.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

   

 

 

The information in this preliminary prospectus is not complete and may be changed. The Fund may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 19, 2022

 

PRELIMINARY PROSPECTUS

 

August 19, 2022
FRANKLIN BSP PRIVATE CREDIT FUND

 

CLASS A SHARES OF BENEFICIAL INTEREST

ADVISOR CLASS SHARES OF BENEFICIAL INTEREST

 

 

Franklin BSP Private Credit Fund (the “Fund”) is a Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company.

 

Investment Objective. The Fund’s investment objective is to generate attractive risk-adjusted returns1 with consistent current income.

 

Principal Investment Strategies. The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets (as defined in this prospectus). Benefit Street Partners L.L.C (“BSP” or the “Advisor”) believes that there are large, persistent and attractive market opportunities created by an imbalance between middle market companies’ demand for credit and the ability of middle market companies to obtain credit and intends to target investments for the Fund in this area. This imbalance in part, has been driven by substantial long-term changes in the debt capital markets following the credit crisis in 2008. Middle market companies often have specialized requirements that limit their ability to employ conventional loan structures and their access to broader capital markets. Their ability to raise capital has been further restricted as banks retreated from middle market lending due to changes in the regulatory landscape over the last decade. As a result, alternative lenders have stepped in to fill the void and provide capital. The Advisor believes that private debt represents a large opportunity set for the Fund, which will be able to benefit from the Advisor’s scaled platform, deep credit markets experience, knowledge and proprietary sourcing networks. Most of the credit instruments in which the Fund invests will be rated below investment grade by rating agencies or would be rated below investment grade if they were rated. Credit instruments that are rated below investment grade (commonly referred to as “high yield” securities or “junk bonds”) are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Because of the risks associated with investing in high yield securities, an investment in the Fund should be considered speculative. Some of the credit instruments will have no credit rating at all.

 

Interval Fund. The Fund is designed primarily for long-term investors and not as a trading vehicle. The Fund is an “interval fund” (defined below) pursuant to which, subject to applicable law, it will conduct quarterly repurchase offers for between 5% and 25% of the Fund’s outstanding shares of beneficial interest (“Shares”) at a price equal to net asset value (“NAV”). Under normal market conditions, the Fund currently intends to repurchase 5% of its outstanding shares at NAV on a quarterly basis. It is also possible that a repurchase offer may be oversubscribed, with the result that Fund shareholders (“Shareholders”) may only be able to have a portion of their Shares repurchased. The Fund does not currently intend to list its Shares for trading on any national securities exchange. The Shares are, therefore, not readily marketable. Even though the Fund will make quarterly repurchase offers to repurchase a portion of the Shares to try to provide liquidity to Shareholders, you should consider the Shares to be illiquid. The Fund expects to begin conducting its quarterly repurchase offers for outstanding shares during the first quarter of 2023. See “Share Repurchase Program” beginning on page 59 of this prospectus and “Risk Factors — Risks Relating to Our Business and Structure  — Repurchase Offers Risks” beginning on page 45 of this prospectus.

 

 

1 The Fund defines ‘risk-adjusted returns’ as the generation of realized and unrealized gains on a stockholder’s investment relative to the risk associated with the risk profile of the Fund’s investments. 

 

 

 

Unlisted Closed-End Fund. An investment in the Fund is subject to the following risks:

 

  There is not expected to be any secondary trading market in the Shares.

 

  Unlike an investor in most closed-end funds, Shareholders should not expect to be able to sell their Shares regardless of how the Fund performs. An investment in the Fund is considered illiquid.

 

  If a Shareholder is able to sell its Shares outside the quarterly repurchase process, the Shareholder likely will receive less than their purchase price and the then current NAV per Share.

 

  Unlike most closed-end funds, the Shares are not listed on any securities exchange. The Fund intends to provide liquidity through quarterly offers to repurchase a limited amount of the Fund’s Shares (at least 5%).

 

  There is no assurance that monthly distributions paid by the Fund will be maintained at the targeted level or that dividends will be paid at all.

 

  The Fund’s distributions may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Fund for investment. Any capital returned to Shareholders through distributions will be distributed after payment of fees and expenses.

 

  A return of capital to Shareholders is a return of a portion of their original investment in the Fund, thereby reducing the tax basis of their investment. As a result from such reduction in tax basis, Shareholders may be subject to tax in connection with the sale of Shares, even if such Shares are sold at a loss relative to the Shareholder’s original investment.

 

  The Fund’s distributions may result from expense reimbursements from Benefit Street Partners L.L.C. (“BSP” or the “Advisor”), which are subject to repayment by the Fund. Shareholders should understand that any such distributions are not based on the Fund’s investment performance, and can only be sustained if the Fund achieves positive investment performance in future periods and/or BSP continues to make such expense reimbursements. Shareholders should also understand that the Fund’s future repayments to BSP will reduce the distributions that a Shareholder would otherwise receive.

 

  Investing in Shares involves a high degree of risk. See “Risk Factors” beginning on page 28 of this prospectus.

 

The date of this prospectus is August 19, 2022.

  

Shareholder Transaction Expenses   Class A(1)     Advisor Class(2)  
Public Offering Price Per Share   $ 10.00     $ 10.00  
Sales Load(1) (as a percent of offering price)     2.00 %     None  
Proceeds to the Fund (Before Expenses)(3)(4)   $ 9.800     $ 10.00  

  

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(1) Generally, the stated minimum initial investment by an investor in the Fund for Class A Shares is $2,500, which stated minimum may be reduced for certain investors. Investors purchasing Class A Shares may be charged a sales load of up to 2.00% of the Investor’s subscription. The table assumes the maximum sales load is charged.

 

(2) Generally, the stated minimum initial investment by an investor in the Fund for Advisor Class Shares is $1,000,000, which stated minimum may be reduced for certain investors pursuant to the purchase terms (“Purchase Terms”) in the Fund’s plan of distribution (the “Plan of Distribution”). Advisor Class Shares are not subject to a sales load.

  

(3)

Assumes all amounts currently registered are sold in the continuous offering. BSP will also bear certain ongoing offering costs associated with the Fund’s continuous offering. See “Fund Expenses.” 

   
(4)

Per share amounts. 

 

Structure. The Fund does not currently intend to list its Shares for trading on any securities exchange and does not expect any secondary market to develop for its Shares. Shareholders of the Fund are not able to have their Shares redeemed or otherwise sell their Shares on a daily basis because the Fund is an unlisted closed-end fund. To provide limited liquidity to Shareholders, the Fund is structured as an “interval fund” and conducts periodic repurchase offers for a portion of its outstanding Shares, as described below. An investment in the Fund is suitable only for long-term investors who can bear the risks associated with the limited liquidity of the Shares.

 

Investment Advisor. The investment advisor to the Fund is BSP. BSP is registered as an investment advisor with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). BSP oversees the management of the Fund’s activities and is responsible for making investment decisions for the Fund’s portfolio.

 

Securities Offered. The Fund is offering on a continuous basis two classes of Shares of the Fund: Class A, and Advisor Class. Pursuant to the provisions of Rule 24f-2 under the Investment Company Act, the Fund declares that an indefinite number of its shares of beneficial interest are being registered under the Securities Act of 1933 by this registration statement. The minimum initial investment for Class A Shares is $2,500. Subsequent investments may be made in any amount. The minimum initial investment for Advisor Class Shares is $1,000,000. Subsequent investments may be made in any amount.

 

Shares are being offered through Franklin Distributors, LLC (the “Distributor”) at an offering price equal to the Fund’s then current NAV per Share, plus any applicable sales charge.

 

This prospectus provides the information that a prospective investor should know about the Fund before investing. Investors are advised to read this prospectus carefully and to retain it for future reference. Additional information about the Fund, including a statement of additional information, dated August 19, 2022 (the “Statement of Additional Information”), has been filed with the SEC and is incorporated by reference in its entirety into this prospectus. The Statement of Additional Information and, when available, the Fund’s annual and semi-annual reports and other information filed with the SEC, can be obtained upon request and without charge by writing to the Fund at Benefit Street Partners L.L.C., 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10019 or by calling toll-free 833-260-3565. The table of contents of the Statement of Additional Information appears on page 80 of this prospectus. Investors may request the Fund’s Statement of Additional Information, annual and semi-annual reports when available and other information about the Fund or make Shareholder inquiries by calling 833-260-3565 or by visiting https://www.franklintempleton.com. In addition, the contact information provided above may be used to request additional information about the Fund and to make Shareholder inquiries. The Statement of Additional Information, other material incorporated by reference into this prospectus and other information about the Fund is also available on the SEC’s website at http://www.sec.gov. The address of the SEC’s website is provided solely for the information of prospective investors and is not intended to be an active link.

  

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Shares are not deposits or obligations of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and Shares are not insured by the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System or any other government agency.

 

Neither the SEC nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

TABLE OF CONTENTS

 

  Page
SUMMARY OF TERMS 1
SUMMARY OF FEES AND EXPENSES 13
THE FUND 15
THE ADVISOR 16
USE OF PROCEEDS 17
INVESTMENT OBJECTIVE, OPPORTUNITIES AND STRATEGIES 18
RISK FACTORS 30
MANAGEMENT OF THE FUND 47
FUND EXPENSES 50
MANAGEMENT AND INCENTIVE FEES 53
DETERMINATION OF NET ASSET VALUE 55
CONFLICTS OF INTEREST 56
SHARE REPURCHASE PROGRAM 62
DESCRIPTION OF CAPITAL STRUCTURE 64
TAX ASPECTS 67
ERISA CONSIDERATIONS 76
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST 77
PLAN OF DISTRIBUTION 78
DISTRIBUTIONS 85
FISCAL YEAR; REPORTS 87
PRIVACY NOTICE 88
INQUIRIES 89
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION 90

 

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SUMMARY OF TERMS

 

Unless otherwise noted, the terms “we,” “us,” “our” and “Fund” refer to Franklin BSP Private Credit Fund and its consolidated subsidiaries. We refer to Benefit Street Partners L.L.C. as “BSP” or “our Advisor.”

 

This is only a summary and does not contain all of the information that a prospective investor should consider before investing in the Fund. Before investing, a prospective investor in the Fund should carefully read the more detailed information appearing elsewhere in this prospectus and the Statement of Additional Information.

 

THE FUND The Fund is a Delaware statutory trust that is registered under the 1940 Act as a non-diversified, closed-end management investment company. The Fund is operated as an “interval fund” (as defined below).
   
THE ADVISOR BSP serves as the Fund’s investment advisor. BSP is registered as an investment advisor with the SEC under the Advisers Act.
   
INVESTMENT OBJECTIVE The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income.
   
INVESTMENT OPPORTUNITIES
AND STRATEGIES
The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets. “Managed Assets” means the total assets of the Fund (including any assets attributable to indebtedness or any preferred shares that may be issued) minus the Fund’s liabilities other than liabilities relating to indebtedness. We define middle market companies as those with annual revenues up to $1 billion. The Fund’s portfolio will be deemed to be non-diversified under the 1940 Act, meaning it may invest a greater percentage of its assets in a single or limited number of issuers than a diversified fund.
   
 

Focus on middle market companies with stable cash flow. The Fund believes that middle market lending is less competitive than the broadly syndicated loan market, and this is one factor that allows us to negotiate favorable investment terms. Such favorable terms include higher debt yields, more significant covenant protection and greater equity participation than typical of transactions involving larger companies. We generally invest in established companies with positive cash flow.

 

  Employ disciplined underwriting policies and rigorous portfolio management. Our Advisor employs an extensive underwriting process that includes a review of an investment memorandum, and analysis of competitive position, financial performance and industry dynamics of each potential portfolio company. In addition, our Advisor performs substantial due diligence on potential investments, and seeks to invest with management teams and/or private equity sponsors who have proven capabilities in building value. As part of the monitoring process for portfolio companies, our Advisor analyzes monthly (if available), quarterly, and annual financial statements versus the previous periods and year, reviews financial projections and may perform other procedures, including meeting with management, attending board meetings and reviewing compliance certificates and covenants.

 

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  Focus on long-term credit performance and principal protection. Our Advisor structures our customized loan investments on a relatively conservative basis with relatively high cash yields, security interests (preferably first lien) where possible, cash origination fees, and appropriate leverage levels. Our Advisor seeks strong deal protection for our customized debt investments, including default penalties, information rights, board observation rights, and affirmative, negative and financial covenants, such as lien protection and prohibitions against change of control.
   
PORTFOLIO COMPOSITION The Fund’s portfolio will consist primarily of some combination of the following types of investments:
   
  Directly Originated Corporate Loans.  The Fund may invest in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component, of U.S. middle-market companies, where the Advisor believes the supply of primary capital is limited and the investment opportunities are most attractive. These investments are typically made to companies with annual revenues up to $1 billion.
   
  Broadly Syndicated Corporate Loans.  Senior, secured corporate loans (“Syndicated Loans”) generally benefit from liens on collateral, are rated below-investment grade and typically pay interest at rates that are determined periodically on the basis of a floating base lending rate, primarily the Secured Overnight Financing Rate (“SOFR”), plus a spread. Syndicated Loans are typically made to U.S. and, to a lesser extent, non-U.S. (including Canada and Europe, among other countries and regions) corporations, partnerships, limited liability companies and other business entities (together with issuers of High Yield Corporate Bonds (as defined below) and other debt securities, (“Borrowers”) which operate in various industries and geographical regions. Borrowers may obtain Syndicated Loans, among other reasons, to refinance existing debt, engage in acquisitions, pay dividends, recapitalize, complete leveraged buyouts and for general corporate purposes. Syndicated Loans rated below investment grade are sometimes referred to as “leveraged loans.” The Fund may invest in Syndicated Loans through assignments of or, to a lesser extent, participations in Syndicated Loans. The Fund may utilize total return swaps and/or various other types of derivative instruments to a lesser extent (“Derivatives”), for the purpose of gaining exposure to Syndicated Loans.
   
  Derivatives used by the Fund will be counted toward the Fund’s policy of investing at least 80% of its assets in private credit instruments. As a result, the market value of Derivatives that provides the Fund with indirect exposure to private credit instruments will be counted toward the Fund’s 80% policy.

 

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  High Yield Corporate Bonds.  An issuer of high-yield corporate bonds (“High Yield Corporate Bonds”) typically pays the investor a fixed rate of interest and must repay the amount borrowed on or before maturity. The investment return of High Yield Corporate Bonds reflects interest on the security and changes in the market value of the security. The market value of a High Yield Corporate Bond generally may be expected to rise and fall inversely with interest rates. The value of intermediate- and longer-term High Yield Corporate Bonds normally fluctuates more in response to changes in interest rates than does the value of shorter-term High Yield Corporate Bonds. The market value of a High Yield Corporate Bond also may be affected by investors’ perceptions of the creditworthiness of the issuer, the issuer’s performance and perceptions of the issuer in the market place. There is a risk that the issuers of High Yield Corporate Bonds may not be able to meet their obligations on interest or principal payments at the time called for by an instrument. The Fund may utilize various types of Derivatives, including swaps, for the purpose of gaining exposure to High Yield Corporate Bonds.
   
  Other Characteristics
   
  Below Investment Grade Credit Instruments.  Most of the credit instruments in which the Fund may invest will be rated below investment grade (also known as “junk bonds”). Securities rated below investment grade are those that, at the time of investment, are rated Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”), or BB+ or lower by Standard & Poor’s Corporation Ratings Group (“S&P”) or Fitch Ratings, Inc. (“Fitch”), or if unrated are determined by the Advisor to be of comparable quality. Below investment grade securities often are regarded as having predominately speculative characteristics with respect to an issuer’s capacity to pay interest and repay principal. In addition, lower quality debt securities tend to be more sensitive to general economic conditions. Although many of the Fund’s investments may consist of securities rated below investment grade, the Fund reserves the right to invest in credit instruments of any credit quality, maturity and duration.
   
  Illiquid and Restricted Securities.  The Fund may invest in instruments that, at the time of investment, are illiquid (generally, those securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities). Although the Fund may invest in such instruments without limitation, pursuant to the requirements of the 1940 Act, the Board of Trustees (the “Board”) has adopted, and the Fund follows, procedures designed to ensure that the Fund maintains sufficient liquidity to meet its periodic repurchase obligations as an interval fund. The Fund may also invest, without limit, in securities that are unregistered (but are eligible for purchase and sale by certain qualified institutional buyers) or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale.

 

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  Senior Secured Loans. Senior secured loans are situated at the top of the capital structure. Because these loans generally have priority in payment, they carry the least risk among all investments in a firm.
   
  Second Lien Secured Loans. Second lien secured loans are immediately junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans. Second lien secured loans, however, are granted a second priority security interest in the assets of the borrower, which means that any realization of collateral will generally be applied to pay senior secured loans in full before second lien secured loans are paid and the value of the collateral may not be sufficient to repay in full both senior secured loans and second lien secured loans. In return for this junior ranking, second lien secured loans generally offer higher returns compared to senior secured debt. These higher returns come in the form of higher interest and in some cases the potential for equity participation through warrants, though to a lesser extent than with subordinated loans.
   
  Senior Secured Bonds. Senior secured bonds are generally secured by collateral on a senior, pari passu or junior basis with other debt instruments in an issuer’s capital structure and have similar maturities and covenant structures as senior secured loans.
   
  Subordinated Debt. In addition to senior secured loans, second lien secured loans and senior secured bonds, we may invest a portion of our assets in subordinated debt. Subordinated debt investments usually rank junior in priority of payment to senior debt and are often unsecured, but are situated above preferred equity and common equity in the capital structure. In return for their junior status compared to senior debt, subordinated debt investments typically offer higher returns through both higher interest rates and possible equity ownership in the form of warrants, enabling the lender to participate in the capital appreciation of the borrower. These warrants typically require only a nominal cost to exercise
   
  The Fund may invest its cash balances in money market instruments, U.S. government securities, commercial paper, certificates of deposit, repurchase agreements and other high-quality debt instruments maturing in one year or less, among other instruments. In addition, and in response to adverse market, economic or political conditions, the Fund may invest in high-quality fixed income securities, money market instruments and money market funds or may hold significant positions in cash or cash equivalents for defensive purposes.

 

MANAGEMENT AND INCENTIVE  FEES Under the investment advisory agreement (the “Investment Advisory Agreement”), between the Fund and the Advisor, the Advisor is entitled to a fee consisting of two components—a base management fee (the “Management Fee”) and an incentive fee (the “Incentive Fee”).
   
  The Management Fee is calculated and payable quarterly in arrears at the annual rate of 1.25% of the average daily value of the Fund’s Net Assets. “Net Assets” means the  Fund’s total assets minus the Fund’s liabilities.
   
 

The Incentive Fee is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on the Fund’s net assets, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a “catch-up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income, income generated from original issue discounts, payment-in-kind income, and any other income earned or accrued during the calendar quarter, minus the Fund’s operating expenses (which, for this purpose shall not include any distribution and/or shareholder servicing fees, litigation, any extraordinary expenses or Incentive Fee) for the quarter. For purposes of computing the Fund’s pre-incentive fee net investment income, the calculation methodology will look through total return swaps as if the Fund owned the referenced assets directly. As a result, the Fund’s pre-incentive fee net investment income includes net interest, if any, associated with a derivative or swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Fund to the derivative or swap counterparty. Net assets means the total assets of the Fund minus the Fund’s liabilities. For purposes of the Incentive Fee, net assets are calculated for the relevant quarter as the weighted average of the net asset value of the Fund as of the first business day of each month therein. The weighted average net asset value shall be calculated for each month by multiplying the net asset value as of the beginning of the first business day of the month times the number of days in that month, divided by the number of days in the applicable calendar quarter.

 

The “catch-up” provision is intended to provide the Advisor with an incentive fee of 12.5% on all of the Fund’s pre-incentive fee net investment income when the Fund’s pre-incentive fee net investment income reaches 1.71425% of net assets in any calendar quarter.

 

 

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The Advisor is obligated to pay expenses associated with providing the investment services stated in the Investment Advisory Agreement, including compensation of and office space for their officers and employees connected with investment and economic research, trading and investment management of the Fund.

   
  The Board, including a majority of the members of the Board (each, a “Trustee”) that are considered independent and are not “interested persons” (as defined in the 1940 Act) of the Fund or the Advisor (collectively, the “Independent Trustees”), oversees and monitors the Fund’s investment performance and will periodically review the Investment Advisory Agreement to determine whether the fees payable under such agreement are reasonable in light of the services provided.
   
  The Advisor and the Fund have entered into the Expense Limitation Agreement. Under the Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organizational and offering costs, as well as the Fund’s operating expenses on a quarterly basis to the extent that the Fund’s total annualized fund operating expenses, inclusive of any fees the Fund has agreed to bear pursuant to 4(b) of an administration agreement between BSP and the Fund (the “BSP Administration Agreement”), but excluding (i) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation and extraordinary expenses, (ii) incentive fees and (iii) any distribution and shareholder servicing fees in respect of the relevant month, exceed 2.25% of the Fund’s quarter-end NAV (the “Expense Cap”).
   
 

In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor in the amount of expenses reimbursed pursuant to the Expense Limitation Agreement (an “Advisor Recoupment”); provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that: (i) for expenses incurred by the Advisor prior to the Fund’s first investment, it is payable not more than three years from the date of the first investment; (ii) for expenses incurred by the Advisor after the Fund’s first investment, it is payable not more than three years from the date on which the applicable expense payment was made by the Advisor; and (iii) the Advisor Recoupment does not cause the Fund’s total annual operating expenses (on an annualized basis and net of any reimbursements received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Cap.

 

For the avoidance of doubt, the Advisor Recoupment will not cause Fund expenses to exceed the Expense Cap either (i) at the time of the waiver or (ii) at the time of recoupment. See “Fund Expenses—Expense Limitation Agreement” for additional information. The Expense Limitation Agreement will remain in effect for a period of one year from the date of the agreement, unless and until the Board approves the agreement’s modification or termination. The Expense Limitation Agreement may be terminated only by the Fund’s Board on notice to the Advisor during the initial one-year term; thereafter, each is terminable by either the Advisor or the Fund’s Board in accordance with its respective terms. See “Fund Expenses.”

   

DISTRIBUTION AND SHAREHOLDER

SERVICING FEESAND SALES LOAD

Advisor Class Shares are not subject to either a distribution or a shareholder servicing fee. Class A Shares may be charged an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly of the average daily net assets attributable to Class A Shares. Investors purchasing Class A Shares may be charged a sales load of up to 2.00% of the investor’s subscription. See “Plan of Distribution.”

 

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FUND EXPENSES Under the BSP Administration Agreement, Benefit Street Partners L.L.C. (the “BSP Administrator”) furnishes the Fund with office equipment and clerical, bookkeeping and record keeping services at the Fund’s office facilities, oversees the services of the USB Administrator in accordance with its role as BSP Administrator , and generally oversees the payment of the Fund’s expenses and the performance of administrative and professional services rendered to the Fund by others. Payments under the BSP Administration Agreement are equal to an amount based upon the Fund’s allocable portion of the BSP Administrator’s overhead and other expenses (including travel expenses) incurred by BSP Administrator in performing its obligations under the BSP Administration Agreement, including the Fund’s allocable portion of the compensation of certain of its officers (including the chief compliance officer, chief financial officer, chief accounting officer, general counsel, treasurer and assistant treasurer) and their respective staffs. The BSP Administrator may be reimbursed, at cost, for expenses it pays on the Fund’s behalf, including for services delegated to the USB Administrator (as defined below). The Fund’s Board, including the Independent Trustees, will review the compensation that the Fund pays to BSP Administrator consistent with Rule 17d-1 under the 1940 Act to determine that payments made to BSP Administrator are reasonable in light of the services provided.
   
  Pursuant to an administration agreement between U.S. Bancorp Fund Services, LLC and the Fund (the “USB Administration Agreement”), U.S. Bancorp Fund Services, LLC  (the “USB Administrator”) will perform certain of the Fund’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, investor relations and technology, being responsible for the financial records that the Fund is required to maintain and preparing reports to the Fund’s Shareholders and reports filed with the SEC. In addition, the USB Administrator assists the Fund in determining and publishing its net asset value, oversees the preparation and filing of the Fund’s tax returns and the printing and dissemination of reports to Shareholders. The USB Administrator is paid at a rate based on the Fund’s total assets. See “Management of the Fund—Administrative Services” for additional information.
   
  The BSP Administration Agreement and USB Administration Agreement may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.
   
  It is also understood and agreed that if persons associated with the Advisor or any of their affiliates, including persons who are officers of the Fund, provide accounting, legal, clerical or administrative services to the Fund at the request of the Fund, the Fund will reimburse the Advisor and their affiliates for their costs in providing such accounting, legal, clerical or administrative services to the Fund (which costs may include an allocation of overhead including rent and the allocable portion of the salaries and benefits of the relevant persons and their respective staffs, including travel expenses), using a methodology for determining costs approved by the Board. Nothing contained in this prospectus shall be construed to restrict the Fund’s right to hire its own employees or to contract for services to be performed by third parties.

 

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DISTRIBUTIONS The Fund’s distribution policy is to make monthly distributions to Shareholders. See “Distributions.”
   
  The Board reserves the right to change the distribution policy from time to time.
   
DISTRIBUTION REINVESTMENT PLAN The Fund will operate a distribution reinvestment plan (“DRP”) administered by DST Systems Inc. (“DST”). Pursuant to the DRP, the Fund’s income dividends or capital gains or other distributions (each, a “Distribution” and collectively, “Distributions”), net of any applicable U.S. withholding tax, are reinvested in the same class of shares of the Fund. Shareholders automatically participate in the DRP, unless and until an election is made to withdraw from the plan on behalf of such participating shareholder. A shareholder who does not wish to have Distributions automatically reinvested may terminate participation in the Plan at any time by written instructions to that effect to DST. Shareholders who elect not to participate in the DRP will receive all distributions in cash paid to the shareholder of record (or, if the shares are held in street or other nominee name, then to such nominee). Such written instructions must be received by DST one day prior to the record date of the Distribution or the shareholder will receive such Distribution in shares through the DRP. Under the DRP, the Fund’s Distributions to Shareholders are reinvested in full and fractional shares. See “Distributions — Distribution Reinvestment Plan.”
   
BOARD OF TRUSTEES The Board has overall responsibility for monitoring and overseeing the Fund’s management and operations. A majority of the Trustees are Independent Trustees. See “Management of the Fund.”
   
PURCHASES OF SHARES The Fund’s Shares are offered on a daily basis. Please see “Plan of Distribution” on page 70 for purchase instructions and additional information.
   
  The minimum initial investment for Class A Shares is $2,500; subsequent investments may be made in any amount. The Fund reserves the right to waive investment minimums.  See “Distributions—Distribution Reinvestment Plan.”
   
  The minimum initial investment for Advisor Class Shares is $1,000,000; subsequent investments may be made in any amount. The Fund reserves the right to waive the investment minimum pursuant to the Purchase Terms in the Plan of Distribution. See “Distributions—Distribution Reinvestment Plan.”
   
PLAN OF DISTRIBUTION Franklin Distributors, LLC (the “Distributor”), located at One Franklin Parkway San Mateo, CA 94403-1906, serves as the Fund’s principal underwriter and acts as the Distributor of the Fund’s Shares on a best efforts basis, subject to various conditions. The Distributor also may enter into broker-dealer selling agreements with other broker dealers for the sale and distribution of the Fund’s Shares. The Fund’s Shares are offered for sale through the Distributor at NAV plus the applicable sales load.

 

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  The Distributor is not required to sell any specific number or dollar amount of the Fund’s Shares, but will use it best efforts to solicit orders for the sale of the Shares. Shares of the Fund will not be listed on any national securities exchange, and the Distributor will not act as a market maker in Shares.
   
  The Advisor or its affiliates, in the Advisor’s discretion and from their own resources, may pay additional compensation to financial intermediaries and their agents that have made arrangements with the Fund and are authorized to buy and sell shares of the Fund (collectively, “Financial Intermediaries”) in connection with the sale of Shares (the “Additional Compensation”). In return for the Additional Compensation, the Fund may receive certain marketing advantages including access to a broker’s or dealer’s registered representatives, placement on a list of investment options offered by a broker or dealer, or the ability to assist in training and educating the broker’s or dealer’s registered representatives. The Additional Compensation may differ among brokers or dealers in amount or in the amount of calculation. Payments of Additional Compensation may be fixed dollar amounts or, based on the aggregate value of outstanding Shares held by Shareholders introduced by the broker or dealer, or determined in some other manner. The receipt of Additional Compensation by a selling broker or dealer may create potential conflicts of interest between an investor and its broker or dealer who is recommending the fund over other potential investments.
   

UNLISTED CLOSED-END

INTERVAL FUND STRUCTURE

The Fund has been organized as a continuously offered, non-diversified, closed-end management investment company. Closed-end funds differ from open-end funds (commonly known as mutual funds) in that investors in closed-end funds do not have the right to redeem their shares on a daily basis. Unlike most closed-end funds, which typically list their shares on a securities exchange, the Fund does not currently intend to list the Shares for trading on any securities exchange, and the Fund does not expect any secondary market to develop for the Shares in the foreseeable future. Therefore, an investment in the Fund, unlike an investment in a typical closed-end fund, is not a liquid investment. To provide limited liquidity to Shareholders, the Fund is structured as an “interval fund” and conducts quarterly repurchase offers for a limited amount of the Fund’s Shares (at least 5%).
   
  The Fund believes that an unlisted closed-end structure is most appropriate for the long-term nature of the Fund’s strategy. Features that interfere with the Fund’s long-term investment strategy (such as daily redemptions permitted by open-end funds that can require the premature sale of investments) could impair the Fund’s ability to execute its investment strategy. Accordingly, an unlisted closed-end structure helps the Fund achieve its investment objective. The Fund’s NAV per Share may be volatile. As the Shares are not traded, investors will not be able to dispose of their investment in the Fund outside the share repurchase program no matter how poorly the Fund performs. See “Summary—Share Repurchase Program.” Because exchange-traded closed-end funds also do not redeem Shares, they also could execute the Fund’s buy-and-hold strategy. Because an exchange-traded closed-end fund’s shares can trade at a discount to NAV, they may present a more attractive opportunity to investors.

 

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SHARE CLASSES The Fund currently offers two different classes of Shares: Class A and Advisor Class. An investment in any share class of the Fund represents an investment in the same assets of the Fund. However, the purchase restrictions and ongoing fees and expenses for each share class are different. The fees and expenses for the Fund are set forth in “Summary of Fees and Expenses.” If you have hired an intermediary and are eligible to invest in more than one class of Shares, the intermediary may help determine which share class is appropriate for you. When selecting a share class, you should consider which share classes are available to you, how much you intend to invest, how long you expect to own Shares, and the total costs and expenses associated with a particular share class.
   
  Each investor’s financial considerations are different. You should speak with your financial advisor to help you decide which share class is best for you. Not all Financial Intermediaries offer all classes of Shares. If your Financial Intermediary offers more than one class of Shares, you should carefully consider which class of Shares to purchase.
   
VALUATIONS The Board is responsible for the valuation of the Fund’s portfolio investments for which market quotations are not readily available, as determined in good faith pursuant to the Fund’s valuation policy and consistently applied valuation process. The Board has delegated day-to-day responsibility for implementing the portfolio valuation process set forth in the Fund’s valuation policy to Fund management, which is comprised of officers and employees of the Advisor, and has authorized the Advisor to utilize the independent third-party pricing services and independent third-party valuation services that have been approved by the Board. Portfolio securities and other assets for which market quotes are readily available are valued at market value. In circumstances where market quotes are not readily available, the Board has adopted methods for determining the fair value of such securities and other assets.
   
SHARE REPURCHASE PROGRAM The Shares have no history of public trading, nor is it intended that the Shares will be listed on a public exchange at this time. No secondary market is expected to develop for the Fund’s Shares.
   
  The Fund is an “interval fund,” a type of fund which, to provide limited liquidity to Shareholders, makes quarterly offers to repurchase between 5% and 25% of its outstanding Shares at NAV, pursuant to Rule 23c-3 under the 1940 Act, unless such offer is suspended or postponed in accordance with regulatory requirements (as discussed below). Under normal market conditions, the Fund currently intends to repurchase 5% of its outstanding shares at NAV on a quarterly basis. Quarterly repurchases occur in the months of March, June, September and December. The offer to purchase Shares is a fundamental policy that may not be changed without the vote of the holders of a majority of the Fund’s outstanding voting securities (as defined in the 1940 Act).

 

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  Written notification of each quarterly repurchase offer (the “Repurchase Offer Notice”) is sent to Shareholders at least 21 calendar days before the repurchase request deadline (i.e., the date by which Shareholders can tender their Shares in response to a repurchase offer) (the “Repurchase Request Deadline”). The Fund expects to determine the NAV applicable to repurchases on the Repurchase Request Deadline. However, the NAV will be calculated no later than the 14th calendar day (or the next business day if the 14th calendar day is not a business day) after the Repurchase Request Deadline (the “Repurchase Pricing Date”), although the NAV is expected to be determined on the Repurchase Request Deadline. The Fund expects to distribute payment to Shareholders between one and three business days after the Repurchase Pricing Date and will distribute such payment no later than seven calendar days after such Date. As there is not likely to be a secondary market for Shares, you may not be able to sell Shares when and/or in the amount that you desire. Thus, the Shares are appropriate only as a long-term investment. In addition, the Fund’s repurchase offers may subject the Fund and Shareholders to special risks. See “Risk Factors — Risks Relating to Our Business and Structure  — Repurchase Offers Risks.”
   

ERISA PLANS AND OTHER

TAX EXEMPT ENTITIES

Investors subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and other tax-exempt entities, including employee benefit plans, individual retirement accounts (“IRAs”), 401(k) plans and Keogh plans, may purchase Shares. Because the Fund is registered as an investment company under the 1940 Act, the underlying assets of the Fund will not be considered to be “plan assets” of the ERISA plans investing in the Fund for purposes of ERISA’s fiduciary responsibility and prohibited transaction rules. Thus, neither the Fund nor the Advisor will be a fiduciary within the meaning of ERISA with respect to the assets of any ERISA plan that becomes a Shareholder, solely as a result of the ERISA plan’s investment in the Fund. See “ERISA Considerations.”
   
SUMMARY OF TAXATION The Fund has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Fund generally will not be subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that is currently distributed as dividends for U.S. federal income tax purposes to Shareholders, as applicable. To qualify and maintain its qualification as a RIC for U.S. federal income tax purposes, the Fund is required to meet certain specified source-of-income and asset diversification requirements, and is required to distribute dividends for U.S. federal income tax purposes of an amount at least equal to 90% of the sum of its net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses each tax year to Shareholders, as applicable. See “Distributions” and “Tax Aspects.”
   
FISCAL YEAR For accounting purposes, the Fund’s fiscal year is the 12-month period ending on December 31.

 

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REPORTS TO SHAREHOLDERS As soon as practicable after the end of each calendar year, a statement on Form 1099-DIV identifying the sources of the distributions paid by the Fund to Shareholders for tax purposes will be furnished to Shareholders subject to Internal Revenue Service (“IRS”) reporting. In addition, the Fund will prepare and transmit to Shareholders an unaudited semi-annual and an audited annual report within 60 days after the close of the period for which the report is being made, or as otherwise required by the 1940 Act.
   
RISK FACTORS Investing in the Fund involves risks, including the risk that a Shareholder may receive little or no return on their investment or that a Shareholder may lose part or all of their investment. Below is a summary of some of the principal risks of investing in the Fund. Investing in the Fund may be considered speculative. You should carefully consider the information found in “Risk Factors” before deciding to invest in the Fund. Shareholders should consider carefully the following principal risks before investing in the Fund: 
   
  Unlike most closed-end funds, the Fund’s Shares will not be listed on any securities exchange;
     
  Although the Fund intends to implement a quarterly share repurchase program, there is no guarantee that an investor will be able to sell all of the Shares that the investor desires to sell. The Fund should therefore be considered to offer limited liquidity;
     
  If a Shareholder is able to sell its Shares outside of the quarterly repurchase process, the Shareholder likely will receive less than its purchase price and the then current NAV per Share;
     
  Future disruptions or instability in capital markets could negatively impact our ability to raise capital, and have a material adverse effect on our business, financial condition and results of operations;
     
  The amount of any distributions we pay is uncertain. Our distributions to Shareholders may exceed our earnings. Therefore, portions of the distributions that we pay may represent a return of capital to you which will lower your tax basis in your shares and reduce the amount of funds we have for investment in targeted assets. We may not be able to pay you distributions, and our distributions may not grow over time. Any capital returned to Shareholders through distributions will be distributed after payment of fees and expenses;
     
  Price declines in the large corporate leveraged loan market may adversely affect the fair value of debt securities we hold, reducing our net asset value through increased net unrealized depreciation;
     
  We depend upon information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the value of our common stock and our ability to pay distributions;
     
  There are significant potential conflicts of interest that could impact our investment returns;

 

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  The Fund may be materially adversely affected by market, economic and political conditions globally and in the jurisdictions and sectors in which the Fund invests;
     
  Our financial results may be affected adversely if one or more of our significant equity or junior debt investments defaults on its payment obligations or fails to perform as we expect;
     
  Certain of the Fund’s investments are subject to interest rate risk;
     
  Because we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us;
     
  Our investments in portfolio companies may be risky, and we could lose all or part of our investment. We intend to invest primarily in first and second lien senior secured loans and mezzanine debt issued by middle market companies. For our senior secured lien loans, the collateral securing these investments may decrease in value or lose its entire value over time or may fluctuate based on the performance of the portfolio company which may lead to a loss in principal. Mezzanine debt investments are typically unsecured, and investing in mezzanine debt may involve a heightened level of risk, including a loss of principal or the loss of the entire investment. Our investments may include securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “high yield” or “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal;
     
  Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment;
     
  The Fund is a non-diversified, closed-end investment company and may hold a narrower range of investments than a diversified fund under the 1940 Act;
     
  The Fund operates in a highly competitive market for investment opportunities;
     
  We may be subject to corporate-level U.S. federal taxes if we fail to maintain our qualification as a RIC.
     
  Accordingly, the Fund should be considered a speculative investment that entails substantial risks, and a prospective investor should invest in the Fund only if they can sustain a complete loss of their investment.

 

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SUMMARY OF FEES AND EXPENSES

 

The following table illustrates the aggregate fees and expenses that the Fund expects to incur and that Shareholders can expect to bear directly or indirectly.

 

SHAREHOLDER TRANSACTION EXPENSES   CLASS A     ADVISOR
CLASS
 

Maximum sales load imposed on purchases(1)

    2.00 %    

None

 
Maximum contingent deferred sales charge(2)     None       None  
ANNUAL FUND EXPENSES
(as a percentage of average net assets attributable to Shares)
               
Management fee(3)     1.25 %     1.25 %
Incentive Fee(4)     %     %
Interest payments on borrowed funds and securities sold short(5)     1.30 %     1.30 %
Other expenses(6)     1.96 %     1.96 %
Distribution fee(7)     0.50 %     None  
Total annual fund expenses     5.01 %     4.51 %
Expense reimbursement(8)     (0.96 )%     (0.96 )%
Total annual fund expenses after expense reimbursement(9)     4.05 %     3.55 %

 

 

(1)

Advisor Class Shares do not impose a front-end sales charge. Investors purchasing Class A Shares may be charged a sales load of up to 2.00% of the investment amount. The table assumes the maximum sales load is charged. The Distributor may, in its discretion, waive all or a portion of the sales load for certain investors. See “Plan of Distribution.” 

 

(2)

With respect to purchases of $250,000 or more only, investors will pay a contingent deferred sales charge of 1.00% for Class A Shares repurchased within 12 months of purchase. 

 

(3) The Management Fee is calculated and payable quarterly in arrears at the annual rate of 1.25% of the average daily value of the Fund’s Net Assets.

 

(4) The Fund anticipates that it may have interest income that could result in the payment of an Incentive Fee to the Advisor during certain periods. However, the Incentive Fee is based on the Fund’s performance and will not be paid unless the Fund achieves certain performance targets. The Fund expects the Incentive Fee the Fund pays to increase to the extent the Fund earns greater interest income through its investments in portfolio companies. The Incentive Fee is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on the Fund’s adjusted capital, equal to 1.50% per quarter, or an annualized hurdle rate of 6.00%, subject to a “catch-up” feature. For purposes of computing the Fund’s pre-incentive fee net investment income, the calculation methodology will look through total return swaps as if the Fund owned the referenced assets directly. See “Management and Incentive Fees” for a full explanation of how the Incentive Fee is calculated.

 

(5) These expenses represent estimated interest payments the Fund expects to incur in connection with its expected credit facility and short sales during the current fiscal year. See “Investment Objective, Opportunities and Strategies — Leverage.” The amount shown in the table above is based on the assumption that the Fund borrows money for investment purposes in an amount equal to 29% of its net assets. This analysis assumes an annual interest rate on borrowings of 3.25%

 

(6) Other expenses include accounting, legal and auditing fees of the Fund, organizational and offering costs, as well as the reimbursement of the compensation of administrative personnel and fees payable to the Independent Trustees. The amount presented in the table estimates the amounts the Fund expects to pay during the one year period beginning April 1, 2022, assuming the Fund has a net asset value of approximately $125,000,000.

 

(7) Class A Shares may charge an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly, of the average daily net assets attributable to Class A Shares. The Fund may use this fee to compensate Financial Intermediaries or financial institutions for distribution-related expenses and providing ongoing services in respect of clients with whom they have distributed Shares of the Fund. Such services may also include electronic processing of client orders, electronic fund transfers between clients and the Fund, account reconciliations with the Fund’s sub-transfer agent, facilitation of electronic delivery to clients of Fund documentation, monitoring client accounts for back-up withholding and any other special tax reporting obligations, maintenance of books and records with respect to the foregoing, and such other information and liaison services as the Fund or BSP may reasonably request.

  

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(8)

The Advisor and the Fund have entered into the Expense Limitation Agreement. Under the Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organizational and offering costs, as well as the Fund’s operating expenses on a quarterly basis to the extent that the Fund’s total annualized fund operating expenses, inclusive of any fees the Fund has agreed to bear pursuant to 4(b) of the BSP Administration Agreement, but excluding (i) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation and extraordinary expenses. (ii) incentive fees and (iii) any distribution and shareholder servicing fees in respect of the relevant month, exceed 2.25% of the Fund’s quarter-end NAV.

 

In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor an Advisor Recoupment; provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that: (i) for expenses incurred by the Advisor prior to the Fund’s first investment, it is payable not more than three years from the date of the first investment; (ii) for expenses incurred by the Advisor after the Fund’s first investment, it is payable not more than three years from the date on which the applicable expense payment was made by the Advisor; and (iii) the Advisor Recoupment does not cause the Fund’s total annual operating expenses (on an annualized basis and net of any reimbursements received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Cap. For the avoidance of doubt, the Advisor Recoupment will not cause Fund expenses to exceed the Expense Cap either (i) at the time of the waiver or (ii) at the time of recoupment. See “Fund Expenses—Expense Limitation Agreement” for additional information. The Expense Limitation Agreement will remain in effect for a period of one year from the date of the agreement, unless and until the Board approves either agreement’s modification or termination. The Expense Limitation Agreement may be terminated only by the Fund’s Board on notice to the Advisor during the initial one-year term; thereafter, each is terminable by either the Advisor or the Fund’s Board in accordance with its respective terms. See “Fund Expenses.”

 

Example:

 

The following example demonstrates the projected dollar amount of total expenses that would be incurred over various periods with respect to a hypothetical investment in Shares. In calculating the following expense amounts, the Fund has assumed its direct and indirect annual operating expenses would remain at the percentage levels set forth in the table above and do not include any expense support from the Advisor.

 

An investor would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return:

 

Share Class   1 Year     3 years     5 Years     10 Years  
Advisor Class   $ 36     $ 128     $ 221     $ 457  
Class A   $ 60     $ 159     $ 258     $ 506  

 

The example and the expenses in the tables above should not be considered a representation of the Fund’s future expenses, and actual expenses may be greater or less than those shown. While the example assumes a 5.0% annual return, as required by the SEC, the Fund’s performance will vary and may result in a return greater or less than 5.0%. For a more complete description of the various fees and expenses borne directly and indirectly by the Fund, see “Fund Expenses” and “Management and Incentive Fees.”

 

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THE FUND

 

The Fund is a non-diversified, closed-end management investment company that is registered under the 1940 Act. The Fund is structured as an “interval fund” and continuously offers its Shares. The Fund was organized as a Delaware statutory trust on November 12, 2019. The principal office of the Fund is located at 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10019 and its telephone number is (212) 558-6770.

 

The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income.

 

The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets. The Fund’s portfolio will be deemed to be non-diversified under the 1940 Act, meaning it may invest a greater percentage of its assets in a single or limited number of issuers than a diversified fund.

  

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THE ADVISOR

 

BSP, an investment adviser registered with the SEC under the Advisers Act, serves as the Fund’s investment adviser. BSP is a subsidiary of Franklin Resources, Inc., a global investment management organization (together with its affiliated advisers (but excluding BSP), referred to in this section as “Franklin Templeton”).

 

Established over a decade ago, BSP is based in New York City with eight offices across the country. With approximately $40.9 billion in assets under management, BSP offers a broad spectrum of investment capabilities to its investors covering corporate performing and distressed private credit, structured credit and commercial real estate credit. The BSP credit platform includes approximately $16.8 billion of assets in private debt. Over the past eleven years, the funds and separately managed accounts comprising BSP’s private debt strategy have invested approximately $30.6 billion in capital.

 

 

1 Assets under management (“AUM”) refers to the assets under management for all credit funds, as well as separately managed accounts managed or sub-advised by BSP and affiliated investment advisers AUM amounts are as of June 30, 2022. AUM is unaudited, preliminary and subject to change. “Private debt” AUM reflects the AUM of the funds and accounts reflected in the private debt.

 

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USE OF PROCEEDS

 

The proceeds from the sale of Shares are invested by the Fund to pursue its investment program and strategies.

 

There can be no assurance that the Fund will be able to sell all the Shares it is offering. If the Fund, sells only a portion of the Shares it is offering, the Fund may be unable to achieve its investment objective.

  

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INVESTMENT OBJECTIVE, OPPORTUNITIES AND STRATEGIES

 

Investment Objective

 

The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income.

 

Investment Opportunities and Strategies

 

The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets. The Fund’s portfolio will be deemed to be non-diversified under the 1940 Act, meaning it may invest a greater percentage of its assets in a single or limited number of issuers than a diversified fund.

 

The Fund intends to target a differentiated investment strategy comprised of six key components:

 

  sourcing of primarily private debt opportunities through BSP’s extensive proprietary networks and close relationships;

 

  prioritization of non-competitive, “strategic capital” opportunities, including investments without private equity firm backing;

 

  creative and flexible approach to providing capital;

 

  optimization of investment level risk/return profile;

 

  maintaining fund-level downside protection through world-class risk management and multi-dimensional diversification; and

 

  ability to take advantage of opportunities BSP believes are mispriced.

 

Sourcing of primarily private debt opportunities. At the heart of the Fund’s investment strategy is its approach to sourcing attractive private debt opportunities by capitalizing on BSP’s extensive networks as well as its proprietary relationships and insights.

 

This differentiated transaction-sourcing framework comprises hundreds of close, long-standing personal relationships that have been forged over the course of several decades and hundreds of transactions. BSP personnel have collectively been involved in thousands of credit transactions over the course of their careers as senior bankers at preeminent institutions at the center of the global credit markets. Primarily through hands-on, personal involvement in these investments and transactions, the BSP team has developed and maintained a broad and diversified network of contacts throughout the deal transaction ecosystem. This network is a rich source of proprietary idea and deal generation, often yielding a “first look” at attractive private debt opportunities.

 

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Benefit Street Partners’ Network for Ideas, Investments, and Insights

  

 

 

Prioritize non-competitive, “strategic capital” opportunities. The Fund will seek to prioritize non-competitive, “strategic capital” opportunities where BSP has a niche position as a debt provider by virtue of its industry insights, capital markets expertise or other differentiating attribute. BSP participates in both sponsor backed transactions, those transactions which have substantial private equity firm involvement, and non-sponsored transactions, those transactions which do not have private equity involvement, and has historically followed a balanced approach to allocating into sponsor and non-sponsor deals. BSP incorporates a component of non-sponsor transactions into its managed portfolios because they are typically less competitive, and therefore often result in better yield and terms per unit of risk than sponsored loans. Having said that, non-sponsor deals have tended to be more episodic in nature than sponsor deals. As such, the Fund also expects to invest in sponsor loans with a focus on targeting non-competitive transactions. Ultimately, BSP evaluates the risk-reward profile of every investment on a case-by-case basis and its primary aim is to participate in transactions where BSP has influence over terms, covenants and governance of these investments. In BSP’s experience, investment opportunities where BSP is viewed as provider of “strategic capital,” as opposed to just capital, have generally been more attractive from a risk-reward perspective. The following table illustrates the difference between middle market sponsor loans and middle market non-sponsor loans.

 

 

Note: Characteristics above express the views of BSP.

 

Creative and flexible approach to providing capital. Middle market companies often have unique requirements that make it difficult for them to access broader capital markets or employ conventional loan structures. Providing these companies with a financing solution that accommodates such constraints through a creative, customized investment structure can often translate into a highly attractive return profile for investors. Given the attractiveness of this “creative structure/excess return” trade-off from an investment perspective, the Fund seeks to focus on opportunities requiring such a creative approach and maintain flexibility to employ a broad range of investment structures across the capital structure to accommodate issuer needs.

 

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This flexible approach to providing capital is intended to enable the BSP credit team to diagnose specific issuer needs and then develop the best investment structure to address each situation, both from an issuer and investor perspective. BSP believes that few funds have the capabilities and expertise to invest across the debt portion of the capital structure in contrast to BSP, which can invest at the senior secured debt level or junior unsecured debt level as pictured below. The Fund’s flexibility to move across the capital structure enables BSP to not only be perceived as a one-stop solution for borrowers, but also enables BSP to focus on achieving the best risk-adjusted returns for investors depending on the market environment.

 

 

  

Note: Characteristics above express the views of BSP

 

Investment-level risk/return profile optimization. Every investment opportunity is evaluated on a standalone basis and must have an attractive risk-reward profile to be considered for an investment. As mentioned above, we prioritize situations which are less competitive and where we are viewed as “strategic capital” providers. This means that we prioritize a combination of non-sponsored investment opportunities, which by their nature are less competitive, as well as non-competitive sponsored investment opportunities. Most importantly, every investment is evaluated individually with regard to its risk vs. reward profile. Our aim is to invest in opportunities where we are being paid higher yields per unit of risk than what is contemplated in the broader market. Additionally, even though our investments are made from the bottom up, we aim to produce a broad portfolio of assets, which together are reflective of the types of risk we think are appropriate in any given environment. The Fund intends to target investments where attractive returns and upside potential is accompanied by solid, reliable and measurable downside protection. In addition to downside protection that comes from the contractual nature of returns inherent in all debt structures, the Fund plans to employ a wide range of investment-specific mechanisms to provide further downside protection in many of its investments.

 

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Fund-level downside protection via risk management and broad-based investment strategy. Transcending all components of the Fund’s investment strategy is the overarching goal of downside protection at the fund-level through experienced portfolio management. BSP seeks to accomplish this objective through disciplined application of risk management best practices across the portfolio combined with a broad-based investment approach at the fund-level, across several discrete dimensions. BSP’s risk management practices are grounded in an established investment process comprising systematic underwriting, rigorous due diligence, third-party reports and investment committee approval accompanied by a proprietary and dynamic post-investment monitoring system for regularly updating issuer data (see “Investment Process”).

  

In addition, the Fund will not employ significant leverage to achieve its target returns. The Fund expects to use modest leverage, not to exceed the 300% asset coverage ratio. This requires that for every $1.00 of debt issued, the Fund must have $3.00 of total assets immediately after issuance.

 

Ability to take advantage of opportunities BSP believes are mispriced. As a complement to its traditional middle market investments, BSP will preserve the flexibility to invest opportunistically, including in opportunities it believes are mispriced. Throughout BSP’s history, its private debt funds have been opportunistic in identifying the best risk-adjusted returns as determined by market-driven factors. BSP and its affiliates have successfully invested in private debt across a credit cycle.

 

Market Opportunity

 

Large, persistent and compelling market opportunity. The fundamental premise underpinning the Fund’s investment thesis is that there is a compelling near- and medium-term opportunity to provide capital to middle market companies on attractive terms. This opportunity is a function of the size and growth rate of the middle market segment of the U.S. economy as well as a substantial, persistent and structurally-driven supply/demand imbalance for middle market debt capital across North America.

 

Sizeable and growing segment of the economy. Middle market companies represent a significant segment of the U.S. economy. According to the National Center for the Middle Market, there are nearly “200,000 U.S. middle market businesses that represent one-third of private sector GDP, employing approximately 44.5 million people. These businesses outperformed through the financial crisis (2007–2010 period) by adding 2.2 million jobs across major industry sectors and U.S. geographies, demonstrating their importance to the overall health of the U.S. economy. They are private and public, family owned, and sole proprietorships, geographically diverse, and span almost all industries. The health of these businesses and their respective outlook serve as a solid indicator for the greater U.S. economy as a whole.” Additionally, each of these middle market businesses typically generates annual revenue between $10 million and $1 billion.2

 

Moreover, in our experience, middle market companies can have significant and recurring capital requirements and therefore, often require regular and reliable access to capital to build their businesses and compete effectively. Annual issuance of middle market loans has averaged over $161 billion since 2013 with 2020 issuance at $100 billion and 2021 issuance at $188 billion.3

 

 

2 Source: “Q4 2021 Middle Market Indicator Overview”. National Center for the Middle Market.

3 Source: “Refinitiv Middle Market 4Q21 Review.” February 2022.

 

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Source: Refinitiv: “Middle Market 2022 YTD Review,” July 2022. “Middle market” is defined as issuers with loan size and revenue of less than or equal to $500 million.

 

While COVID-19 initially impacted M&A and private equity activity, we saw a rebound of middle market loan issuance volume in the fourth quarter of 2020 due to the increased M&A pipeline. M&A activity in 2020 saw total deal value of approximately $481 billion across 3,300 deals, as of December 31, 2020, an increase from 2019’s total deal value of approximately $477 billion across 3,400 transactions. With private market participants holding more uninvested capital, firms show an increased willingness to spend on M&A as a means to put capital to work.

 

2021 was a record year of M&A activity with over $4 trillion worth of issuance through year end and was the highest issuance year since 20004.

 

2022 has been a muted deal environment in relation to the record year we saw in 2021, due to macroeconomic pressures such as inflation, supply chain constraints, rising interest rates, and fear of recession. However, the market has been rebounding in the second half of 2022.

 

Reduced supply of debt capital for middle market companies. The global financial crisis and its long-term aftereffects have reduced the amount of debt capital available to middle market companies from bank lenders. The tables below summarize the banks’ retrenchment as providers of debt capital to the middle market. Private lenders have moved in to fill this gap with the ability to write increasingly larger check sizes, fundamentally reallocating capital typically deployed in the syndicated market. Borrowers are inclined to choose private lenders over conventional syndication because of the ability of private lenders to provide sure and expedient capital during times of uncertainty or volatility in the public markets.5

 

 

4 Source: Dealogic. Goldman Sachs Investment Research. Data as of February 1, 2022.

5 Source: Bloomberg “Billion Dollar Deals See Private Credit Step Out of the Shadows” July 2020.

 

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Source: “1Q 2021 High-End Middle Market Lending Review.” S&P LCD. Note: Data reflects share of institutional investors in middle market leveraged loans. Middle market defined as issuers with EBITDA of $50 million or less. Due to a lack of issuance, 2020, 2021 and 2022 Middle-Market sample is insufficient to form a meaningful average.

 

Furthermore, consolidation among commercial banks has reduced the focus on middle market businesses. As shown in the chart above, commercial banks in the United States, which have traditionally been the primary source of capital to middle market companies, have substantially reduced market share of the loan volume to the middle market for, we believe, a variety of reasons, including consolidation, loan losses, and stricter regulatory scrutiny, which has led to a significant tightening of credit standards. Many financial institutions that have historically loaned to middle market companies have failed or been acquired, and we believe that larger financial institutions are now more focused on syndicated lending to larger corporations and are allocating capital to business lines that generate fee income and involve less balance sheet risk. We believe this market dynamic provides us with numerous opportunities to originate new debt and equity investments in middle market companies.

 

Since the global financial crisis, the landscape has shifted as banks have pulled back their lending efforts to meet capital requirements imposed by Basel III and other regulations. Alternative lenders have stepped in to fill this void by providing loans directly to companies without the use of a bank as an intermediary. The private debt market offers borrowers significant advantages relative to the syndicated market as described below:

 

 

Note: Characteristics above express the views of BSP.

 

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Consistent demand for debt capital by middle market companies. In contrast to the supply-side dynamic characterized by the diminished presence of traditional debt capital providers, BSP believes that demand for private debt capital will continue through the Fund’s investment period. BSP believes a range of dynamics drive this demand, including both cyclical factors such as leveraged buyout and other sponsor-related activity and non-cyclical factors such as impending maturities of existing debt and the need for growth capital.

 

The need for debt capital to refinance maturing existing debt is particularly acute among middle market companies, with over $254 billion and $341 billion in sponsor and non-sponsor loans, respectively, maturing over the next six years in the U.S. as shown in the chart below.6

 

 

 

Source: Refinitiv: “Middle Market 1Q 2022 Review,” Thompson Reuters. February 2022. “Middle market” is defined as deal volume made available to corporate borrowers with sales less than $500 million and deal size less than $500 million.

 

Attractive Asset Class on a Relative Value Basis. Within the loan space, the middle market continues to earn a premium over broadly syndicated loans.7 When comparing private debt investments with other core asset classes, private debt has provided investors with a favorable risk-adjusted return since 2011. We believe, with our ability to invest across the capital structure, that we are attractively positioned to capture the best risk-adjusted return no matter where we are in the credit cycle.

 

 

6 Source: “Refinitiv Middle Market 1Q21 Review.” Thomson Reuters. February 2022.

7 Sourc e: Refinit i v: “Middle Market 1Q22 Review,” April 2022.

 

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Source: “Refinitiv Middle Market 2Q 2022 Review,” July 2022. “Middle market” is defined as deal volume made available to corporate borrowers with sales less than $500 million and deal size less than $500 million.

 

Portfolio Composition

 

The Fund’s portfolio will consist of some combination of the following types of investments:

 

Directly Originated Corporate Loans. The Fund may invest in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component, of U.S. middle-market companies, where the Advisor believes the supply of primary capital is limited and the investment opportunities are most attractive. These investments are typically made to companies with annual revenues up to $1 billion.

 

Broadly Syndicated Corporate Loans. Syndicated Loans generally hold the most senior position in the capital structure of a Borrower, are typically secured with specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to that held by unsecured creditors, subordinated debt holders and holders of equity of the Borrower. Typically, in order to borrow money pursuant to a Syndicated Loan, a Borrower will, for the term of the Syndicated Loan, pledge collateral (subject to typical exceptions), including but not limited to (i) working capital assets, such as accounts receivable and inventory; (ii) tangible fixed assets, such as real property, buildings and equipment; (iii) intangible assets, such as trademarks and patent rights; and (iv) security interests in shares of stock of subsidiaries or affiliates. In the case of Syndicated Loans made to non-public companies, the company’s Shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets that they own. In many instances, a Syndicated Loan may be secured only by stock in the Borrower or its subsidiaries. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of such assets would satisfy fully a Borrower’s obligations under a Syndicated Loan.

 

Syndicated Loans typically have rates of interest that are determined daily, monthly, quarterly or semi-annually by reference to a base lending rate, plus a premium or credit spread. As a result, as short-term interest rates increase, interest payable to the Fund from its investments in Syndicated Loans should increase, and as short-term interest rates decrease, interest payable to the Fund from its investments in Syndicated Loans should decrease. These base lending rates are primarily SOFR and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate or other base lending rates used by commercial lenders. The Fund may utilize total return swaps and/or various other Derivatives to a lesser extent, for the purposes of gaining exposure to Syndicated Loans. Derivatives used by the Fund will be counted toward the Fund’s policy of investing at least 80% of its assets in private credit instruments. As a result, the market value of Derivatives that provides the Fund with indirect exposure to private credit instruments will be counted toward the Fund’s 80% policy.

 

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High Yield Corporate Bonds. An issuer of High Yield Corporate Bonds typically pays the investor a fixed rate of interest and must repay the amount borrowed on or before maturity. The investment return of High Yield Corporate Bonds reflects interest on the security and changes in the market value of the security. The market value of a Corporate Bond generally may be expected to rise and fall inversely with interest rates. The value of intermediate- and longer-term High Yield Corporate Bonds normally fluctuates more in response to changes in interest rates than does the value of shorter-term High Yield Corporate Bonds. The market value of a Corporate Bond also may be affected by investors’ perceptions of the creditworthiness of the issuer, the issuer’s performance and perceptions of the issuer in the market place. There is a risk that the issuers of High Yield Corporate Bonds may not be able to meet their obligations on interest or principal payments at the time called for by an instrument. The Fund may utilize various types of Derivatives, including swaps, for the purpose of gaining exposure to High Yield Corporate Bonds.

 

Other Investment Strategies. The Fund may also invest in securities, notes, bills, debentures, bank loans, convertible and preferred securities, government and municipal obligations and other credit instruments with similar economic characteristics. In addition, from time to time, the Fund may invest in or hold common shares and other equity securities incidental to the purchase or ownership of a Syndicated Loan or Corporate Bond or in connection with a reorganization of a borrower. The Fund may engage in short sales. The Fund may also use total return swaps and other Derivatives to gain investment exposure to credit instruments, to provide downside protection, to dampen volatility and for financing purposes. Derivatives may allow the Fund to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. The Fund may invest in securities of other investment companies to the extent that these investments are consistent with the Fund’s investment objective, strategies and policies and permissible under the 1940 Act or any applicable exemption therefrom. The Fund may invest in other investment companies to gain broad market or sector exposure, including during periods when it has large amounts of uninvested cash or when the Advisor believes share prices of other investment companies offer attractive values. To a limited extent, the Fund may also invest in special situations investments, structured credit, and commercial real estate loans. See the Statement of Additional Information provides additional information for additional information about these investment strategies.

 

Other Characteristics

 

Below Investment Grade Credit Instruments. Most of the credit instruments in which the Fund may invest will be rated below investment grade (also known as “junk bonds”). Securities rated below investment grade are those that, at the time of investment, are rated Ba1 or lower by Moody’s, or BB+ or lower by S&P or Fitch, or if unrated are determined by the Advisor to be of comparable quality. Below investment grade securities often are regarded as having predominately speculative characteristics with respect to an issuer’s capacity to pay interest and repay principal. In addition, lower quality debt securities tend to be more sensitive to general economic conditions. Although many of the Fund’s investments may consist of securities rated below investment grade, the Fund reserves the right to invest in credit instruments of any credit quality, maturity and duration.

 

Illiquid and Restricted Securities. The Fund may invest in instruments that, at the time of investment, are illiquid (generally, those securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities). Although the Fund may invest in such instruments without limitation, pursuant to the requirements of the 1940 Act, the Board has adopted, and the Fund follows, procedures designed to ensure that the Fund maintains sufficient liquidity to meet its periodic repurchase obligations as an interval fund. The Fund may also invest, without limit, in securities that are unregistered (but are eligible for purchase and sale by certain qualified institutional buyers) or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale.

 

Senior Secured Loans. Senior secured loans are situated at the top of the capital structure. Because these loans generally have priority in payment, they carry the least risk among all investments in a firm.

 

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Second Lien Secured Loans. Second lien secured loans are immediately junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans. Second lien secured loans, however, are granted a second priority security interest in the assets of the borrower, which means that any realization of collateral will generally be applied to pay senior secured loans in full before second lien secured loans are paid and the value of the collateral may not be sufficient to repay in full both senior secured loans and second lien secured loans. In return for this junior ranking, second lien secured loans generally offer higher returns compared to senior secured debt. These higher returns come in the form of higher interest and in some cases the potential for equity participation through warrants, though to a lesser extent than with subordinated loans.

  

Senior Secured Bonds. Senior secured bonds are generally secured by collateral on a senior, pari passu or junior basis with other debt instruments in an issuer’s capital structure and have similar maturities and covenant structures as senior secured loans.

 

Subordinated Debt. In addition to senior secured loans, second lien secured loans and senior secured bonds, we may invest a portion of our assets in subordinated debt. Subordinated debt investments usually rank junior in priority of payment to senior debt and are often unsecured, but are situated above preferred equity and common equity in the capital structure. In return for their junior status compared to senior debt, subordinated debt investments typically offer higher returns through both higher interest rates and possible equity ownership in the form of warrants, enabling the lender to participate in the capital appreciation of the borrower. These warrants typically require only a nominal cost to exercise.

 

The Fund may invest its cash balances in money market instruments, U.S. government securities, commercial paper, certificates of deposit, repurchase agreements and other high-quality debt instruments maturing in one year or less, among other instruments. In addition, and in response to adverse market, economic or political conditions, the Fund may invest in high-quality fixed income securities, money market instruments and money market funds or may hold significant positions in cash or cash equivalents for defensive purposes.

 

The Investment Process

 

BSP utilizes the same systematic process across its private credit platform when analyzing and managing investments and takes a hands-on approach in order to preserve and create value. The Fund’s expected investment process with respect to private credit transactions consists of several distinct phases as summarized in the following exhibit.

 

Expected Investment Process for Private Credit Transactions

  

  

Sourcing. Our credit team’s investment process typically begins with sourcing private debt opportunities through our extensive proprietary networks and other relationships. Investment ideas deemed worthy of exploration are then channeled into a rigorous vetting process. Investment ideas are initially screened according to strict internal credit and pricing criteria. Ideas that pass this initial screen are then discussed among the broader Benefit Street Partners credit team. Only investment ideas that gain preliminary approval proceed to further evaluation.

 

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Structuring. Investment ideas that receive favorable feedback result in a preliminary discussion with the proposed issuer under a non-disclosure agreement to confirm the issuer’s interest in the contemplated transaction prior to expending resources for full due diligence. During this phase, Benefit Street Partners focuses on creating a tailored financing solution for the company. Once created, the proposed solution is presented to the company so the company can consider whether the proposed structure makes sense. If both sides agree that the proposed financing solution is appropriate, a term sheet is generated, circulated and executed.

 

Investment Committee Preview. Upon execution of a term sheet, the deal team presents the terms and structure of the proposed investment to at least one member of the investment committee, for a full vetting. The current investment committee with respect to the Fund is composed of Messrs. Gahan, Paasche, Faulstich and Mahajan. Taking into account the information presented, the investment committee member will then either decline the opportunity or approve that the proposed investment proceed to full due diligence.

 

Full Due Diligence. Following the investment committee preview and approval, the deal team proceeds to full due diligence of the prospective investment and issuer. This phase of the investment process comprises all aspects of credit-oriented due diligence including fundamental financial and business analysis, comprehensive accounting and legal reviews and an overview of industry trends and business valuation. Benefit Street Partners’ fundamental analysis involves close scrutiny of financial statements to reveal key drivers of revenues, expenses and cash flow. Benefit Street Partners also typically conducts extensive management team interviews to uncover incremental insights into these drivers as well as other potential issues that could affect the company’s performance and its ability to service its debt obligations. To ensure completeness of its due diligence process, Benefit Street Partners supplements in-house resources as necessary with leading third-party specialists including accountants, appraisers, consultants and attorneys.

 

Final Investment Committee. Upon completion of full due diligence, the deal team formally presents the investment opportunity to the investment committee for approval. In addition to considering the proposed investment on its standalone merits, the investment committee considers the overall fit of the proposed investment within the portfolio. At least three of the four members of the investment committee must approve the transaction in order for the investment to go in the portfolio.

 

Investment and Monitoring. Completed investments are closely monitored and, more formally, at the Fund’s regular portfolio review meeting. We conduct regular meetings with management and stay in close contact with the issuer to ensure a steady stream of information (including compliance with loan covenants) and to get an early read on potential issues. Additionally, Benefit Street Partners conducts quarterly portfolio review meetings where it discusses and evaluates the entirety of the investments in its portfolio. In the event that actual or potential underperformance is identified, the investment will be discussed and evaluated accordingly, and Benefit Street Partners may seek proactive protective measures including amendments, forbearance, waivers and retention of outside consultants.

 

Realization. The Fund’s core strategy is to source and structure debt investments that will deliver strong returns when held to maturity or refinanced prior to maturity. However, we will consider, on a selective and opportunistic basis, exiting an investment earlier if we believe the accessible exit value has exceeded intrinsic value.

 

Expected Investment Process for High Yield Investments

 

Screening. Our high yield investment process normally begins with a general screening of opportunities from primary and secondary channels. The primary opportunities derive from various capital markets relationships across the street and secondary opportunities through BSP’s proprietary monitoring tools, using data from publicly available sources such as Bloomberg. Our sector-focused research analysts provide the high yield portfolio managers with another lens into liquid credit markets and offer a high level investment outlook for secondary trading opportunities. Investment ideas are initially screened according to strict internal credit and pricing criteria. Ideas that pass this initial screen are then discussed among the broader Benefit Street Partners credit team.

 

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Diligence. Following the initial screening of potential opportunities, the industry analysts provide in-depth fundamental credit research, which consists of a business review, analysis of the borrower/creditor, and a relative value assessment. Benefit Street Partners’ fundamental analysis involves close scrutiny of financial statements to reveal key drivers of revenues, expenses and cash flow. Once completed, full diligence is presented to the portfolio managers for ultimate investment decision.

 

Approval. At this stage, the portfolio managers either approve or deny potential investments based on the information provided in the due diligence reporting. If the credit is deemed to be financially sound and offer sufficient relative value with projected upside, the portfolio managers will approve the investment and add the name to our existing high yield portfolio.

 

Portfolio Construction & Positioning. Upon granting formal approval, the investment is added to an existing portfolio of high yield assets. The team has implemented proprietary models to help guide portfolio managers and senior management in daily review of the portfolio. Furthermore, portfolio managers have weekly meetings with senior management and BSP traders to assess the market opportunity, current portfolio positioning, asset allocation, and underlying performance. The team has established risk guardrails, maintains active sell discipline, and utilizes advanced analytics to dynamically track the performance of the portfolio.

 

Monitoring & Risk Management. The BSP accounting, finance, and operations teams conduct a daily review of the portfolio and produce nightly performance and risk management figures to the portfolio managers. On a go-forward basis, the sector analysts will re-underwrite the underlying investments in the portfolio at least quarterly. In addition to individual credit reviews, BSP compliance takes a comprehensive look at pre and post trading activity within the portfolio to ensure all regulatory requirements are met and maintained.

 

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RISK FACTORS

 

Investing in our Shares involves a high degree of risk. Before making an investment in the Fund, you should carefully consider the following risk factors. The risks and uncertainties set forth below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also impair our business operations. If any of the following risks were to occur, our business, financial condition or could be materially adversely affected. In such case, the net asset value of our Shares could decline, and you may lose all or part of your investment.

 

Risks Related to the Fund’s Investments

 

Our investments in portfolio companies may be risky, and we could lose all or part of the Fund’s investment.

 

We invest primarily in first and second lien senior secured loans and mezzanine debt issued by middle market companies.

 

First and Second Lien Senior Secured Loans. When we make senior secured loans, we will generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. We expect this security interest to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Finally, applicable bankruptcy laws may adversely impact the timing and methods used by us to liquidate collateral securing our loans, which could adversely affect the collectability of such loans. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.

 

Mezzanine Debt. Our mezzanine debt investments will generally be subordinated to senior loans and will generally be unsecured. This may result in a heightened level of risk and volatility or a loss of principal which could lead to the loss of our entire investment.

 

These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, including in order to pay amounts owed under senior loans, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and Shareholders to non-cash income. Since we will not receive any principal repayments prior to the maturity of some of our mezzanine debt investments, such investments will be of greater risk than amortizing loans.

 

Payment-in-Kind (“PIK”) Interest Risk. The Fund may hold investments that result in PIK interest. PIK creates the risk that incentive fees will be paid to the Adviser based on non-cash accruals that ultimately may not be realized, while the Adviser will be under no obligation to reimburse the Fund for these fees. PIK interest has the effect of generating investment income at a compounding rate, thereby further increasing the incentive fees payable to the Adviser. Similarly, all things being equal, the deferral associated with PIK interest also increases the loan-to-value ratio at a compounding rate. The market prices of PIK securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality. Because PIK interest results in an increase in the size of the PIK securities held, the Fund’s exposure to potential losses increases when a security pays PIK interest.

 

More generally, investing in private companies involves a number of significant risks, including that they: may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns; are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers and trustees and employees of our Advisor may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

 

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Our portfolio companies may incur debt that ranks equally with, or senior to, the Fund’s investments in such companies.

 

The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

 

There may be circumstances where the Fund’s debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

 

Even though we intend to generally structure our directly-originated investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower.

 

Second priority liens on collateral securing the Fund’s loans may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

 

A portion of our loans are secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by us under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before we receive anything. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors.

 

There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against our remaining assets, if any.

 

The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with more senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

 

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We generally will not control the Fund’s portfolio companies.

 

We generally will not control our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

 

We may lose money on our investments in equity securities.

 

We expect to make selected equity investments, such as direct equity investments, including controlling investments, warrants or other equity securities. In addition, when we invest in first and second lien senior loans or mezzanine debt, we may acquire warrants to purchase equity securities. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We intend to seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.

 

Special situation investments involve a high degree of business and financial risk that can result in substantial losses, which risks generally are greater than risks of investing in public companies that may be at a later stage of development.

 

We may invest in companies undergoing work-outs, liquidations, reorganizations, bankruptcies, insolvencies or other fundamental changes or similar transactions. In any investment opportunity involving any such type of special situation, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities the value of which will be less than the purchase price to the Fund of the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, we may be required to sell our investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including but not limited to (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which we intend to invest, there is a potential risk of loss by us of our entire investment in such companies.

 

Economic recessions or downturns could impair the Fund’s portfolio companies and harm the Fund’s operating results.

 

Many of the portfolio companies in which we may invest may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our senior secured or second lien secured loans. A prolonged recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.

 

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In addition, while we believe that these conditions also afford attractive opportunities to make investments, future financial market uncertainty could lead to further financial market disruptions and could further adversely impact our ability to obtain financing and the value of our investments.

 

Defaults by the Fund’s portfolio companies will harm the Fund’s operating results.

 

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.

 

An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies.

 

We intend to invest in corporate debt of middle market companies, including privately-held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. Second, the investments themselves tend to be less liquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. Finally, little public information generally exists about private companies. Further, these companies may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of our Advisor to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. As a result, the relative lack of liquidity and the potential diminished capital resources of our target portfolio companies may affect our investment returns.

 

The disposition of the Fund’s investments may result in contingent liabilities.

 

A significant portion of our investments involve private securities. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return of payments previously paid to us.

 

The lack of liquidity in the Fund’s investments may adversely affect the Fund’s business.

 

We invest in companies whose securities are typically not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. We expect that our investments will generally be subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses. With respect to our investments in investment funds that calculate a net asset value per share, there can be no assurance that we will be able to sell such investments at a price equal to its net asset value per share and we may ultimately sell such investments at discount to its net asset value per share.

 

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Prepayments of the Fund’s debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

 

We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could experience significant delays in reinvesting these amounts. Alternative future investments in new portfolio companies may also be at lower yields than the debt that was repaid and will, in any case, require additional Advisor time. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.

 

We may not have the funds or ability to make additional investments in the Fund’s portfolio companies.

 

We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.

 

We may be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence.

 

We are classified as “non-diversified” under the 1940 Act. As a result, we can invest a greater portion of our assets in obligations of a single issuer than a “diversified” fund. We may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence.

 

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

 

For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we have elected to amortize market discounts and include such amounts, if any, in our annual taxable income, instead of upon disposition, as electing not to do so could potentially limit our ability to deduct interest expenses for tax purposes.

 

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our Shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

 

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You may receive Shares as distributions which could result in adverse tax consequences to you.

 

In order to satisfy the Annual Distribution Requirement applicable to RICs, we may have the ability to declare a large portion of a distribution in Shares instead of in cash, provided that Shareholders have the right to elect to receive their distribution in cash. As long as a portion of such distribution is payable in cash (which portion can be as low as 20% based on certain rulings by the IRS) and certain requirements are met, the entire distribution to the extent of our current and accumulated earnings and profits would be a dividend for U.S. federal income tax purposes. If too many Shareholders elect to receive their distributions in cash, each Shareholder electing to receive his/her distribution in cash would receive a pro rata portion of his/her distribution in cash and the remaining portion of the distribution would be paid in Shares. As a result, a Shareholder would be taxed on the entire distribution in the same manner as a cash distribution, even though a portion of the distribution was paid in Shares, and a Shareholder may be required to pay tax with respect to such dividends in excess of any cash received. If a Shareholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. Shareholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our Shareholders determine to sell shares of our stock in order to pay taxes owed on dividends, then such sales may put downward pressure on the trading price of our stock.

 

An investment in the Shares by a Non-U.S. shareholder may have adverse tax consequences.

 

Whether an investment in the Shares is appropriate for a Non-U.S. Shareholder will depend upon that person’s particular circumstances. A “Non-U.S. Shareholder” is a beneficial owner of Shares that is neither a U.S. Shareholder nor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes). Among other things, a Non-U.S. Shareholder, under certain circumstances, may be subject to withholding of U.S. federal income tax at a rate of 30.0% (or lower rate provided by an applicable treaty); required to file U.S. income taxes to receive a tax credit or tax refund of overpayments of taxes; subject to U.S. income tax at graduated rates or to a branch profits on our distributions; subject to certain reporting requirements, disclosure requirements, and withholding taxes under the Foreign Account Tax Compliance Act and other laws; and subject to certain rules regarding foreign tax credits. Non-U.S. persons should consult their tax advisors with respect to U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in our shares.

 

Risks Relating to Our Business and Structure

 

Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

 

The U.S. and global capital markets have, from time to time, experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may reoccur for a prolonged period of time or materially worsen in the future. In addition, continuing uncertainty arising from the United Kingdom’s decision to leave the European Union (the so-called “Brexit”) could lead to further market disruptions and currency volatility, potentially weakening consumer, corporate and financial confidence and resulting in lower economic growth for companies that rely significantly on Europe for their business activities and revenues. We may in the future have difficulty accessing debt and equity capital markets, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, Brexit or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.

 

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Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks to us and certain of our portfolio companies.

 

Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which the Company and its investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the United States. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.

 

Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.

 

For example, in December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States. General uncertainty surrounding the dangers and impact of COVID-19 (including the preventative measures taken in response thereto) and additional uncertainty regarding new variants of COVID-19, most notably the Delta and Omicron variants, has to date created significant disruption in supply chains and economic activity, contributed to labor difficulties and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries. Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events will, for at least some time, impact us and our portfolio companies. In many instances, the impact may be adverse and profound. The effects of a public health emergency, such as COVID-19, may materially and adversely impact (i) our and our portfolio companies’ value and performance, (ii) the ability of our borrowers to continue to meet loan covenants or repay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to comply with the covenants and other terms of our debt obligations and to repay such obligations, on a timely basis or at all, (iv) our ability to comply with certain regulatory requirements, such as asset coverage requirements under the 1940 Act, (v) our ability maintain our distributions at their current level or to pay them at all or (vi) our ability to source, manage and divest investments and achieve our investment objectives, all of which could result in significant losses to us. We will also be negatively affected if the operations and effectiveness of any of our portfolio companies (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted. See “—The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations.”

 

In addition, disruptions in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity can be expected to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and have a material negative impact on our and our portfolio companies’ operating results and the fair values of our debt and equity investments.

 

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The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations.

 

The U.S. capital markets have experienced extreme disruption since the global outbreak of COVID-19. Such disruptions have been evidenced by volatility in global stock markets as a result of, among other things, uncertainty regarding the COVID-19 pandemic and the fluctuating price of commodities such as oil. Despite actions of the U.S. federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole. These conditions could continue for a prolonged period of time or worsen in the future.

  

Significant changes or volatility in the capital markets may negatively affect, the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan to hold an investment to maturity). Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not reflect the full impact of the COVID-19 pandemic and measures taken in response thereto. Any public health emergency, including the COVID-19 pandemic or an outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.

 

Significant changes in the capital markets, such as the disruption in economic activity caused by the COVID-19 pandemic, have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our and our portfolio companies’ operating results and the fair values of our debt and equity investments. Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic has had, and may continue to have, a negative effect on the potential for liquidity events involving our investments. The illiquidity of our investments may make it difficult for us to sell such investments to access capital, if required. As a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them to increase our liquidity. An inability on our part to raise incremental capital, and any required sale of all or a portion of our investments as a result, could have a material adverse effect on our business, financial condition or results of operations.

 

Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital available to us in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of our existing debt and such debt may need to be incurred in a rising interest rate environment. If we are unable to raise new debt or refinance our existing debt, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage, and we may be unable to make new commitments or to fund existing commitments to our portfolio companies. Any inability to extend the maturity of or refinance our existing debt, or to obtain new debt, could have a material adverse effect on our business, financial condition or results of operations.

 

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Future disruptions or instability in capital markets could negatively impact the Fund’s ability to raise capital, and have a material adverse effect on the Fund’s business, financial condition and results of operations.

 

From time to time, the global capital markets may experience periods of disruption and instability, which could materially and adversely impact the broader financial and credit markets and reduce the availability to us of debt and equity capital. For example, between 2008 and 2009, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. We believe that such value declines were exacerbated by widespread forced liquidations as leveraged holders of financial assets, faced with declining prices, were compelled to sell to meet margin requirements and maintain compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment vehicles, leading to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of certain assets, caused extreme economic uncertainty and significantly reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have experienced relative stability in recent years, there have been continuing periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future.

 

Future volatility and dislocation in the capital markets could create a challenging environment in which to raise or access capital. For example, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms. Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our consolidated financial statements for the applicable period, which could result in significant reductions to our net asset value for the period. Thus, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes.

 

Uncertainty with respect to the financial stability of the United States and several countries in the European Union (“EU”) could have a significant adverse effect on the Fund’s business, financial condition and results of operations.

 

Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of a downgrade of the U.S. long-term sovereign debt credit rating or a recession or economic slowdown in the U.S. In the future, the U.S. Government may not be able to meet its debt payments unless the federal debt ceiling is raised. On August 2, 2019, the federal debt limit was suspended until July 2021. If, prior to such date, legislation increasing the debt ceiling is not enacted and the debt ceiling is reached, the U.S. federal government may stop or delay making payments on its obligations, which could negatively impact the U.S. economy and our portfolio companies. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions, further downgrades or warnings by The Standard & Poor Financial Services L.L.C.’s Rating Service or other rating agencies, and the U.S. Government’s credit and deficit concerns in general, including issues around the federal debt ceiling, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.

 

The amount of any distributions we pay is uncertain. Our distributions to our Shareholders may exceed our earnings. Therefore, portions of the distributions that we pay may represent a return of capital to you which will lower your tax basis in your shares and reduce the amount of funds we have for investment in targeted assets. A return of capital is a return of your initial investment in the Fund rather than earnings or gains derived from our investment activities. We may not be able to pay you distributions, and our distributions may not grow over time.

 

The Fund cannot assure investors that the Fund will achieve investment results that will allow the Fund to make a specified level of cash distributions or year-to-year increases in cash distributions. All distributions will be paid at the discretion of the Board and may depend on the Fund’s earnings, the Fund’s net investment income, the Fund’s financial condition, maintenance of the Fund’s and the Fund’s RIC status, compliance with applicable regulations and such other factors as the Board may deem relevant from time to time.

 

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In the event that the Fund encounters delays in locating suitable investment opportunities, all or a substantial portion of the Fund’s distributions may constitute a return of capital to Shareholders. To the extent that the Fund pays distributions that constitute a return of capital for U.S. federal income tax purposes, it will lower an investor’s tax basis in his or her Shares. A return of capital generally is a return of an investor’s investment, rather than a return of earnings or gains derived from the Fund’s investment activities, and generally results in a reduction of the tax basis in the Shares. As a result from such reduction in tax basis, Shareholders may be subject to tax in connection with the sale of Shares, even if such Shares are sold at a loss relative to the Shareholder’s original investment.

 

Price declines in the large corporate leveraged loan market may adversely affect the fair value of debt securities we hold, reducing the Fund’s net asset value through increased net unrealized depreciation.

  

Prior to the onset of the financial crisis, CLOs, a type of leveraged investment vehicle holding corporate loans, hedge funds and other highly leveraged investment vehicles, comprised a substantial portion of the market for purchasing and holding senior secured and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is our understanding that many investors, as a result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure. While prices have appreciated measurably in recent years, conditions in the large corporate leveraged loan market may experience similar disruptions or distortions in the future, which may cause pricing levels to decline similarly or be volatile. As a result, we may suffer unrealized depreciation and could incur realized losses in connection with the sale of debt securities we hold, which could have a material adverse impact on our business, financial condition and results of operations.

 

Our ability to achieve the Fund’s investment objective depends on our Advisor’s and its affiliates’ ability to manage and support our investment process. If our Advisor were to lose any members of its senior management team, our ability to achieve our investment objective could be significantly harmed.

 

We are externally managed and depend upon the investment expertise, diligence, skill and network of business contacts of our Advisor. We also depend, to a significant extent, on our Advisor’s access to the investment professionals and the information and deal flow generated by such investment professionals in the course of its investment and portfolio management activities. Our Advisor evaluates, negotiates, structures, closes, monitors and services our investments. Our success depends to a significant extent on the continued service and coordination of our Advisor, including its key professionals. The departure of a significant number of our Advisor’s or its affiliates’ key professionals could have a materially adverse effect on our ability to achieve our investment objective. Additionally, changes in ownership or management practices, the occurrence of adverse events affecting our Advisor or its affiliates or other companies advised by our Advisor and its affiliates could create adverse publicity and adversely affect us and our relationship with investment banks, business brokers, loan syndication and trading desks and other investment counterparties. In addition, we can offer no assurance that our Advisor will remain our investment adviser or that we will continue to have access to our Advisor’s or its affiliates’ investment professionals or their information and deal flow.

 

Because the Fund’s business model depends to a significant extent upon relationships with investment banks, business brokers, loan syndication and trading desks, and commercial banks, the inability of our Advisor to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

 

Our Advisor depends on its relationship with private equity firms, investment banks, business brokers, loan syndication and trading desks, and commercial banks, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our Advisor fails to maintain its existing relationships or develop new relationships with other sponsors or sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom our Advisor’s professionals have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

 

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We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.

 

The Fund competes for investments with other closed-end funds and investment funds (including private equity firms and mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, also make investments in middle market private U.S. companies. As a result of these new entrants, competition for investment opportunities in private U.S. companies may intensify. Many of the Fund’s competitors are substantially larger and may have considerably greater financial, technical and marketing resources than the Fund. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to the Fund. In addition, some of the Fund’s competitors may have higher risk tolerances or different risk assessments than it has. These characteristics could allow the Fund’s competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. The Fund may lose investment opportunities if it does not match its competitors’ pricing. If the Fund is forced to match its competitors’ pricing, terms and structure, it may not be able to achieve acceptable returns on its investments or may bear substantial risk of capital loss. We believe a significant part of our competitive advantage stems from the fact that the market for investments in private U.S. companies is underserved by traditional commercial banks and other financial sources. A significant increase in the number and/or the size of the Fund’s competitors could force it to accept less attractive investment terms. Furthermore, many of the Fund’s competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on it as a closed-end fund.

 

A significant portion of the Fund’s investment portfolio is recorded at fair value as determined in good faith by our Board and, as a result, there is and will be uncertainty as to the value of our portfolio investments.

 

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there are no readily available market quotations, at fair value, as determined by our Board. However, the majority of our investments are not publicly traded or actively traded on a secondary market. As a result, we value these securities quarterly at fair value as determined in good faith by our Board.

 

The determination of fair value, and thus the amount of unrealized losses we may incur in any year, is to a degree subjective, and our Advisor has a conflict of interest in providing input to the Board in making this determination. We expect to value our securities quarterly at fair value as determined in good faith by our Board based on input from our Advisor and at such other times as may be required to comply with the requirements of the 1940 Act. Our Board may utilize the services of one or more independent third-party valuation firms to aid it in determining the fair value of any securities. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments on indebtedness and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value by our Board may differ materially from the values that would have been used if an active market and market quotations existed for these investments. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments. See “Determination of Net Asset Value.”

 

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We may experience consequences resulting from the general risks associated with derivatives.

 

Although the Fund does not expect investments in derivatives (“Derivatives”) to represent a significant component of its portfolio initially, the Fund may use Derivatives including, in particular, swaps (including, total return swaps), synthetic collateralized loan obligations, reverse repurchase agreements and other similar transactions, in seeking to achieve its investment objective or for other reasons, such as cash management, financing activities or to hedge its positions. Accordingly, Derivatives may be used in limited instances as a form of leverage or to seek to enhance returns, including speculation on changes in credit spreads, interest rates or other characteristics of the market, individual securities or groups of securities. If the Fund invests in a Derivative for speculative purposes, which the Fund does not initially intend to do, the Fund will be fully exposed to the risks of loss of that Derivative, which may sometimes be greater than the Derivative’s cost. The use of Derivatives may involve substantial leverage. The use of Derivatives may subject the Fund to the following risks, including but not limited to:

 

Credit risk—the risk that the counterparty in a Derivative transaction will be unable to honor its financial obligation to the Fund, or the risk that the reference entity in a credit default swap or similar Derivative will not be able to honor its financial obligations. Certain participants in the Derivatives market, including larger financial institutions, have recently experienced significant financial hardship and deteriorating credit conditions. If the Fund’s counterparty to a Derivative transaction experiences a loss of capital, or is perceived to lack adequate capital or access to capital, it may experience margin calls or other regulatory requirements to increase equity. Under such circumstances, the risk that a counterparty will be unable to honor its obligations may increase substantially. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract, the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.

 

Currency risk—the risk that changes in the exchange rate between two currencies will adversely affect the value (in U.S. dollar terms) of an investment.

 

Leverage risk—the risk associated with certain types of Derivative strategies that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.

 

Liquidity risk—the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. This risk is heightened to the extent the Fund engages in OTC Derivative transactions.

 

Correlation risk—the risk that changes in the value of a Derivative will not match the changes in the value of the portfolio holdings that are being hedged or of the particular market, security or loan to which the Fund seeks exposure.

 

Index risk—if the Derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Fund could receive lower interest payments or experience a reduction in the value of the Derivative to below what the Fund paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index.

 

Regulatory risk—various legislative and regulatory initiatives may impact the availability, liquidity and cost of Derivatives, including potentially limiting or restricting the ability of the Fund to use certain Derivatives or certain counterparties as a part of its investment strategy, increasing the costs of using these instruments or making these instruments less effective. See “Types of Investments and Related Risks—Legislation and Regulation Risks”.

 

As an investment company registered with the SEC, the Fund must identify on its books (often referred to as “asset segregation”) liquid assets, or engage in other SEC- or SEC staff-approved or other appropriate measures, to “cover” open positions with respect to certain kinds of Derivatives. For more information about these practices, see “—If we utilize certain classes of Derivatives, we will be required to account for Asset Segregation to cover certain positions.”

 

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If we utilize certain classes of Derivatives, we will be required to account for asset segregation to cover certain positions.

 

As an investment company registered with the SEC, the Fund must identify on its books (often referred to as “asset segregation”) liquid assets, or engage in other SEC or SEC-staff approved or other appropriate measures, to “cover” open positions with respect to certain kinds of Derivatives. In the case of swaps, futures contracts, options, forward contracts and other Derivatives that do not cash settle, for example, the Fund must identify on its books liquid assets equal to the full notional amount of the instrument while the positions are open, to the extent there is not an offsetting position. However, with respect to certain swaps, futures contracts, options, forward contracts and other Derivatives that are required to cash settle, the Fund may identify liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the instrument, if any, rather than its full notional amount. Instruments that do not cash settle may be treated as cash settled for asset segregation purposes when the Fund has entered into a contractual arrangement with a third party futures commission merchant or other counterparty to off-set the Fund’s exposure under the contract and, failing that, to assign its delivery obligation under the contract to the counterparty. The Fund reserves the right to modify its asset segregation policies in the future in its discretion, consistent with the Investment Company Act and SEC or SEC-staff guidance. By identifying assets equal to only its net obligations under certain instruments, the Fund will have the ability to employ leverage to a greater extent than if the Fund was required to identify assets equal to the full notional amount of the instrument.

 

We may experience fluctuations in the Fund’s quarterly results.

 

We may experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, variations in the interest rates on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods.

 

Terrorist attacks, acts of war, natural disasters, outbreaks or pandemics may impact the Fund’s portfolio companies and harm the Fund’s business, operating results and financial condition.

 

Terrorist acts, acts of war, natural disasters, disease outbreaks, pandemics or other similar events may disrupt our operations, as well as the operations of our portfolio companies. Such acts have created, and continue to create, economic and political uncertainties and have contributed to recent global economic instability. Future terrorist activities, military or security operations, natural disasters, disease outbreaks, pandemics or other similar events could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact our portfolio companies and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.

 

We depend upon information systems, and systems failures could significantly disrupt the Fund’s business, which may, in turn, negatively affect the value of the Fund’s Shares and our ability to pay distributions.

 

We depend upon the communications and information systems of the Advisor and its affiliates as well as certain other third-party service providers. We, and our third-party service providers, are susceptible to operational and information security risks. While our third-party service providers have procedures in place with respect to information security, their technologies may become the target of cyber-attacks or information security breaches that could result in the unauthorized gathering, monitoring, release, misuse, loss or destruction of our and/or our Shareholders’ confidential and other information, or otherwise disrupt our operations or those of our third-party service providers. Disruptions or failures in the physical infrastructure or operating systems that our third-party service providers, cyber-attacks or security breaches of the networks, systems or devices that our third-party service providers use to service our operations, or disruption or failures in the movement of information between service providers could disrupt and impact the service providers’ and our operations, potentially resulting in financial losses, the inability of our Shareholders to transact business and of us to process transactions, inability to calculate our NAV, misstated or unreliable financial data, violations of applicable privacy and other laws, regulatory fines, penalties, litigation costs, increased insurance premiums, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Our third-party service providers’ policies and procedures with respect to information security have been established to seek to identify and mitigate the types of risk to which we and our third-party service providers are subject. As with any risk management system, there are inherent limitations to these policies and procedures as there may exist, or develop in the future, risks that have not been anticipated or identified. There can be no assurance that we or our third-party service providers will not suffer losses relating to information security breaches (including cyber-attacks) or other disruptions to information systems in the future.

 

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Our business could suffer in the event our Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity.

 

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the internal information technology systems of our Advisor and other parties that provide us with services essential to our operations, these systems are vulnerable to damage from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.

 

A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber-incident is an intentional attack or an unintentional event that can result in third parties gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As reliance on technology in our industry has increased, so have the risks posed to the systems of our Advisor and other parties that provide us with services essential to our operations, both internal and those that have been outsourced. In addition, the risk of a cyber-incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target. In some cases such attacks and intrusions are designed not to be detected and, in fact, may not be detected.

 

The remediation costs and lost revenues experienced by a victim of a cyber-incident may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems caused by any breaches, including reputational harm, loss of revenues and litigation. In addition, a security breach or other significant disruption involving the information technology networks and related systems of our Advisor or any other party that provides us with services essential to our operations could:

 

  result in misstated financial reports, violations of loan covenants, missed reporting deadlines;

 

  affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a RIC;

 

  result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;

 

  result in liability to us for claims by stockholders and third-parties;

 

  require significant management attention and resources to remedy any damages that result; or

 

  adversely impact our reputation among investors.

 

Although our Advisor and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by our Advisor and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.

 

Inflation and Supply Chain Risk could adversely impact our portfolio companies and our results of our operations.

 

Economic activity has continued to accelerate across sectors and regions. Nevertheless, due to global supply chain issues, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in the U.S. and globally. Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response. Persistent inflationary pressures could affect our portfolio companies’ profit margins.

 

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We are subject to risks associated with a rising interest rate environment that may affect our cost of capital and net investment income.

 

While interest rates remain relatively low, due to several factors, including longer-term inflationary pressure that may result from the U.S. government’s fiscal policies, the end of the Federal Reserve quantitative easing program and recent increases in the Federal Funds rate, we expect to experience rising interest rates, rather than falling rates in the future.

 

Because we currently incur indebtedness to fund our investments, a portion of our income depends upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. To the extent our investments have fixed interest rates or have interest rate floors that are higher than the floor on, or interest rates that “reset” less frequently than, any secured credit facilities we may enter into, increases in interest rates can lead to interest rate compression and have a material adverse effect on our net investment income. In addition to increasing the cost of borrowed funds, which may materially reduce our net investment income, rising interest rates may also adversely affect our ability to obtain additional debt financing on terms as favorable as under our current debt financings, or at all.

 

In a rising interest rate environment, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Rising interests rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults on our investments in such portfolio companies. In addition, increasing payment obligations under floating rate loans may cause borrowers to refinance or otherwise repay our loans earlier than they otherwise would, requiring us to incur management time and expense to re-deploy such proceeds, including on terms that may not be as favorable as our existing loans. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

 

We may hedge against interest rate fluctuations by using hedging instruments such as caps, swaps, futures, options and forward contracts, subject to applicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to benefit from lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions or any adverse developments from our use of hedging instruments could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be unable to enter into appropriate hedging transactions when desired and any hedging transactions we enter into may not be effective.

 

As a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, an increase in interest rates would make it easier for us to meet or exceed the hurdle rate applicable to the incentive fee and may result in a substantial increase in the amount of incentive fees payable to the Advisor with respect to Pre-Incentive Fee Net Investment Income.

 

Also, an increase in interest rates on investments available to investors could make investment in our common stock less attractive if we are not able to increase our distributions, which could materially reduce the value of our common stock. On March 5 2021, the Financial Conduct Authority (“FCA”) and ICE Benchmark Authority announced that the publication of all EUR and CHF LIBOR settings, the Spot Next/Overnight, 1 week, 2 month and 12 month JPY and GBP LIBOR settings, and the 1 week and 2 months US dollar LIBOR settings would cease after December 31, 2021, while the publication of the overnight, 1 month, 3 month, 6 month, and 12 months USD LIBOR settings will cease after June 30, 2023. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by the U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. On December 6, 2021, the ARRC released a statement selecting and recommending forms of SOFR, along with associated spread adjustments and conforming changes, to replace references to 1-week and 2-month U.S. dollar (USD) LIBOR. We expect that a substantial portion of our future floating rate Investments will be linked to SOFR. At this time, it is not possible to predict the effect of the transition to SOFR. In addition, we may need to renegotiate any credit agreements extending beyond June 2023 with our portfolio companies that utilize LIBOR terms as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations. As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact our financial condition or results of operations.

 

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Repurchase Offers Risks.

 

As described under “Share Repurchase Program,” the Fund is an “interval fund” and, to provide limited liquidity to Shareholders, makes quarterly offers to repurchase between 5% and 25% of its outstanding Shares at NAV, pursuant to Rule 23c-3 under the 1940 Act. Under normal market conditions, the Fund currently intends to repurchase 5% of its outstanding shares at NAV on a quarterly basis. The Fund believes that these repurchase offers are generally beneficial to the Fund’s Shareholders, and generally are funded from available cash or sales of portfolio securities. However, the repurchase of Shares by the Fund decreases the assets of the Fund and, therefore, may have the effect of increasing the Fund’s expense ratio. Repurchase offers and the need to fund repurchase obligations may also affect the ability of the Fund to be fully invested or force the Fund to maintain a higher percentage of its assets in liquid investments, which may harm the Fund’s investment performance. Moreover, diminution in the size of the Fund through repurchases may result in untimely sales of portfolio securities, and may limit the ability of the Fund to participate in new investment opportunities. If the Fund uses leverage, repurchases of Shares may compound the adverse effects of leverage in a declining market. In addition, if the Fund borrows money to finance repurchases, interest on that borrowing will negatively affect Shareholders who do not tender their Shares by increasing Fund expenses and reducing any net investment income. Certain Shareholders may from time to time own or control a significant percentage of the Fund’s Shares. Repurchase requests by these Shareholders of these Shares of the Fund may cause repurchases to be oversubscribed, with the result that Shareholders may only be able to have a portion of their Shares repurchased in connection with any repurchase offer. If a repurchase offer is oversubscribed and the Fund determines not to repurchase additional Shares beyond the repurchase offer amount, or if Shareholders tender an amount of Shares greater than that which the Fund is entitled to purchase, the Fund will repurchase the Shares tendered on a pro rata basis, and Shareholders will have to wait until the next repurchase offer to make another repurchase request. Shareholders will be subject to the risk of NAV fluctuations during that period. Thus, there is also a risk that some Shareholders, in anticipation of proration, may tender more Shares than they wish to have repurchased in a particular quarter, thereby increasing the likelihood that proration will occur. The NAV of Shares tendered in a repurchase offer may fluctuate between the date a Shareholder submits a repurchase request and the Repurchase Request Deadline, and to the extent there is any delay between the Repurchase Request Deadline and the Repurchase Pricing Date. The NAV on the Repurchase Request Deadline or the Repurchase Pricing Date may be higher or lower than on the date a Shareholder submits a repurchase request. See “Share Repurchase Program.”

 

We could potentially be involved in litigation arising out of the Fund’s operations in the normal course of business.

 

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reporting period.

 

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Other Risks Related to the Fund

 

The time and resources that individuals and the executive officers of the Fund’s Advisor devote to us may be diverted and we may face additional competition due to the fact that neither our Advisor nor its affiliates are prohibited from raising money for or managing another entity that makes the same types of investments that we target.

 

Affiliates and executive officers of the Advisor currently manage other investment entities and are not prohibited from raising money for and managing future investment entities that make the same types of investments as those we target. As a result, the time and resources that the executive officers and individuals employed by the Advisor and its affiliates devote to us may be diverted, and during times of intense activity in other areas of business, they may devote less time and resources to our business than is necessary or appropriate.

 

There are significant potential conflicts of interest that could impact the Fund’s investment returns.

 

We pay management fee to our Advisor and reimburse our Advisor for certain expenses it incurs on our behalf. In addition, investors in our Shares invest on a gross basis and receive distributions on a net basis after expenses, resulting in a lower rate of return than one might achieve through direct investments.

 

The Advisor’s Incentive Fee Risk.

 

The Investment Advisory Agreement entitles the Advisor an Incentive Fee payable by the Fund that relates to its net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the Incentive Fee will become uncollectible. The Advisor is not under any obligation to reimburse the Fund for any part of the Incentive Fee the Advisor received that was based on accrued income that the Fund never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in the Fund’s paying an Incentive Fee on income it never received.

 

The Incentive Fee payable by the Fund to the Advisor may create an incentive for the Advisor to make investments on the Fund’s behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the Incentive Fee payable to the Advisor is determined may encourage the Advisor to use leverage to increase the return on the Fund’s investments. In addition, the fact that the Management Fee is payable based upon the Fund’s average daily net assets, which would include any borrowings for investment purposes, may encourage the Advisor to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor shareholders. Such a practice could result in the Fund’s investing in more speculative securities than would otherwise be in its best interests, which could result in higher investment losses, particularly during cyclical economic downturns.

 

Our ability to enter into transactions with our affiliates is restricted.

 

The 1940 Act generally prohibits closed-end funds from entering into negotiated co-investments with affiliates absent an order from the SEC. Unless otherwise provided in the allocation policy, if an investment opportunity is appropriate for both us and other investment funds, the investment opportunity requires more than the price to be negotiated and cannot be effected pursuant to the terms of our exemptive order granted by the SEC, the investment opportunity will be made available to the other investment fund or us on an alternating basis based on the date of closing of each such investment opportunity and each fund’s available capital. As a result, the Advisor and/ or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. Although the Advisor and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Advisor or its affiliates.

 

On August 5, 2015, we received exemptive relief from the SEC that permits us greater flexibility to negotiate the terms of co-investments if our Board determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by the Advisor or its affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Under the terms of this exemptive relief, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible trustees are required to make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our shareholders and do not involve overreaching in respect of us or our shareholders on the part of any person concerned and (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment strategies and policies.

 

We may be subject to corporate-level U.S. federal taxes if we fail to maintain our qualification as a RIC.

 

To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.

 

  The annual distribution requirement (the “Annual Distribution Requirement”)for a RIC will be satisfied if we distribute to our Shareholders on an annual basis at least 90% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, if any. We may be subject to corporate-level U.S. federal income tax on any of our undistributed income or gain. Additionally, we will be subject to a 4% nondeductible federal excise tax to the extent that we do not satisfy certain additional minimum distribution requirements on a calendar-year basis. Because we use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. Also, share repurchases could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. In such cases, if we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

 

  The income source requirement will be satisfied if we obtain at least 90% of our gross income for each year from dividends, interest, gains from the sale of stock or securities, gains from the sale of foreign currency, from other income derived with respect to our business of investing in such sources of income, and net income attributable to a qualified publicly traded partnership.

 

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  The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

 

If we fail to maintain RIC tax treatment for any reason and are subject to corporate-level U.S. federal income tax on all of our income, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Even if we qualify as a RIC, we will be required to pay corporate-level U.S. federal income taxes on any income or capital gains that we do not distribute (or deemed to be distributed) to Shareholders. We may also be subject to certain U.S. federal excise taxes, as well as state, local and foreign taxes.

 

MANAGEMENT OF THE FUND

 

Trustees

 

Pursuant to the Declaration of Trust and bylaws, the Fund’s business and affairs are managed under the direction of the Board, which has overall responsibility for monitoring and overseeing the Fund’s management and operations. The Board consists of six members, all but one of whom are considered Independent Trustees. The Trustees are subject to removal or replacement in accordance with Delaware law and the Declaration of Trust. The Trustees serving on the Board were elected by the organizational Shareholder of the Fund. The Statement of Additional Information provides additional information about the Trustees.

 

BSP serves as the Fund’s investment advisor pursuant to the terms of the Investment Advisory Agreement and subject to the authority of, and any policies established by, the Board. Under the Investment Advisory Agreement, the Advisor manages the Fund’s investment portfolio, directs purchases and sales of portfolio securities and reports thereon to the Fund’s officers and Trustees regularly.

 

The Board, including a majority of the Independent Trustees, oversees and monitors the Fund’s investment performance. After an initial two-year term, the Board will review on an annual basis the Investment Advisory Agreement to determine, among other things, whether the fees payable under such agreements are reasonable in light of the services provided.

 

Investment Personnel

 

The Advisor’s investment advisory activities on behalf of the Fund will be headed by Thomas Gahan, Michael Paasche, Blair Faulstich, Anant Kumar and Saahil Mahajan. Before BSP, Messrs. Gahan and Paasche worked together since 1999 at Deutsche Bank Securities, where Mr. Gahan was head of corporate and investment banking in the Americas and global head of capital markets and Mr. Paasche was global head of leveraged finance. At Deutsche Bank, they oversaw credit portfolios representing more than $25 billion in assets. Messrs. Gahan, Paasche and Faulstich each have over 20 years of experience in leveraged lending, mezzanine investing, high yield financing, special situations, secondary debt, workout and private equity investing. Mr. Mahajan joined the investment committee in 2021 and joined BSP in 2012. Prior to that, Mr. Mahajan was a principal at Oak Hill Advisors and an analyst at Peter J. Solomon Company. Mr. Kumar joined the investment committee in 2021 and joined BSP in 2015. Prior to that, Mr. Kumar worked in the capital markets advisory group at Lazard Frères and the leveraged finance group at Deutsche Bank.

 

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BSP Investment Committee

 

Thomas Gahan, Chief Executive Officer. Thomas Gahan is chief executive officer of BSP and is based in our New York office. Prior to joining Providence Equity Partners L.L.C. and launching BSP in 2008, Mr. Gahan was global head of capital markets of Deutsche Bank Securities Inc. and head of corporate and investment banking in the Americas. He was also chairman of the principal investment committee and a member of the global banking executive committee and the global markets executive committee. Before joining Deutsche Bank, Mr. Gahan spent eleven years at Merrill Lynch, most recently as global head of credit trading within the fixed income division. Mr. Gahan received a Bachelor of Arts from Brown University.

 

Michael Paasche, Senior Managing Director. Michael Paasche is a senior managing director for BSP and is based in our New York office. Prior to joining BSP in 2008, Mr. Paasche spent thirteen years at Deutsche Bank. Most recently, he served as global head of leveraged finance and was also a member of the underwriting and investment banking management committees. Mr. Paasche began his career with Prudential Securities, where he held various positions including managing director and head of high yield. Mr. Paasche received a Master of Business Administration from the University of Chicago and a Bachelor of Arts from Albion College.

 

Blair Faulstich, Managing Director and Senior Portfolio Manager. Blair Faulstich is a managing director at BSP and is based in our New York office. Prior to joining BSP in 2011, Mr. Faulstich was a managing director and co-head of media and communications investment banking at Citadel Securities. Previously, he was a managing director in the media and communications investment banking group at Merrill Lynch. Mr. Faulstich held various positions at Deutsche Bank Alex. Brown in the media investment banking group. Before joining Alex. Brown in 1997, Mr. Faulstich spent three years at Arthur Andersen. Mr. Faulstich received a Master of Business Administration from Cornell University and Bachelor of Arts from Principia College.

 

Saahil Mahajan, Managing Director and Portfolio Manager. Mr. Mahajan is a managing director with BSP and is based in our New York office. Prior to joining BSP in 2012, Mr. Mahajan was a principal at Oak Hill Advisors, where he had responsibility for the firm’s chemicals and financials investments. Prior to joining Oak Hill Advisors in 2004, Mr. Mahajan worked for Peter J. Solomon Company as an analyst in its mergers and acquisitions group. Mr. Mahajan received a Bachelor of Science from the Wharton School of the University of Pennsylvania. In addition, Mr. Mahajan is a CFA charterholder.

 

Anant Kumar, Managing Director and Portfolio Manager. Anant Kumar is a managing director with BSP and is based in our New York office. Prior to joining BSP in 2015, Mr. Kumar worked in the capital markets advisory group at Lazard Frères and the leveraged finance group at Deutsche Bank. Mr. Kumar received a Master of Business Administration from the University of Chicago, a Master of Science from Stanford University, and a Bachelor of Engineering from Visvesvaraya Technological University in India.

 

Administrative Services

 

Under the BSP Administration Agreement, Benefit Street Partners L.L.C. (the “BSP Administrator”) furnishes the Fund with office equipment and clerical, bookkeeping and record keeping services at the Fund’s office facilities, oversees the services of USB Administrator, and generally oversees the payment of the Fund’s expenses and the performance of administrative and professional services rendered to the Fund by others. Payments under the BSP Administration Agreement are equal to an amount based upon the Fund’s allocable portion of the BSP Administrator’s overhead and other expenses (including travel expenses) incurred by BSP Administrator in performing its obligations under the BSP Administration Agreements, including the Fund’s allocable portion of the compensation of certain of its officers (including the chief compliance officer, chief financial officer, chief accounting officer, general counsel, treasurer and assistant treasurer) and their respective staffs.

 

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Under the USB Administration Agreement, USB Administrator will perform certain of the Fund’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, investor relations and technology, being responsible for the financial records that the Fund is required to maintain and preparing reports to the Fund’s Shareholders and reports filed with the SEC. In addition, USB Administrator assists the Fund in determining and publishing its net asset value, oversees the preparation and filing of the Fund’s tax returns and the printing and dissemination of reports to Shareholders. USB Administrator is paid a fee based on the Fund’s total assets. USB Administrator shall receive an eight basis point fee for the first $200 million of the Fund’s assets, seven basis points fee for the Fund’s assets between $200 million and $500 million, five basis point fee for the Fund’s assets between $500 million and $1.5 billion, and three basis points fee for the Fund’s assets above $1.5 billion. In all events, USB Administrator shall receive at least $125,000.

 

The BSP Administration Agreement and the USB Administration Agreement may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.

 

Distribution and Shareholder Servicing Fees and Sales Load

 

Advisor Class Shares are not subject to either a distribution fee or shareholder servicing fee. Class A Shares may be charged an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly of the average daily net assets attributable to Class A Shares. See “Plan of Distribution.”

 

Indemnification

 

The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Advisor, its members and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with any of them are entitled to indemnification from the Fund for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising out of or otherwise based upon the performance of any of the Advisor’s duties or obligations under the Investment Advisory Agreement or otherwise as an investment advisor of the Fund.

 

Custodians, Distribution Paying Agent, Transfer Agent and Registrar

 

U.S. Bank National Association, which has its principal office at Two Liberty Place 50 S. 16th Street, Suite 2000 Philadelphia, PA 19102, serves as custodian for the Fund.

 

DST Systems, Inc., which has its principal office at 333 West 11th Street, 5th Floor, Kansas City, Missouri 64105, serves as the Fund’s distribution paying agent, transfer agent and registrar.

 

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FUND EXPENSES

 

The Advisor bears all of their own costs incurred in providing investment advisory services to the Fund. As described below, however, the Fund bears all other expenses incurred in the business and operation of the Fund, including amounts that the Fund reimburses to BSP and USB Administrator for certain administrative services that BSP and USB Administrator provide or arrange to be provided to the Fund.

 

Expenses borne directly by the Fund include:

 

  corporate, organizational and offering costs relating to offerings of Shares;

 

  the cost of calculating the NAV of Shares, including the cost of any third-party pricing or valuation services;

 

  the cost of effecting sales and repurchases of Shares and other securities;

 

  the Management Fee and Incentive Fee;

 

  the Class A Distribution and Shareholder Servicing Fee;

 

  investment related expenses (e.g., an expense that, in the Advisor’s discretion, is related to the investment of the Fund’s assets, whether or not such investment is consummated), including, as applicable, brokerage commissions, borrowing charges on securities sold short, clearing and settlement charges, recordkeeping, interest expense, dividends on securities sold but not yet purchased, margin fees, investment related travel and lodging expenses and research-related expenses;

 

  professional fees relating to investments, including expenses of consultants, investment bankers, attorneys, accountants and other experts;

 

  fees and expenses relating to software tools, programs or other technology (including risk management software, fees to risk management services providers, third-party software licensing, implementation, data management and recovery services and custom development costs);

 

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  research and market data (including news and quotation equipment and services, and any computer hardware and connectivity hardware (e.g., telephone and fiber optic lines) incorporated into the cost of obtaining such research and market data);

 

  all costs and charges for equipment or services used in communicating information regarding the Fund’s transactions among the Advisor and any custodian or other agent engaged by the Fund;

 

  transfer agent and custodial fees;

 

  Distributor costs;

 

  fees and expenses associated with marketing efforts;

 

  federal and any state registration or notification fees;

 

  federal, state and local taxes;

 

  fees and expenses of Trustees not also serving in an executive officer capacity for the Fund or the Advisor;

 

  the costs of preparing, printing and mailing reports and other communications, including tender offer correspondence or similar materials, to Shareholders and the costs of mailing prospectuses and marketing materials to other than current Shareholders;

 

  fidelity bond, Trustees and officers errors and omissions liability insurance and other insurance premiums;

 

  direct costs such as printing, mailing, long distance telephone and staff;

 

  overhead costs, including rent, office supplies, utilities and capital equipment;

 

  broken deal expenses;

 

  legal expenses (including those expenses associated with preparing the Fund’s public filings, attending and preparing for Board meetings, as applicable, and generally serving as counsel to the Fund);

 

  external accounting expenses (including fees and disbursements and expenses related to the annual audit of the Fund and the preparation of the Fund’s tax information);

 

  any costs and expenses associated with or related to due diligence performed with respect to the Fund’s offering of its shares, including but not limited to, costs associated with or related to due diligence activities performed by, on behalf of, or for the benefit of broker-dealers, registered investment advisors, and third-party due diligence providers;

 

  costs associated with reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws, including compliance with The Sarbanes-Oxley Act of 2002;

 

  all other expenses incurred by the Fund and BSP in connection with administering the Fund’s business, including expenses incurred by BSP in performing administrative services for the Fund and administrative personnel paid by BSP a, to the extent they are not controlling persons of BSP or any of their respective affiliates, subject to the limitations included in the Administration Agreement; and

 

  any expenses incurred outside of the ordinary course of business, including, without limitation, costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or similar proceeding and indemnification expenses as provided for in the Fund’s organizational documents.

 

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It is also understood and agreed that if persons associated with the Advisor or any of its affiliates, including persons who are officers of the Fund, provide accounting, legal, clerical or administrative services to the Fund at the request of the Fund, the Fund will reimburse the Advisor and its affiliates for their costs in providing such accounting, legal, clerical or administrative services to the Fund (which costs may include an allocation of overhead including rent and the allocable portion of the salaries and benefits of the relevant persons and their respective staffs, including travel expenses), using a methodology for determining costs approved by the Board. Nothing contained herein shall be construed to restrict the Fund’s right to hire its own employees or to contract for services to be performed by third parties.

 

Except as otherwise described in this prospectus, the Advisor and USB Administrator will be reimbursed by the Fund, as applicable, for any of the above expenses that they pay on behalf of the Fund, including administrative expenses they incur on the Fund’s behalf.

 

Expense Limitation Agreement

 

The Advisor and the Fund have entered into the Second Amended and Restated Expense Limitation Agreement. Under the Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organizational and offering costs, as well as the Fund’s operating expenses on a quarterly basis to the extent that the Fund’s total annualized fund operating expenses, inclusive of any fees the Fund has agreed to bear pursuant to 4(b) of the BSP Administration Agreement, but excluding (i) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation and extraordinary expenses, (ii) incentive fees and (iii) any distribution and shareholder servicing fees in respect of the relevant month, exceed the Expense Cap.

 

In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor an Advisor Recoupment; provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that: (i) for expenses incurred by the Advisor prior to the Fund’s first investment, it is payable not more than three years from the date of the first investment; (ii) for expenses incurred by the Advisor after the Fund’s first investment, it is payable not more than three years from the date on which the applicable expense payment was made by the Advisor; and (iii) the Advisor Recoupment does not cause the Fund’s total annual operating expenses (on an annualized basis and net of any reimbursements received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Cap. For the avoidance of doubt, the Advisor Recoupment will not cause Fund expenses to exceed the Expense Cap either (i) at the time of the waiver or (ii) at the time of recoupment. The Expense Limitation Agreement will each remain in effect for a period of one year from the date of the agreement, unless and until the Board approves either agreement’s modification or termination. The Expense Limitation Agreement may be terminated only by the Fund’s Board on notice to the Advisor during the initial one-year term; thereafter, the Expense Limitation Agreement is terminable by either the Advisor or the Fund’s Board in accordance with its terms.

 

Organization and Offering Costs

 

Organizational costs include, among other things, the cost of organizing as a Delaware statutory trust, including the cost of legal services and other fees pertaining to the Fund’s organization. These costs are expensed as incurred by the Fund and will be paid by the Advisor on behalf of the Fund.

 

The Fund’s initial offering costs include, among other things, legal, accounting, printing and other expenses pertaining to this offering.

 

Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months from the commencement of operations, which has not yet occurred. Pursuant to the Expense Limitation Agreement, organizational and offering costs of the Fund that were paid by the Advisor may be subject to reimbursement. The Fund has assessed the likelihood that a recoupment will be paid by the Fund in accordance with the provisions of Accounting Standards Codification Topic 450, Contingencies (“ASC 450”). Based on this assessment, it has been determined that the recoupment is not probable or reasonably estimated, and as such, an accrual has not been made on the statement of assets and liabilities.

 

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MANAGEMENT AND INCENTIVE FEES

 

Pursuant to the Investment Advisory Agreement, and in consideration of the advisory services provided by the Advisor to the Fund, the Advisor is entitled to a fee consisting of two components—the Management Fee and the Incentive Fee.

 

Management Fee

 

The Management Fee is calculated and payable quarterly in arrears at the annual rate of 1.25% of the average daily value of the Fund’s Net Assets.

 

Incentive Fee

 

The Incentive Fee is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on the Fund’s net assets, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a “catch-up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income, income generated from original issue discounts, payment-in-kind income, and any other income earned or accrued during the calendar quarter, minus the Fund’s operating expenses (which, for this purpose shall not include any distribution and/or shareholder servicing fees, litigation, any extraordinary expenses or Incentive Fee) for the quarter. For purposes of computing the Fund’s pre-incentive fee net investment income, the calculation methodology will look through total return swaps as if the Fund owned the referenced assets directly. As a result, the Fund’s pre-incentive fee net investment income includes net interest, if any, associated with a derivative or swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Fund to the derivative or swap counterparty. Net assets means the total assets of the Fund minus the Fund’s liabilities. For purposes of the Incentive Fee, net assets are calculated for the relevant quarter as the weighted average of the net asset value of the Fund as of the first business day of each month therein. The weighted average net asset value shall be calculated for each month by multiplying the net asset value as of the beginning of the first business day of the month times the number of days in that month, divided by the number of days in the applicable calendar quarter.

 

The calculation of the Incentive Fee for each calendar quarter is as follows:

 

· No Incentive Fee is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, does not exceed the quarterly hurdle rate of 1.50%;

 

· 100% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the hurdle rate but is less than or equal to 1.71425% (the “catch-up”) is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, exceeds the hurdle rate but is less than or equal to 1.71425% (6.857% annualized). The “catch-up” provision is intended to provide the Advisor with an incentive fee of 12.5% on all of the Fund’s pre-incentive fee net investment income when the Fund’s pre-incentive fee net investment income reaches 1.71425% of net assets; and

 

· 12.5% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the “catch-up” is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets

 

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The following is a graphical representation of the calculation of the Incentive Fee:

 

Quarterly Incentive Fee

Fund’s pre-incentive fee net investment income

(expressed as a percentage of the Fund’s adjusted capital)

 

 

Percentage of the Fund’s pre-incentive fee net investment income allocated to the Incentive Fee.

 

These calculations will be appropriately prorated for any period of less than three months.

 

Example of the Incentive Fee:

 

Example –Incentive Fee on pre-incentive fee net investment income for each calendar quarter

 

Scenarios expressed as a percentage of
average Net Assets
  Scenario 1   Scenario 2   Scenario 3   Scenario 4  
Pre-incentive fee net investment income   0.550 % 1.700 % 2.800 % 3.000 %
Catch up incentive fee (maximum of [0.21425]%)     (0.200 )% (0.21425 )% (0.21425 )%
Split incentive fee (12.5% above 1.71425%)       (0.13572 )% (0.16072 )%
Net Investment income   0.550 % 1.500 % 2.45003 % 2.62503 %

 

Scenario 1 –Incentive Fee on Income 

 

Pre-incentive fee net investment income does not exceed the 1.500% hurdle rate; therefore there is no catch up or split incentive fee on pre-incentive fee net investment income.

 

Scenario 2 –Incentive Fee on Income

 

Pre-incentive fee net investment income falls between the 1.500% hurdle rate and the catch up of 1.71425%; therefore the incentive fee on pre-incentive fee net investment income is 100% of the pre-incentive fee above the 1.500% hurdle return.

 

Scenario 3 –Incentive Fee on Income

 

Pre-incentive fee net investment income exceeds the 1.500% hurdle and the 1.71425% catch up provision. Therefore the catch up provision is fully satisfied by the 0.21425% of pre-incentive fee net investment income above the 1.500% hurdle rate and there is a 12.5% incentive fee on pre-incentive fee net investment income above the 1.71425% “catch up.” This provides a 0.34997% incentive fee, which represents 12.5% of pre-incentive fee net investment income.

 

Scenario 4 –Incentive Fee on Income

 

Assuming the same facts as scenario 3, and assuming the Fund looks through a total return swap and receives Net Interest associated with the net distributions received from a total return swap for the quarter of 0.20% of average Net Assets, the pre-incentive fee net investment income equals 3.000% and exceeds the 1.500% hurdle and the 1.765% catch up provision. Therefore the catch up provision is fully satisfied by the 0.21425% of pre-incentive fee net investment income above the 1.500% hurdle rate and there is a 12.5% incentive fee on pre-incentive fee net investment income above the 1.765% “catch up.” This provides a 0.37497% incentive fee, which represents 12.5% of pre-incentive fee net investment income.

 

Approval of the Investment Advisory Agreement

 

Board approval of the Investment Advisory Agreement was made in accordance with, and on the basis of an evaluation satisfactory to the Board, as required by Section 15(c) of the 1940 Act and the applicable rules and regulations thereunder, including consideration of, among other factors, (i) the nature, quality and extent of the services to be provided by BSP under the Investment Advisory Agreement; (ii) comparative information with respect to advisory fees and other expenses paid by other comparable investment companies; and (iii) information about the services to be performed by BSP and the personnel of BSP providing such services under the Investment Advisory Agreement. A discussion regarding the basis for the Board’s approval of the Investment Advisory Agreement will be available in the Fund’s semi-annual report on Form N-CSRS, which will be publicly filed with the SEC.

 

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DETERMINATION OF NET ASSET VALUE

 

NAV per common share will be determined daily by the Advisor on each day the NYSE is open for trading or at such other times as the Board may determine. NAV per common share is determined, on a class-specific basis, by dividing the total value of the Fund’s net assets attributable to the applicable class by the total number of Shares of such class outstanding. The Fund’s net assets are determined by subtracting any liabilities (including borrowings for investment purposes) from the total value of its portfolio investments and other assets. The Fund’s net assets are available to holders of preferred shares (if any) and common shares. If any preferred shares are outstanding, net assets available for the common Shareholders is determined by deducting from net assets the liquidation preference and any accrued dividends on the preferred shares.

 

Bank loans, including syndicated loans, are valued by using readily available market quotations or another commercially reasonable method selected by an independent, third party pricing service that has been approved by the Board, or, if such independent, third-party valuations are not available, by using broker quotations.

 

High Yield Corporate Bonds and certain other domestic debt securities, are valued at the last reported bid prices supplied by an independent, third party pricing service that has been approved by the Board. If the last reported bid price is not readily available or is otherwise deemed to be unreliable by the Valuation Committee, then such securities are valued at fair value pursuant to procedures adopted by the Board.

 

If they are traded on the valuation date, equity securities that are listed or traded on a national exchange will be valued at the last quoted sale price. Likewise, equity securities that are traded on NASDAQ will be valued at the NASDAQ official closing price if the securities are traded on the valuation date. If securities are listed on more than one exchange, and if the securities are traded on the valuation date, they will be valued at the last quoted sale price on the exchange on which the security is principally traded. If there is no sale of the security on the valuation date, the Fund will value the securities at the last reported sale price, unless the Valuation Committee believes such price no longer represents the fair market value and elects to value the security at fair value pursuant to procedures adopted by the Board. If the validity of such quoted prices appears to be questionable or if such quoted prices are not readily available, then the securities will be valued at fair value pursuant to procedures adopted by the Board. Market quotations may be deemed not to represent fair value in certain circumstances where the Advisor reasonably believes that facts and circumstances applicable to an issuer, seller or purchaser or to the market for a particular security cause current market quotations not to reflect the fair value of the security. Examples of these events could include situations in which material events are announced after the close of the market on which a security is primarily traded, a security trades infrequently causing a quoted purchase or sale price to become stale, or a security’s trading has been halted or suspended.

 

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The value of swaps, including credit default swaps, total return swaps and interest rate swaps, will be determined by obtaining at least one dealer quotation (including information from counterparties) or valuations from third-party pricing services. If no quotations or valuations are available, or if such quotations or valuations are believed to be unreliable, swaps will be fair valued pursuant to procedures adopted by the Board.

 

Generally, trading in U.S. Government securities and money market instruments is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the NAV of the Fund’s common shares are determined as of such times.

 

CONFLICTS OF INTEREST

 

The Advisor and its affiliates engage in a broad range of activities, including investment activities for their own account and for the account of other investment funds or accounts. In the ordinary course of conducting its activities, the interests of the Fund may conflict with the interests of the Advisor, or other funds (“Other Funds”) advised by the Advisor or its affiliates and there is no guarantee that such conflicts will ultimately be resolved in favor of the Fund. A description of certain of these potential conflicts of interest is provided below. The discussion below does not describe all conflicts that may arise.

 

Advisory Affiliates

 

The Advisor is a subsidiary of Franklin Resources, Inc., a global investment management organization (together with its affiliated advisers (but excluding BSP), referred to in this section as “Franklin Templeton”). Clients of the Advisor and/or Franklin Templeton may invest in the same portfolio companies to the extent permitted by applicable law, including in the same security or other instrument or in different securities of or instruments issued by such a portfolio company, and Franklin Templeton has no obligation to inform the Advisor or the Fund of any such investments or offer such investments to the Fund. In the ordinary course of conducting the Fund’s activities, interests of the Fund may therefore conflict with the interests of other clients of the Advisor and/or Franklin Templeton. In addition, as a diversified financial services organization, Franklin Templeton and its affiliates engage in a broad spectrum of activities including financial, advisory, investment and other activities where their interests may conflict with the interests of the Fund. Franklin Templeton may provide investment advisory services and other services to clients and receive fees for such services in connection with transactions in which those clients may have interests that conflict with those of the Fund. Franklin Templeton may also give advice to clients that may cause them to take actions adverse to the Fund’s investments. In addition, Franklin Templeton may have relationships with clients seeking to invest in an existing portfolio company of the Fund or clients that compete with an existing portfolio company of the Fund. Further, although it is not expected, it is possible that Franklin Templeton could create investment vehicles in the future that may compete with the Fund for investment opportunities. Franklin Templeton will have no obligation to forego or share such investment opportunities with the Fund.

 

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In connection with its advisory business, Franklin Templeton may come into possession of information that could potentially limit the ability of the Fund to engage in potential transactions. In order to avoid such limitation, the Advisor intends to control the flow of such information, such as by erecting information barriers to restrict the transfer of such information between the Advisor and Franklin Templeton. In the event that an information barrier designed to protect the Fund is breached (including inadvertently), changed or removed, the Fund will likely face the same restrictions on its investment activities as it would have faced had the information barrier not been established in the first place or face restrictions resulting from such changes to the information barrier, as the case may be. The Advisor will generally not rely on the expertise of Franklin Templeton and its investment professionals and will not share such investment professionals in managing and/or advising the Fund.

 

Management of the Fund

 

The employees, members and/or principals of the Advisor are not obligated to devote their full time to the Fund, subject to the requirements described above under “Risk Factors –Risks Related to Our Business and Structure.

 

Subject to certain restrictions on the formation of certain “successor funds” (“Risk Factors – Risks Related to Our Business and Structure” above), the Advisor and its affiliates expect in the future to establish one or more additional investment funds with investment objectives substantially similar to, or different from, those of the Fund. Allocation of available investment opportunities between the Fund and any such Other Funds could give rise to conflicts of interest. See “Allocations” below. The Advisor may give advice, or take actions, with respect to the investments of the Fund that may not be given or taken with respect to Other Funds and the Fund may not invest through the same investment vehicles or have access to similar credit or utilize similar investment strategies as an Other Fund. These differences may result in variations with respect to the holdings of the Fund and Other Funds and differences in the Fund’s performance as compared to Other Funds with similar investment programs. In addition, it is expected that employees of the Advisor responsible for managing the Fund and an Other Fund will have responsibilities with respect to Other Funds and funds managed by the Advisor’s affiliates, including funds that are expected to be established in the future. Conflicts of interest may arise in allocating time, services or functions of these employees among the Fund and the Other Funds.

 

In addition, the Advisor, its affiliates and the employees and principals thereof may have investments in Other Funds or interests in the performance of Other Funds or invest in or alongside the Fund, which pose conflicts of interest.

 

Allocations

 

The Advisor and its affiliates currently advise and manage, and expect that they will in the future advise and manage, Other Funds which are additional investment accounts and pooled investment funds, including hedge funds, private equity firms, single investor funds, sector specific, asset class specific or geographic specific private investment funds, including registered investment companies or business development companies, for which an investment to be made by the Fund is also appropriate. To the extent an investment opportunity is suitable for both the Fund and any Other Fund, such investment will be allocated between the Fund and the Other Funds as determined by the Advisor in its good faith judgment and in accordance with the organizational documents of the Fund and the Other Funds, and subject to applicable legal, tax, regulatory and other considerations. Subject to applicable investment objectives and guidelines, such allocations will generally be pro rata based on the capital of each vehicle available for investment, or in some other manner that the Advisor determines is fair and equitable. With respect to the Fund and the Other Funds, current available capital may include, in the Advisor’s discretion, anticipated, target or available leverage, unsettled trades, unfunded commitments, and uncalled capital. Limited opportunities eligible for more than one strategy are generally allocated proportionately as between strategies based on relative desired allocation for the applicable strategy, or in some other fair and equitable manner as determined by the Advisor. In addition, certain investment opportunities may be allocated using a rotational methodology or based on certain factors such as risk factors or risk tolerances and/or diversification, fund investment restrictions, tax considerations, currency or other exposures, current portfolio composition (including current cash available), strategies, whether the Fund or an Other Fund has an existing investment in the portfolio company, as well as the Fund’s or the Other Fund’s phase in its life cycle (for example, certain opportunities may be over-allocated or under-allocated to the Fund or an Other Fund during the beginning or the end of its investment cycle), tax or regulatory restrictions applicable to the Fund or Other Fund, the supply or demand of an investment opportunity at a given price level, the level of transaction costs involved in making the investment relative to the amount of capital the Fund or Other Fund has available for the investment, issuer, sector and geographic diversification, and certain other factors. In particular, the Advisor has in the past and currently intends in the future in certain circumstances to over-allocate certain instruments to certain client accounts during an initial period at the beginning of such clients’ investment cycle. Such allocations may reduce the supply of such instruments available to other client accounts. Allocations based on the relative desired allocation for the applicable strategy may create an incentive for portfolio managers to seek excess allocations for certain limited opportunities.

 

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Allocation decisions can raise conflicts, for example, if the Fund and the Other Funds have different fee structures, or because certain legal and regulatory restrictions under the 1940 Act may prevent the Fund from receiving allocations of investment opportunities also held by or allocable to registered investment companies or business development companies advised or managed by the Advisor or its affiliates. Notwithstanding the foregoing, in certain circumstances as determined by the Advisor in its sole discretion, the Fund or an Other Fund that would otherwise receive an allocation under the policies and principles set forth above will not receive such allocation if it would result in an allocation of a de minimis amount.

 

From time to time, BSP may also determine to refer the allocation of certain investment opportunities to the Advisor’s allocation committee (the “Allocation Committee”). The Allocation Committee makes recommendations as to the allocation of investment and disposition opportunities among BSP’s clients, with the intention of fostering fair and equitable allocation over time. The Allocation Committee consists of senior officers of appropriate departments of BSP.

 

The appropriate allocation between the Fund and Other Funds of expenses and fees generated in the course of evaluating and making investments which are not consummated, such as out-of-pocket fees associated with due diligence, attorney fees and the fees of other professionals, will be determined by the Advisor and its affiliates in their good faith judgment.

 

The Advisor and its affiliates furnish investment management and advisory services to numerous Other Funds and accounts and the Advisor and its affiliates may, consistent with applicable law, make investment recommendations to Other Funds or accounts (including accounts which are private funds or separately managed accounts which have management fees and performance fees or allocations at higher or varying rates paid to the Advisor or one or more of its affiliates, or in which portfolio managers or other personnel of the Advisor have a personal interest in the receipt of such fees or have personal investments), which may be the same as or different from those made to the Fund and may cause conflicts of interest in the allocation of investment opportunities. In addition, conflicts of interest or legal or regulatory requirements applicable to the Fund may result in the Advisor and its affiliates limiting the Fund’s or client’s participation (or the Fund or client being unable to participate) in certain attractive investment opportunities. From time to time in connection with a co-investment opportunity the Advisor or its affiliates may facilitate such co-investment and it or an affiliate may serve as the general partner or equivalent of a co-investment vehicle. Such vehicles are not Other Funds subject to the general allocation policies and procedures set forth above. Please see “Co-Investment Opportunities” below for more information.

 

Co-Investment Opportunities

 

The 1940 Act generally prohibits subject companies from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted the Fund exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside with other funds managed by the Advisor or its affiliates (“Affiliated Funds”) in a manner consistent with its investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, the Fund is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its eligible trustees make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Fund and the Fund’s stockholders and do not involve overreaching in respect of the Fund or the Fund’s stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Fund’s stockholders and is consistent with the Fund’s investment objective and strategies.

 

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Aggregation of Investments

 

The Advisor may aggregate (or bunch) the orders of more than one fund for the purchase or sale of the same publicly traded security. Portfolio managers and traders often employ this practice because larger transactions can enable them to obtain better overall prices. To the extent permitted by applicable law, the Advisor may combine orders on behalf of the Fund with orders for other funds for which it or its affiliates have trading authority, or in which it or its affiliates have an economic interest. In such cases, the Advisor and its affiliates generally allocate the publicly traded securities or proceeds arising out of those transactions (and the related transaction expenses) on an average price basis among the various participants. When orders for publicly traded securities are not entirely filled, allocation shall be made based upon the Advisor’s procedures for allocation of investment opportunities. Where aggregate trades have been filled during the course of the trading day at different prices, the Advisor’s current policy is that the execution price of the publicly traded securities to each client will, to the extent possible, be the average price of all executions of price of all executions of purchases or sales, as the case may be, for all clients executing such transaction during that day. The policies and procedures of the Advisor described in this Memorandum is subject to change without notice.

 

Follow-on Investments

 

An additional investment made by the Fund or an Other Fund in an existing portfolio company presents a conflict of interest, including the terms of any new financing as well as the allocation of the investment opportunities in the case of follow-on investments by the Fund or one Other Fund in a portfolio company in which the Fund or an Other Fund or client of the Advisor or of any of the Advisor’s affiliate has previously invested. In addition, the Fund or an Other Fund may participate in relevering and recapitalization transactions involving a portfolio company in which an Other Fund or client of the Advisor’s affiliate has already invested or will invest, to the extent permitted by applicable law. Conflicts of interest may arise, including determinations of whether existing investors are being cashed out at a price that is higher or lower than market value and whether new investors are paying too high or too low a price for the company or purchasing securities with terms that are more or less favorable than the prevailing market terms.

 

Conflicts Related to Purchases and Sales

 

The Advisor, its affiliates, and officers, principals or employees of the Advisor and its affiliates may buy or sell securities or other instruments that the Advisor has recommended to clients. In addition, such officers, principals or employees may buy securities in transactions offered to but rejected by clients. Such transactions are subject to the policies and procedures adopted by the Advisor from time to time. The investment policies, fee arrangements, and other circumstances of these investments may vary from those of the Advisor’s other clients or clients of its affiliates. The Advisor, its affiliates, certain of its principals and employees, and their relatives may invest in and alongside the Fund or Other Funds either through a general partner of an Other Fund, as direct investors in the Fund or an Other Fund or otherwise, and therefore may have additional conflicting interests in connection with these investments.

 

A particular investment may be bought or sold for the Fund in different amounts and at different times for one (or more than one) Other Fund, even though it could have been bought or sold for Other Funds at the same time. Likewise, a particular investment may be bought for the Fund or one or more Other Funds when one or more Other Funds are selling the investment. Conflicts also may arise when the Fund makes investments in conjunction with an investment being made by Other Funds, or in a transaction where an Other Fund has already made an investment. Investment opportunities may be appropriate for the Fund and Other Funds at the same time, at different or overlapping levels of a portfolio company’s capital structure. Conflicts may arise in determining the terms of investments, particularly where these clients may invest in different types of securities in a single portfolio company. Questions may arise as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be refinanced. Decisions about what action should be taken in a troubled situation, including whether or not to enforce claims, whether or not to advocate or initiate a restructuring or liquidation inside or outside of bankruptcy, whether or not or in what manner to exercising a voting or consent right, and the terms of any work out or restructuring may raise conflicts of interest, particularly in the Fund and Other Funds that have invested in different securities within the same portfolio company.

 

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Certain clients of the Advisor and its affiliates invest in bank debt, loans and securities of or other investments in companies in which other clients hold securities, loans or other investments, including equity securities, which may include a controlling position. In the event that such investments are made by the Fund or an Other Fund, the interests of the Fund or Other Fund may be in conflict with the interest of such Other Fund or the Fund, particularly in circumstances where the underlying company is facing financial distress. The involvement of such persons at both the equity and debt levels, or in different levels of the debt structure of an issuer, could cause conflicts of interest. In certain circumstances, decisions made with respect to investments held by an Other Fund could adversely affect the investments of the Fund. The involvement of such persons at multiple levels of the capital structure could also inhibit strategic information exchanges among fellow creditors. In certain circumstances, the Fund and Other Funds may be prohibited from exercising voting or other rights, and may be subject to claims by other creditors with respect to the subordination of their interest. If additional capital is necessary as a result of financial or other difficulties, or to finance growth or other opportunities, the Fund or Other Funds may or may not provide such additional capital, and if provided each Fund or Other Fund will supply such additional capital in such amounts, if any, as determined by the Advisor. The Advisor and its affiliates may seek to address these conflicts by adopting policies and procedures, which may include limiting investments by the Fund which produce such conflicts, limiting voting or roles on creditors’ committees, procedures designed to ensure that the team managing the investments make independent decisions through the enforcement of information barriers and similar procedures, or other procedures in the judgment of the Advisor.

 

In addition, investments by more than one client of the Advisor or its affiliates in a portfolio company may also raise the risk of using assets of a client of the Advisor or its affiliates to support positions taken by other clients of the Advisor or its affiliates.

 

The Advisor and its affiliates will attempt to resolve any such conflicts of interest in good faith, but there can be no assurance that such conflicts of interest or actions taken by the Advisor or its affiliates in respect of the Other Funds will not have an adverse effect on the investments made by the Fund. There can be no assurance that the return of the Fund participating in a transaction would be equal to and not less than an Other Fund participating in the same transaction or that it would have been as favorable as it would have been had such conflict not existed.

 

Transactions Related to Affiliates of and Clients Advised by the Advisor

 

Subject to applicable law, the Fund may seek to refinance loans or extend new credit to a borrower that has a current loan with an affiliate of or a client advised by the Advisor where the loan is nearing maturity or the borrower is seeking alternative financing, or in certain circumstances another such affiliate or client of the Advisor may lend to an existing borrower of the Fund. While the terms of such financing are negotiated with such borrowers, in certain circumstances it may be customary or may otherwise be beneficial for legal, tax, regulatory or other reasons for such transactions to involve both the Fund and an affiliated lender or proceeds from one such transaction may pay off another such transaction, and such transactions are not restricted or subject to limitation under the terms of the Investment Advisory Agreement.

 

Other Services

 

Subject to applicable law, the Advisor and its affiliates may provide loan servicing, administrative and other services with respect to debt issued by portfolio companies of the Fund and receive servicing fees, special servicing fees and other similar fees and payments for such services which are not subject to the management fee offset provisions. Any amounts received by the Advisor, the Fund or their respective affiliates attributable to loan servicing fees, special servicing fees, administrative and other similar fees and payments for such services with respect to debt issued by any portfolio investment of the Fund shall not so reduce the Management Fee (or otherwise be allocable to the Fund).

 

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Diverse Membership

 

The investors in the Fund may include investors that have conflicting investment, tax and other interests with respect to their investments in the Fund. The conflicting interests among the investors may relate to or arise from, among other things, the nature of investments made by the Fund, the structuring of the acquisition of investments and the timing of the disposition of investments, as well as the structure of the Fund. As a consequence, conflicts of interest may arise in connection with decisions made by the Advisor, including with respect to the nature or structuring of investments, that may be more beneficial for one investor than for another investor, especially with respect to investors’ individual tax situations. In selecting and structuring investments appropriate for the Fund, the Advisor will consider the investment and tax objectives of the Fund and the investors as a whole, not the investment, tax or other objectives of any investor individually.

 

Placement Agents and Solicitors

 

Advisor personnel and independent contractors involved in marketing the Fund are acting for the Advisor and its affiliates and not acting as investment, tax, financial, legal or accounting advisors to potential investors in connection with the marketing of the Fund. Potential investors must independently evaluate the offering and make their own investment decisions. The Advisor has, and may in the future, enter into arrangements with third party placement agents to solicit Shareholders. Placement agents that solicit Shareholders on behalf of the Fund are subject to a conflict of interest because they will be compensated by the Advisor in connection with their solicitation activities. Placement agents or other financial intermediaries may also receive other compensation, including placement fees with respect to the acquisition of Shares. Such agents or intermediaries may have an incentive in promoting the acquisition of Shares in preference to products with respect to which they receive a smaller fee.

 

Other Conflicts

 

The Advisor may, in its discretion, have, and may, in its discretion, cause the Fund to have, ongoing business dealings, arrangements or agreements with persons who are former employees or executives of the Advisor or the Advisor’s affiliates. The Fund bears, directly or indirectly, the costs of such dealings, arrangements or agreements. In such circumstances, there may be a conflict of interest between the Advisor and the Fund in determining whether to engage in or to continue such dealings, arrangements or agreements, including the possibility that the Advisor may favor the engagement or continued engagement of such persons even if a better price and/or quality of service could be obtained from another person.

 

If the Fund purchases in the secondary market at a discount debt securities of a company in which an Other Fund has, for example, a substantial equity interest, (a) a court might require the Fund or an Other Fund to disgorge profit it realizes if the opportunity to purchase such securities at a discount should have been made available to the issuer of such securities or (b) the Fund or Other Fund might be prevented from enforcing such securities at their full face value if the issuer of such securities becomes bankrupt. The effect of these transactions will vary from jurisdiction to jurisdiction.

 

The Advisor, its affiliates and the Fund will often engage common legal counsel and other advisers in a particular transaction, including transactions in which there may be conflicts of interest. Members of the law firms engaged to represent the Fund may be investors in a Fund or a Related Fund and may also represent one or more portfolio companies or investors in the Fund or a Related Fund. In the event of a significant dispute or divergence of interest between Fund and the Advisor and/or its affiliates, the parties may engage separate counsel in the sole discretion of the Advisor and its affiliates. Moreover, in litigation and certain other circumstances separate representation may be required. Additionally, the Advisor, its affiliates and the Fund and the portfolio companies may engage other common service providers. In such circumstances, there may be a conflict of interest between the Advisor, on the one hand, and the Fund and portfolio companies, on the other hand, in determining whether to engage such service providers, including the possibility that the Advisor may favor the engagement or continued engagement of such persons if it receives a benefit from such service providers, such as lower fees, that it would not receive absent the engagement of such service provider by the Fund and/or the portfolio companies.

 

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SHARE REPURCHASE PROGRAM

 

The Fund does not currently intend to list its Shares on any securities exchange and does not expect any secondary market for them to develop in the foreseeable future. Therefore, Shareholders should expect that they will be unable to sell their Shares for an indefinite time or at a desired price. Shareholders may not transfer their investment from the Fund to any other registered investment company. Because no public market exists for the Shares, and none is expected to develop in the foreseeable future, Shareholders will not be able to liquidate their investment, other than through the Fund’s share repurchase program, or, in limited circumstances, as a result of transfers of Shares to other investors.

 

To provide Shareholders with limited liquidity, the Fund is structured as an “interval fund” and intends to conduct quarterly offers to repurchase between 5% and 25% of its outstanding Shares at NAV, pursuant to Rule 23c-3 under the 1940 Act, unless such offer is suspended or postponed in accordance with regulatory requirements (as discussed below). Under normal market conditions, the Fund currently intends to repurchase 5% of its outstanding shares at NAV on a quarterly basis. Quarterly repurchases occur in the months of March, June, September and December. The offer to purchase Shares is a fundamental policy that may not be changed without the vote of the holders of a majority of the Fund’s outstanding voting securities (as defined in the 1940 Act). The Repurchase Offer Notice is sent to Shareholders at least 21 calendar days before the Repurchase Request Deadline. The Fund expects to determine the NAV applicable to repurchases on the Repurchase Request Deadline. However, the NAV will be calculated no later than the Repurchase Pricing Date, although the NAV is expected to be determined on the Repurchase Request Deadline. The Fund expects to distribute payment to Shareholders between one and three business days after the Repurchase Pricing Date and will distribute such payment no later than seven calendar days after such Date. Thus, the Shares are appropriate only as a long-term investment. In addition, the Fund’s repurchase offers may subject the Fund and Shareholders to special risks.

 

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Determination of Repurchase Offer Amount

 

The Board, or a committee thereof, in its sole discretion, will determine the number of Shares that the Fund will offer to repurchase (the “Repurchase Offer Amount”) for a given Repurchase Request Deadline. The Repurchase Offer Amount, however, will be no less than 5% and no more than 25% of the total number of Shares outstanding on the Repurchase Request Deadline.

 

If Shareholders tender for repurchase more than the Repurchase Offer Amount for a given repurchase offer, the Fund will repurchase the Shares on a pro rata basis. However, the Fund may accept all Shares tendered for repurchase by Shareholders who own less than one hundred Shares and who tender all of their Shares, before prorating other amounts tendered.

 

Notice to Shareholders

 

No less than 21 days and more than 42 days before each Repurchase Request Deadline, the Fund shall send to each Shareholder of record and to each beneficial owner of the Shares that are the subject of the repurchase offer a notification (“Shareholder Notification”). The Shareholder Notification will contain information Shareholders should consider in deciding whether to tender their Shares for repurchase. The notice also will include detailed instructions on how to tender shares for repurchase, state the Repurchase Offer Amount and identify the dates of the Repurchase Request Deadline, the scheduled Repurchase Pricing Date, and the date the repurchase proceeds are scheduled for payment (the “Repurchase Payment Deadline”). The notice also will set forth the NAV that has been computed no more than seven days before the date of notification, and how Shareholders may ascertain the NAV after the notification date.

 

Repurchase Price

 

The repurchase price of the Shares will be the NAV of the class as of the close of regular trading on the NYSE on the Repurchase Pricing Date. You may call 833-260-3565 to learn the NAV. The notice of the repurchase offer also will provide information concerning the NAV, such as the NAV as of a recent date or a sampling of recent NAVs, and a toll-free number for information regarding the repurchase offer.

 

Repurchase Amounts and Payment of Proceeds

 

Shares tendered for repurchase by Shareholders prior to any Repurchase Request Deadline will be repurchased subject to the aggregate Repurchase Offer Amount established for that Repurchase Request Deadline. Payment pursuant to the repurchase offer will be made by check to the Shareholder’s address of record, or credited directly to a predetermined bank account on the Purchase Payment Date, which will be no more than seven days after the Repurchase Pricing Date. The Board may establish other policies for repurchases of shares that are consistent with the 1940 Act, regulations thereunder and other pertinent laws.

 

If Shareholders tender for repurchase more than the Repurchase Offer Amount for a given repurchase offer, the Fund may, but is not required to, repurchase an additional amount of Shares not to exceed 2.00% of the outstanding Shares of the Fund on the Repurchase Request Deadline. If the Fund determines not to repurchase more than the Repurchase Offer Amount, or if Shareholders tender shares in an amount exceeding the Repurchase Offer Amount plus 2.00% of the outstanding Shares on the Repurchase Request Deadline, the Fund will repurchase the Shares on a pro rata basis. However, the Fund may accept all Shares tendered for repurchase by Shareholders who own less than one hundred Shares and who tender all of their Shares, before prorating other amounts tendered.

 

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DESCRIPTION OF CAPITAL STRUCTURE

 

The following description is based on relevant portions of the Delaware Statutory Trust Act, as amended, and on the Declaration of Trust and bylaws. This summary is not intended to be complete. Please refer to the Delaware Statutory Trust Act, as amended, and the Declaration of Trust and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part, for a more detailed description of the provisions summarized below.

 

Shares of Beneficial Interest

 

The Declaration of Trust authorizes the Fund’s issuance of an unlimited number of Shares of beneficial interest of each class, par value $0.001 per share. There is currently no market for Shares and the Fund does not expect that a market for Shares will develop in the foreseeable future. Pursuant to the Declaration of Trust and as permitted by Delaware law, Fund Shareholders are entitled to the same limitation of personal liability extended to shareholders of private corporations organized for profit under the General Corporation Law of the State of Delaware, as amended (the “DGCL”) and therefore generally will not be personally liable for the Fund’s debts or obligations.

 

Shares

 

Under the terms of the Declaration of Trust, all Shares, when consideration for Shares is received by the Fund, will be fully paid and nonassessable. Distributions may be paid to Shareholders if, as and when authorized and declared by the Board. Shares will have no preference, preemptive, appraisal, conversion or redemption rights, and will be freely transferable, except where their transfer is restricted by law or contract. The Declaration of Trust provides that the Board shall have the power to repurchase or redeem Shares and provide Shareholders with the right to exchange Shares of any class for Shares of one or more other classes; although the Fund has decided not to provide the exchange option as of this filing, the manner and the terms of the exchange, if authorized, will be exchanged in a future registration statement. In the event of the Fund’s dissolution, after the Fund pays or adequately provides for the payment of all claims and obligations of the Fund, and upon the receipt of such releases, indemnities and refunding agreements deemed necessary by the Board, each Share will be entitled to receive, according to its respective rights, a pro rata portion of the Fund’s assets available for distribution for the applicable class, subject to any preferential rights of holders of the Fund’s outstanding preferred Shares, if any. Each whole Share will be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share will be entitled to a proportionate fractional vote. However, to the extent required by the 1940 Act or otherwise determined by the Board, classes of the Fund will vote separately from each other. Shareholders shall be entitled to vote on all matters on which a vote of Shareholders is required by the 1940 Act, the Declaration of Trust or a resolution of the Board. There will be no cumulative voting in the election or removal of Trustees. Under the Declaration of Trust, the Fund is not required to hold annual meetings of Shareholders. The Fund only expects to hold Shareholder meetings to the extent required by the 1940 Act or pursuant to special meetings called by the Board or a majority of Shareholders.

 

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Preferred Shares and Other Securities

 

The Declaration of Trust provides that the Board may, subject to the Fund’s investment policies and restrictions and the requirements of the 1940 Act, authorize and cause the Fund to issue securities of the Fund other than Shares (including preferred Shares, debt securities or other senior securities), by action of the Board without the approval of Shareholders. The Board may determine the terms, rights, preferences, privileges, limitations and restrictions of such securities as the Board sees fit.

 

Preferred Shares could be issued with rights and preferences that would adversely affect Shareholders. Preferred Shares could also be used as an anti-takeover device. Every issuance of preferred Shares will be required to comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (i) immediately after issuance of preferred Shares and before any distribution is made with respect to the Shares and before any purchase of Shares is made, the aggregate involuntary liquidation preference of such preferred Shares together with the aggregate involuntary liquidation preference or aggregate value of all other senior securities must not exceed an amount equal to 50% of the Fund’s total assets after deducting the amount of such distribution or purchase price, as the case may be; and (ii) the holders of preferred Shares, if any are issued, must be entitled as a class to elect two Trustees at all times and to elect a majority of the Trustees if distributions on such preferred Shares are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred Shares.

 

Limitation on Liability of Trustees and Officers; Indemnification and Advance of Expenses

 

Pursuant to the Declaration of Trust, Trustees and officers of the Fund will not be subject in such capacity to any personal liability to the Fund or Shareholders, unless the liability arises from bad faith, willful misfeasance, gross negligence or reckless disregard for the Trustee’s or officer’s duty.

 

Except as otherwise provided in the Declaration of Trust, the Fund will indemnify and hold harmless any current or former Trustee or officer of the Fund against any liabilities and expenses (including reasonable attorneys’ fees relating to the defense or disposition of any action, suit or proceeding with which such person is involved or threatened), while and with respect to acting in the capacity of a Trustee or officer of the Fund, except with respect to matters in which such person did not act in good faith in the reasonable belief that his or her action was in the best interest of the Fund, or in the case of a criminal proceeding, matters for which such person had reasonable cause to believe that his or her conduct was unlawful. In accordance with the 1940 Act, the Fund will not indemnify any Trustee or officer for any liability to which such person would be subject by reason of his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties of his or her position. The Fund will provide indemnification to Trustees and officers prior to a final determination regarding entitlement to indemnification as described in the Declaration of Trust.

 

The Fund has entered into the Investment Advisory Agreement with BSP. The Investment Advisory Agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, the Advisor is not liable for any error of judgment or mistake of law or for any loss the Fund suffers.

 

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Pursuant to the Declaration of Trust, the Fund will advance the expenses of defending any action for which indemnification is sought if the Fund receives a written undertaking by the indemnitee which provides that the indemnitee will reimburse the Fund unless it is subsequently determined that the indemnitee is entitled to such indemnification.

 

Number of Trustees; Appointment of Trustees; Vacancies; Removal

 

The Declaration of Trust provides that the number of Trustees shall be no less than one and no more than 15, as determined in writing by a majority of the Trustees then in office. As set forth in the Declaration of Trust, a Trustee’s term of office shall continue until his or her death, resignation or removal. Subject to the provisions of the 1940 Act, individuals may be appointed by the Trustees at any time to fill vacancies on the Board by the appointment of such persons by a majority of the Trustees then in office. Each Trustee shall hold office until his or her successor shall have been appointed pursuant to the Declaration of Trust. To the extent that the 1940 Act requires that Trustees be elected by Shareholders, any such Trustees will be elected by a plurality of all Shares voted at a meeting of Shareholders at which a quorum is present.

 

The Declaration of Trust provides that any Trustee may be removed (provided that after the removal the aggregate number of Trustees is not less than the minimum required by the Declaration of Trust) (i) with cause, by at least two-thirds (662∕3%) of the remaining Trustees; or (ii) without cause, by all of the remaining Trustees.

 

Action by Shareholders

 

The Declaration of Trust provides that Shareholder action can be taken only at a meeting of Shareholders or by unanimous written consent in lieu of a meeting. Subject to the 1940 Act, the Declaration of Trust or a resolution of the Board specifying a greater or lesser vote requirement, the affirmative vote of a majority of Shares present in person or represented by proxy at a meeting and entitled to vote on the subject matter shall be the act of the Shareholders with respect to any matter submitted to a vote of the Shareholders.

 

Amendment of Declaration of Trust and Bylaws

 

Subject to the provisions of the 1940 Act, pursuant to the Declaration of Trust, the Board may amend the Declaration of Trust without any vote of Shareholders. Pursuant to the Declaration of Trust and bylaws, the Board has the exclusive power to amend or repeal the bylaws or adopt new bylaws at any time.

 

No Appraisal Rights

 

In certain extraordinary transactions, some jurisdictions provide the right to dissenting Shareholders to demand and receive the fair value of their Shares, subject to certain procedures and requirements set forth in such statute. Those rights are commonly referred to as appraisal rights. The Declaration of Trust provides that Shares shall not entitle Shareholders to appraisal rights.

 

Conflict with Applicable Laws and Regulations

 

The Declaration of Trust provides that if and to the extent that any provision of the Declaration of Trust conflicts with any provision of the 1940 Act, the provisions under the Code applicable to the Fund as a RIC or other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of the Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of the Declaration of Trust or affect the validity of any action taken or omitted to be taken prior to such determination.

 

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TAX ASPECTS

 

The following is a general summary of certain material U.S. federal income tax considerations applicable to the Fund and an investment in the Fund. The discussion below provides general tax information related to an investment in the Fund, but does not purport to be a complete description of the U.S. federal income tax consequences of an investment in the Fund and does not address any state, local, non-U.S. or other tax consequences. It is based on the Code and U.S. Treasury regulations thereunder and administrative pronouncements, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. In addition, it does not describe all of the tax consequences that may be relevant in light of a Shareholder’s particular circumstances, including (but not limited to) alternative minimum tax consequences and tax consequences applicable to Shareholders subject to special tax rules, such as certain financial institutions; dealers or traders in securities who use a mark-to-market method of tax accounting; persons holding Shares as part of a hedging transaction, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to Shares; entities classified as partnerships or other pass-through entities for U.S. federal income tax purposes; insurance companies; U.S. Shareholders (as defined below) whose functional currency is not the U.S. dollar; or tax-exempt entities, including “individual retirement accounts” or “Roth IRAs.” Unless otherwise noted, the following discussion applies only to a Shareholder that holds Shares as a capital asset and is a U.S. Shareholder. A “U.S. Shareholder” generally is a beneficial owner of Shares who is for U.S. federal income tax purposes:

 

  an individual who is a citizen or resident of the United States;

 

  a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

  an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

  a trust if it (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

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If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective Shareholder that is a partner in a partnership holding Shares should consult his, her or its tax advisors with respect to the purchase, ownership and disposition of Shares.

 

The discussion set forth herein does not constitute tax advice. Tax laws are complex and often change, and Shareholders should consult their tax advisors about the U.S. federal, state, local or non-U.S. tax consequences of an investment in the Fund.

 

Taxation of the Fund

 

The Fund has elected, to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, the Fund generally will not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes as dividends to Shareholders. To qualify as a RIC in any tax year, the Fund must, among other things, satisfy both a source of income test and asset diversification tests. The Fund will qualify as a RIC if  (i) at least 90% of the Fund’s gross income for such tax year consists of dividends; interest; payments with respect to certain securities loans; gains from the sale or other disposition of shares, securities or foreign currencies; other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such shares, securities or currencies; and net income derived from interests in “qualified publicly-traded partnerships” (such income, “Qualifying RIC Income”); and (ii) the Fund’s holdings are diversified so that, at the end of each quarter of such tax year, (a) at least 50% of the value of the Fund’s total assets is represented by cash and cash equivalents, securities of other RICs, U.S. government securities and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not greater than 10% of the outstanding voting securities of such issuer and (b) not more than 25% of the value of the Fund’s total assets is invested (x) in securities (other than U.S. government securities or securities of other RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar or related trades or businesses or (y) in the securities of one or more “qualified publicly-traded partnerships.” The Fund’s share of income derived from a partnership other than a “qualified publicly-traded partnership” will be treated as Qualifying RIC Income only to the extent that such income would have constituted Qualifying RIC Income if derived directly by the Fund. A “qualified publicly-traded partnership” is generally defined as an entity that is treated as a partnership for U.S. federal income tax purposes if  (1) interests in such entity are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof and (2) less than 90% of its gross income for the relevant tax year consists of Qualifying RIC Income. The Code provides that the Treasury Department may by regulation exclude from Qualifying RIC Income foreign currency gains that are not directly related to the RIC’s principal business of investing in shares or securities (or options and futures with respect to shares or securities). The Fund anticipates that, in general, its foreign currency gains will be directly related to its principal business of investing in shares and securities.

 

In addition, to maintain RIC tax treatment, the Fund must distribute on a timely basis with respect to each tax year dividends of an amount at least equal to 90% of the sum of its “investment company taxable income” and its net tax-exempt interest income, determined without regard to any deduction for dividends paid, to Shareholders (the “90% distribution requirement”). If the Fund qualifies as a RIC and satisfies the 90% distribution requirement, the Fund generally will not be subject to U.S. federal income tax on its “investment company taxable income” and net capital gains (that is, the excess of net long-term capital gains over net short-term capital losses) that it distributes as dividends to Shareholders (including amounts that are reinvested pursuant to the DRP). In general, a RIC’s “investment company taxable income” for any tax year is its taxable income, determined without regard to net capital gains and with certain other adjustments. The Fund intends to distribute all or substantially all of its “investment company taxable income,” net tax-exempt interest income (if any) and net capital gains on an annual basis. Any taxable income, including any net capital gains that the Fund does not distribute in a timely manner, will be subject to U.S. federal income tax at regular corporate rates.

 

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If the Fund retains any net capital gains for reinvestment, it may elect to treat such capital gains as having been distributed to Shareholders. If the Fund makes such an election, each Shareholder will be required to report its share of such undistributed net capital gains attributed to the Fund as long-term capital gain and will be entitled to claim its share of the U.S. federal income taxes paid by the Fund on such undistributed net capital gains as a credit against its own U.S. federal income tax liability, if any, and to claim a refund on a properly-filed U.S. federal income tax return to the extent that the credit exceeds such liability. In addition, each Shareholder will be entitled to increase the adjusted tax basis of its Shares by the difference between its share of such undistributed net capital gain and the related credit. There can be no assurance that the Fund will make this election if it retains all or a portion of its net capital gain for a tax year.

 

As a RIC, the Fund will be, subject to a nondeductible 4% federal excise tax on certain undistributed amounts for each calendar year (the “4% excise tax”). To avoid the 4% excise tax, the Fund must distribute in respect of each calendar year dividends of an amount at least equal to the sum of  (1) 98% of its ordinary taxable income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of its capital gain net income (adjusted for certain ordinary losses) generally for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gains for previous calendar years that were not distributed during those calendar years. For purposes of determining whether the Fund has met this distribution requirement, the Fund will be deemed to have distributed any income or gains previously subject to U.S. federal income tax. Furthermore, any distribution declared by the Fund in October, November or December of any calendar year, payable to Shareholders, of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated for tax purposes as if it had been paid on December 31 of the calendar year in which the distribution was declared. The Fund generally intends to avoid the imposition of the 4% excise tax, but there can be no assurance in this regard.

 

If the Fund fails to qualify as a RIC or fails to satisfy the 90% distribution requirement in respect of any tax year, the Fund would be subject to U.S. federal income tax at regular corporate rates on its taxable income, including its net capital gains, even if such income were distributed, and all distributions out of earnings and profits would be taxed as ordinary dividend income. Such distributions generally would be eligible for the dividends-received deduction in the case of certain corporate Shareholders and may be eligible to be qualified dividend income in the case of certain non-corporate Shareholders. In addition, the Fund could be required to recognize unrealized gains, pay taxes and make distributions (any of which could be subject to interest charges) before re-qualifying for taxation as a RIC. If the Fund fails to satisfy either the income test or asset diversification test described above, in certain cases, however, the Fund may be able to avoid losing its status as a RIC by timely providing notice of such failure to the IRS, curing such failure and possibly paying an additional tax or penalty.

 

Some of the investments that the Fund is expected to make, such as investments in debt instruments having market discount and/or treated as issued with OID, may cause the Fund to recognize income or gain for U.S. federal income tax purposes prior to the receipt of any corresponding cash or other property. As a result, the Fund may have difficulty meeting the 90% distribution requirement necessary to maintain RIC tax treatment. Because this income will be included in the Fund’s investment company taxable income for the tax year it is accrued, the Fund may be required to make a distribution to Shareholders to meet the distribution requirements described above, even though the Fund will not have received any corresponding cash or property. The Fund may be required to borrow money, dispose of other securities or forgo new investment opportunities for this purpose.

 

There may be uncertainty as to the appropriate treatment of certain of the Fund’s investments for U.S. federal income tax purposes. In particular, the Fund expects to invest a portion of its net assets in below investment grade instruments. U.S. federal income tax rules with respect to such instruments are not entirely clear about issues such as whether and to what extent the Fund should recognize interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues will be addressed by the Fund, to the extent necessary, in connection with the Fund’s general intention to distribute sufficient income to qualify, and maintain its qualification to be subject to tax as a RIC and to minimize the risk that it becomes subject to U.S. federal income or excise tax.

 

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Income received by the Fund from sources outside the United States may be subject to withholding and other taxes imposed by such countries, thereby reducing income available to the Fund. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. The Fund generally intends to conduct its investment activities to minimize the impact of foreign taxation, but there is no guarantee that the Fund will be successful in this regard. If more than 50% of the value of the Fund’s total assets at the close of its tax year consists of securities of foreign corporations, the Fund will be eligible to elect to “pass-through” to the Fund the foreign source amount of income deemed earned and the respective amount of foreign taxes paid by the Fund. If at least 50% of the value of the Fund’s total assets at the close of each quarter of its tax year is represented by interests in other RICs, the Fund may elect to “pass-through” to Shareholders the foreign source amount of income deemed earned and the respective amount of foreign taxes paid or deemed paid by the Fund. If the Fund so elects, each Shareholder would be required to include in gross income, even though not actually received, each Shareholder’s pro rata share of the foreign taxes paid or deemed paid by the Fund, but would be treated as having paid its pro rata share of such foreign taxes and would therefore be allowed to either deduct such amount in computing taxable income or use such amount (subject to various limitations) as a foreign tax credit against federal income tax (but not both).

 

The Fund may invest in shares of foreign companies that are classified under the Code as passive foreign investment companies (“PFICs”). In general, a foreign company is considered a PFIC if at least 50% of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. In general under the PFIC rules, an “excess distribution” received with respect to PFIC shares is treated as having been realized ratably over the period during which the Fund held the PFIC shares. The Fund generally will be subject to tax on the portion, if any, of the excess distribution that is allocated to the Fund’s holding period in prior tax years (and an interest factor will be added to the tax, as if the tax had actually been payable in such prior tax years) even though the Fund distributes the corresponding income to Shareholders. Excess distributions include any gain from the sale of PFIC shares as well as certain distributions from a PFIC. All excess distributions are taxable as ordinary income.

 

The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Under one such election (i.e., a “QEF” election), the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether any distributions are received from the PFIC. If this election is made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. Furthermore, under U.S. Treasury Regulations, certain income derived by the Fund from a PFIC with respect to which the Fund has made a QEF election generally constitutes qualifying income for purposes of determining the Fund’s ability to be subject to tax as a RIC to the extent the PFIC makes distributions of that income to the Fund or, if the income is derived with respect to the Fund’s business of investing in such stocks or securities. Alternatively, the Fund may be able to elect to mark its PFIC shares to market, resulting in any unrealized gains at the Fund’s tax year end being treated as though they were recognized and reported as ordinary income. Any mark-to-market losses and any loss from an actual disposition of the PFIC’s Shares would be deductible as ordinary losses to the extent of any net mark-to-market gains included in income in prior tax years with respect to shares in the same PFIC.

 

Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income, gain or loss with respect to PFIC shares, as well as subject the Fund itself to tax on certain income from PFIC shares, the amount that must be distributed to Fund Shareholders, and which will be recognized by Fund Shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC shares. Note that distributions from a PFIC are not eligible for the reduced rate of tax on distributions of  “qualified dividend income” as discussed below.

 

Some of the CLOs in which the Fund invests may be PFICs, which are generally subject to the tax consequences described above. Investment in certain equity interests of CLOs that are subject to treatment as PFICs for U.S. federal income tax purposes may cause the Fund to recognize income in a tax year in excess of the Fund’s distributions from such CLOs, PFICs and the Fund’s proceeds from sales or other dispositions of equity interests in other CLOs and other PFICs during that tax year. As a result, the Fund generally would be required to distribute such income to satisfy the distribution requirements applicable to RICs.

 

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Although the Fund does not intend to hold more than 10% of the interests treated as equity for U.S. federal income tax purposes in a foreign corporation that is treated as a controlled foreign corporation (“CFC”), including equity tranche investments and certain debt tranche investments in a CLO treated as CFC, if the Fund did, the Fund may be treated as receiving a deemed distribution (taxable as ordinary income) each tax year from such foreign corporation of an amount equal to the Fund’s pro rata share of the foreign corporation’s earnings for such tax year (including both ordinary earnings and capital gains), whether or not the corporation makes an actual distribution to the Fund during such tax year. This deemed distribution is required to be included in the income of certain U.S. Shareholders of a CFC, such as the Fund, regardless of whether a U.S. shareholder has made a QEF election with respect to such CFC. The Fund is generally required to distribute such income in order to satisfy the distribution requirements applicable to RICs, even to the extent the Fund’s income from a CFC exceeds the distributions from the CFC and the Fund’s proceeds from the sales or other dispositions of CFC stock during that tax year. Furthermore, under proposed U.S. Treasury Regulations, certain income derived by the Fund from a CFC would generally constitute qualifying income for purposes of determining the Fund’s ability to be subject to tax as a RIC only to the extent the CFC makes distributions of that income to the Fund. As such, the Fund may limit and/or manage its holdings in issuers that could be treated as CFCs in order to ensure the Fund’s continued qualification as a RIC and/or maximize the Fund’s after-tax return from these investments. In general, a foreign corporation will be treated as a CFC for U.S. federal income tax purposes if more than 50% of the shares of the foreign corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Shareholders. A “U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power or value of all classes of shares of a corporation.

 

The functional currency of the Fund, for U.S. federal income tax purposes, is the U.S. dollar. Gains or losses attributable to fluctuations in foreign currency exchange rates that occur between the time a Fund accrues interest income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are respectively characterized as ordinary income or ordinary loss for U.S. federal income tax purposes. Similarly, on the sale of other disposition of certain investments, including debt securities, certain forward contracts, as well as other derivative financial instruments, denominated in a foreign currency, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are generally treated as ordinary gain or loss. These gains and losses, referred to under the Code as “section 988” gains and losses, may increase or decrease the amount of the Fund’s investment company taxable income subject to distribution to Fund Shareholders as ordinary income. For example, fluctuations in exchange rates may increase the amount of income that the Fund must distribute to qualify for tax treatment as a RIC and to prevent application of an excise tax on undistributed income. Alternatively, fluctuations in exchange rates may decrease or eliminate income available for distribution. If section 988 losses exceed other investment company taxable income during a tax year, the Fund would not be able to distribute amounts considered dividends for U.S. federal income tax purposes, and any distributions during a tax year made by the Fund before such losses were recognized would be re-characterized as a return of capital to Fund Shareholders for U.S. federal income tax purposes, rather than as ordinary dividend income, and would reduce each Fund Shareholder’s tax basis in Shares.

 

If the Fund utilizes leverage through the issuance of preferred Shares or borrowings, it will be prohibited from declaring a distribution or dividend if it would fail the applicable asset coverage test(s) under the 1940 Act after the payment of such distribution or dividend. In addition, certain covenants in credit facilities or indentures may impose greater restrictions on the Fund’s ability to declare and pay dividends on Shares. Limits on the Fund’s ability to pay dividends on Shares may prevent the Fund from meeting the distribution requirements described above and, as a result, may affect the Fund’s ability to be subject to tax as a RIC or subject the Fund to the 4% excise tax. The Fund endeavors to avoid restrictions on its ability to make distribution payments. If the Fund is precluded from making distributions on Shares because of any applicable asset coverage requirements, the terms of preferred Shares (if any) may provide that any amounts so precluded from being distributed, but required to be distributed by the Fund to enable the Fund to satisfy the distribution requirements that would enable the Fund to be subject to tax as a RIC, will be paid to the holders of preferred Shares as a special distribution. This distribution can be expected to decrease the amount that holders of preferred Shares would be entitled to receive upon redemption or liquidation of such preferred Shares.

 

Certain of the Fund’s investments are expected to be subject to special U.S. federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (2) convert lower-taxed long-term capital gains into higher-taxed short-term capital gains or ordinary income, (3) convert an ordinary loss or a deduction into a capital loss, the deductibility of which is more limited, (4) adversely affect when a purchase or sale of shares or securities is deemed to occur, (5) adversely alter the intended characterization of certain complex financial transactions, (6) cause the Fund to recognize income or gain without a corresponding receipt of cash, (7) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (8) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment and (9) produce income that will not constitute Qualifying RIC Income. The application of these rules could cause the Fund to be subject to U.S. federal income tax or the 4% excise tax and, under certain circumstances, could affect the Fund’s status as a RIC. The Fund monitors its investments and may make certain tax elections to mitigate the effect of these provisions.

 

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Under current tax law, conversion between share classes is generally not expected to be a taxable event to the Shareholder.

 

The remainder of this discussion assumes that the Fund has qualified and maintain its qualification as a RIC and has satisfied the distribution requirements described above.

 

Taxation of U.S. Shareholders

 

Distributions

 

Distributions of the Fund’s ordinary income and net short-term capital gains will, except as described below with respect to distributions of  “qualified dividend income,” generally be taxable to Shareholders as ordinary income to the extent such distributions are paid out of the Fund’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Distributions (or deemed distributions, as described above), if any, of net capital gains will be taxable as long-term capital gains, regardless of the length of time a Shareholder has owned Shares. The ultimate tax characterization of the Fund’s distributions made in a tax year cannot be determined until after the end of the tax year. As a result, the Fund may make total distributions during a tax year in an amount that exceeds the current and accumulated earnings and profits of the Fund. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits will be treated by a Shareholder as a return of capital that will be applied against and reduce the Shareholder’s tax basis in its Shares. To the extent that the amount of any such distribution exceeds the Shareholder’s tax basis in its Shares, the excess will be treated as gain from a sale or exchange of Shares. Distributions will be treated in the manner described above regardless of whether such distributions are paid in cash or invested in additional Shares. Generally, for U.S. federal income tax purposes, a Shareholder receiving Shares under the DRP will be treated as having received a distribution equal to the fair market value of such Shares on the date the Shares are credited to the Shareholder’s account.

 

A return of capital to Shareholders is a return of a portion of their original investment in the Fund, thereby reducing the tax basis of their investment. As a result from such reduction in tax basis, Shareholders may be subject to tax in connection with the sale of Shares, even if such Shares are sold at a loss relative to the Shareholder’s original investment.

 

It is expected that a substantial portion of the Fund’s income will consist of ordinary income. For example, interest and OID derived by the Fund characterized as ordinary income for U.S. federal income tax purposes. In addition, gain derived by the Fund from the disposition of debt instruments with “market discount” (generally, securities with a fixed maturity date of more than one year from the date of issuance acquired by the Fund at a price below the lesser of their stated redemption price at maturity or accreted value, in the case of securities with OID) will be characterized as ordinary income for U.S. federal income tax purposes to the extent of the market discount that has accrued, as determined for U.S. federal income tax purposes, at the time of such disposition, unless the Fund makes an election to accrue market discount on a current basis. In addition, certain of the Fund’s investments will be subject to other special U.S. federal income tax provisions that may affect the character, increase the amount and/or accelerate the timing of distributions to Shareholders.

 

Distributions made by the Fund to a corporate Shareholder will qualify for the dividends-received deduction only to the extent that the distributions consist of qualifying dividends received by the Fund. In addition, any portion of the Fund’s dividends otherwise qualifying for the dividends-received deduction will be disallowed or reduced if the corporate Shareholder fails to satisfy certain requirements, including a holding period requirement, with respect to its Shares. Distributions of “qualified dividend income” to an individual or other non-corporate Shareholder will be treated as “qualified dividend income” to such Shareholder and generally will be taxed at long-term capital gain rates, provided the Shareholder satisfies the applicable holding period and other requirements. “Qualified dividend income” generally includes dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria. Given the Fund’s investment strategy, it is not expected that a significant portion of the distributions made by the Fund will be eligible for the dividends-received deduction or the reduced rates applicable to “qualified dividend income.”

 

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If a person acquires Shares shortly before the record date of a distribution, the price of the Shares may include the value of the distribution, and the person will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment in such Shares.

 

Distributions paid by the Fund generally will be treated as received by a Shareholder at the time the distribution is made. However, the Fund may, under certain circumstances, elect to treat a distribution that is paid during the following tax year as if it had been paid during the tax year in which the income or gains supporting the distribution was earned. If the Fund makes such an election, the Shareholder will still be treated as receiving the distribution in the tax year in which the distribution is received. In this instance, however, any distribution declared by the Fund in October, November or December of any calendar year, payable to Shareholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated for tax purposes as if it had been received by Shareholders on December 31 of the calendar year in which the distribution was declared.

 

Shareholders will be notified annually, as promptly as practicable after the end of each calendar year, as to the U.S. federal tax status of distributions, and Shareholders receiving distributions in the form of additional Shares will receive a report as to the NAV of those Shares.

 

Sale or Exchange of Shares

 

The repurchase or transfer of Shares may result in a taxable gain or loss to the tendering Shareholder. Different tax consequences may apply for tendering and non-tendering Shareholders in connection with a repurchase offer. For example, if a Shareholder does not tender all of his or her Shares, such repurchase may not be treated as a sale or exchange for U.S. federal income tax purposes, and may result in deemed distributions to non-tendering Shareholders. On the other hand, Shareholders holding Shares as capital assets who tender all of their Shares (including Shares deemed owned by Shareholders under constructive ownership rules) will be treated as having sold their Shares and generally will recognize capital gain or loss. The amount of the gain or loss will be equal to the difference between the amount received for the Shares and the Shareholder’s adjusted tax basis in the relevant Shares. Such gain or loss generally will be a long-term capital gain or loss if the Shareholder has held such Shares as capital assets for more than one year. Otherwise, the gain or loss will be treated as short-term capital gain or loss.

 

Losses realized by a Shareholder on the sale or exchange of Shares held as capital assets for six months or less will be treated as long-term capital losses to the extent of any distribution of long-term capital gains received (or deemed received, as discussed above) with respect to such Shares. In addition, no loss will be allowed on a sale or other disposition of Shares if the Shareholder acquires (including through reinvestment of distributions or otherwise) Shares, or enters into a contract or option to acquire Shares, within 30 days before or after any disposition of such Shares at a loss. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Under current law, net capital gains recognized by non-corporate Shareholders are generally subject to U.S. federal income tax at lower rates than the rates applicable to ordinary income.

 

In general, U.S. Shareholders currently are generally subject to a maximum federal income tax rate of either 15% or 20% (depending on whether the Shareholder’s income exceeds certain threshold amounts) on their net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in Shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. Shareholders currently are subject to U.S. federal income tax on net capital gain at the maximum rate also applied to ordinary income at the rate of 21%. Non-corporate Shareholders with net capital losses for a tax year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each tax year. Any net capital losses of a non-corporate Shareholder in excess of  $3,000 generally may be carried forward and used in subsequent tax years as provided in the Code. Corporate Shareholders generally may not deduct any net capital losses for a tax year, but may carry back such losses for three tax years or carry forward such losses for five tax years.

 

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An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds certain threshold amounts. U.S. persons that are individuals, estates or trusts are urged to consult their tax advisors regarding the applicability of this tax to their income and gains in respect of their investment in the Fund.

 

The Fund (or if a U.S. Shareholder holds Shares through an intermediary, such intermediary) will send to each of its U.S. Shareholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per Share and per distribution basis, the amounts includible in such U.S. Shareholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year’s distributions generally will be reported to the IRS, including the amount of distributions, if any, eligible for the preferential maximum rate generally applicable to long-term capital gains. Distributions paid by the Fund generally will not be eligible for the corporate dividends received deduction or the preferential tax rate applicable to Qualifying Dividends because the Fund’s income generally will not consist of dividends. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. Shareholder’s particular situation.

 

Under U.S. Treasury regulations, if a Shareholder recognizes losses with respect to Shares of  $2 million or more for an individual Shareholder or $10 million or more for a corporate Shareholder, the Shareholder must file with the IRS a disclosure statement on IRS Form 8886. Direct Shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.

 

Reporting of adjusted cost basis information is required for covered securities, which generally include shares of a RIC acquired after January 1, 2012, to the IRS and to taxpayers. Shareholders should contact their Financial Intermediaries with respect to reporting of cost basis and available elections for their accounts.

 

Backup Withholding and Information Reporting

 

Information returns will be filed with the IRS in connection with payments on Shares and the proceeds from a sale or other disposition of Shares. A Shareholder will be subject to backup withholding on all such payments if it fails to provide the payor with its correct taxpayer identification number (generally, in the case of a U.S. resident Shareholder, on an IRS Form W-9) and to make required certifications or otherwise establish an exemption from backup withholding. Corporate Shareholders and certain other Shareholders generally are exempt from backup withholding. Backup withholding is not an additional tax. Any amounts withheld as backup withholding may be credited against the applicable Shareholder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

 

Taxation of Non-U.S. Shareholders

 

Whether an investment in the Fund is appropriate for a non-U.S. Shareholder (as defined below) will depend upon that investor’s particular circumstances. An investment in the Fund by a non-U.S. Shareholder may have adverse tax consequences. Non-U.S. Shareholders should consult their tax advisors before investing in Shares.

 

The U.S. federal income taxation of a Shareholder that is a nonresident alien individual, a foreign trust or estate or a foreign corporation, as defined for U.S. federal income tax purposes (a “non-U.S. Shareholder”), depends on whether the income that the Shareholder derives from the Fund is “effectively connected” with a U.S. trade or business carried on by the Shareholder.

 

If the income that a non-U.S. Shareholder derives from the Fund is not “effectively connected” with a U.S. trade or business carried on by such non-U.S. Shareholder, distributions of  “investment company taxable income” will generally be subject to a U.S. federal withholding tax at a rate of 30% (or a lower rate provided under an applicable treaty). Alternatively, if the income that a non-U.S. Shareholder derives from the Fund is effectively connected with a U.S. trade or business of the non-U.S. Shareholder, the Fund will not be required to withhold U.S. federal tax if the non-U.S. Shareholder complies with applicable certification and disclosure requirements, although such income will be subject to U.S. federal income tax in the manner described below and at the rates applicable to U.S. residents. Backup withholding will not, however, be applied to payments that have been subject to this 30% withholding tax applicable to non-U.S. Shareholders.

 

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A non-U.S. Shareholder whose income from the Fund is not “effectively connected” with a U.S. trade or business will generally be exempt from U.S. federal income tax on capital gains distributions, any amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of Shares. If, however, such a non-U.S. Shareholder is a nonresident alien individual and is physically present in the United States for 183 days or more during the tax year and meets certain other requirements such capital gains distributions, undistributed capital gains and gains from the sale or exchange of Shares will be subject to a 30% U.S. tax.

 

Furthermore, properly reported distributions by the Fund and received by non-U.S. Shareholders are generally exempt from U.S. federal withholding tax when they (a) are paid by the Fund in respect of the Fund’s “qualified net interest income” (i.e., the Fund’s U.S. source interest income, subject to certain exceptions, reduced by expenses that are allocable to such income), or (b) are paid by the Fund in connection with the Fund’s “qualified short-term capital gains” (generally, the excess of the Fund’s net short-term capital gains over the Fund’s long-term capital losses for such tax year). However, depending on the circumstances, the Fund may report all, some or none of the Fund’s potentially eligible distributions as derived from such qualified net interest income or from such qualified short-term capital gains, and a portion of such distributions (e.g., derived from interest from non-U.S. sources or any foreign currency gains) would be ineligible for this potential exemption from withholding. Moreover, in the case of Shares held through an intermediary, the intermediary may have withheld amounts even if the Fund reported all or a portion of a distribution as exempt from U.S. federal withholding tax. To qualify for this exemption from withholding, a non-U.S. Shareholder must comply with applicable certification requirements relating to its non-U.S. tax residency status (including, in general, furnishing an IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI, IRS Form W-8IMY or IRS Form W-8EXP, or an acceptable substitute or successor form). Thus, an investment in the Shares by a non-U.S. Shareholder may have adverse tax consequences as compared to a direct investment in the assets in which the Fund will invest.

 

If the income from the Fund is “effectively connected” with a U.S. trade or business carried on by a non-U.S. Shareholder, any distributions of  “investment company taxable income,” capital gains distributions, amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of Shares will be subject to U.S. income tax, on a net income basis, in the same manner, and at the graduated rates applicable to, U.S. persons. If such a non-U.S. Shareholder is a corporation, it may also be subject to the U.S. branch profits tax.

 

A non-U.S. Shareholder other than a corporation may be subject to backup withholding on net capital gains distributions that are otherwise exempt from withholding tax or on distributions that would otherwise be taxable at a reduced treaty rate if such Shareholder does not certify its non-U.S. status under penalties of perjury or otherwise establish an exemption.

 

If the Fund distributes net capital gains in the form of deemed rather than actual distributions, a non-U.S. Shareholder will be entitled to a U.S. federal income tax credit or tax refund equal to the Shareholder’s allocable share of the tax the Fund pays on the capital gains deemed to have been distributed. To obtain the refund, the non-U.S. Shareholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the non-U.S. Shareholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return.

 

Under the Foreign Account Tax Compliance Act provisions of the Code, the Fund is required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive reporting and withholding requirements in the Code designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to the Fund to enable the Fund to determine whether withholding is required.

 

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The tax consequences to a non-U.S. Shareholder entitled to claim the benefits of an applicable tax treaty may differ from those described herein. Non-U.S. Shareholders are advised to consult their tax advisors with respect to the particular tax consequences to them of an investment in the Fund, including the potential application of the U.S. estate tax.

 

Other Taxes

 

Shareholders may be subject to state, local and non-U.S. taxes applicable to their investment in the Fund. In those states or localities, entity-level tax treatment and the treatment of distributions made to Shareholders under those jurisdictions’ tax laws may differ from the treatment under the Code. Accordingly, an investment in Shares may have tax consequences for Shareholders that are different from those of a direct investment in the Fund’s portfolio investments. Shareholders are advised to consult their tax advisors with respect to the particular tax consequences to them of an investment in the Fund.

 

ERISA CONSIDERATIONS

 

Employee benefit plans and other plans subject to ERISA or the Code, including corporate savings and 401(k) plans, IRAs and Keogh Plans (each, an “ERISA Plan”) may purchase Shares. ERISA imposes certain general and specific responsibilities on persons who are fiduciaries with respect to an ERISA Plan, including prudence, diversification, prohibited transactions and other standards. Because the Fund is registered as an investment company under the 1940 Act, the underlying assets of the Fund will not be considered to be “plan assets” of any ERISA Plan investing in the Fund for purposes of the fiduciary responsibility and prohibited transaction rules under Title I of ERISA or Section 4975 of the Code. Thus, none of the Fund or the Advisor will be a fiduciary within the meaning of ERISA or Section 4975 of the Code with respect to the assets of any ERISA Plan that becomes a Shareholder, solely as a result of the ERISA Plan’s investment in the Fund.

 

The provisions of ERISA are subject to extensive and continuing administrative and judicial interpretation and review. The discussion of ERISA contained herein is, of necessity, general and may be affected by future publication of regulations and rulings. Potential investors should consult their legal advisers regarding the consequences under ERISA of an investment in the Fund through an ERISA Plan.

 

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ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST

 

The Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of the Board. These provisions may have the effect of discouraging attempts to acquire control of the Fund, which attempts could have the effect of increasing the expenses of the Fund and interfering with the normal operation of the Fund. The Trustees are elected for indefinite terms and do not stand for reelection. A Trustee may be removed from office (i) with cause only by a written instrument signed or adopted by two-thirds of the remaining Trustees; or (ii) without cause only by a written instrument signed or adopted by all of the remaining Trustees. The Declaration of Trust does not contain any other specific inhibiting provisions that would operate only with respect to an extraordinary transaction such as a merger, reorganization, tender offer, sale or transfer of substantially all of the Fund’s asset, or liquidation. Reference should be made to the Declaration of Trust on file with the SEC for the full text of these provisions.

 

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PLAN OF DISTRIBUTION

 

Franklin Distributors, LLC located at One Franklin Parkway San Mateo, CA 94403-1906, serves as the Fund’s principal underwriter and acts as the Distributor of the Fund’s Shares on a best efforts basis, subject to various conditions. Investors purchasing Class A Shares may be charged a sales load of up to 2.00% of the investment amount. Advisor Class Shares are offered for sale through the Distributor at NAV. Please see “Net Asset Value” below. The Distributor also may enter into agreements with Financial Intermediaries for the sale and servicing of the Fund’s Shares. Advisor Class Shares do not impose a front-end sales charge. Pursuant to the provisions of Rule 24f-2 under the Investment Company Act, the Fund declares that an indefinite number of its shares of beneficial interest are being registered under the Securities Act of 1933 by this registration statement. No arrangement has been made to place funds received in an escrow, trust or similar account. The Distributor is not required to sell any specific number or dollar amount of the Fund’s Shares, but will use its best efforts to solicit orders for the purchase of the Shares. Shares of the Fund will not be listed on any national securities exchange and the Distributor will not act as a market marker in Shares. Advisor Class Shares are not subject to either a distribution fee or a shareholder servicing fee.

 

The Advisor or its affiliates, in the Advisor’s discretion and from their own resources, may pay Additional Compensation to Financial Intermediaries in connection with the sale of Shares. In return for the Additional Compensation, the Fund may receive certain marketing advantages including access to a Financial Intermediaries’ registered representatives, placement on a list of investment options offered by a Financial Intermediary, or the ability to assist in training and educating the Financial Intermediaries. The Additional Compensation may differ among Financial Intermediaries in amount or in the manner of calculation: payments of Additional Compensation may be fixed dollar amounts, or based on the aggregate value of outstanding Shares held by Shareholders introduced by the Financial Intermediary, or determined in some other manner. The receipt of Additional Compensation by a selling Financial Intermediary may create potential conflicts of interest between an investor and its Financial Intermediary who is recommending the Fund over other potential investments. Additionally, the Fund pays a servicing fee to the Financial Intermediaries or financial institutions and for providing ongoing services in respect of clients with whom it has distributed shares of the Fund. Such services may include electronic processing of client orders, electronic fund transfers between clients and the Fund, account reconciliations with the Fund’s transfer agent, facilitation of electronic delivery to clients of Fund documentation, monitoring client accounts for back-up withholding and any other special tax reporting obligations, maintenance of books and records with respect to the foregoing, and such other information and ongoing liaison services as the Fund or the Advisor may reasonably request. Class A Shares may be charged an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly of the average daily net assets attributable to Class A Shares.

 

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The Fund and the Advisor have agreed to indemnify the Distributor against certain liabilities, including liabilities under the 1933 Act, or to contribute to payments the Distributor may be required to make because of any of those liabilities. Such agreement does not include indemnification of the Distributor against liability resulting from willful misfeasance, bad faith or negligence on the part of the Distributor in the performance of its duties or from reckless disregard by the Distributor of its obligations and duties under the Distribution Agreement.

 

Purchasing Shares

 

Investors may purchase Shares directly from the Fund in accordance with the instructions below. Investors will be assessed fees for returned checks and stop payment orders at prevailing rates charged by DST. The returned check and stop payment fee is currently $25. Investors may buy and sell Shares of the Fund through Financial Intermediaries. Orders will be priced at the appropriate price next computed after it is received by a Financial Intermediary. A Financial Intermediary may hold Shares in an omnibus account in the Financial Intermediary’s name or the Financial Intermediary may maintain individual ownership records. The Fund may pay the Financial Intermediary for maintaining individual ownership records as well as providing other shareholder services. Financial Intermediaries may charge fees for the services they provide in connection with processing your transaction order or maintaining an investor’s account with them. Investors should check with their Financial Intermediary to determine if it is subject to these arrangements. Financial Intermediaries are responsible for placing orders correctly and promptly with the Fund, forwarding payment promptly. Orders transmitted with a Financial Intermediary before the close of regular trading (generally 4:00 p.m., Eastern Time) on a day that the NYSE is open for business, will be priced based on the Fund’s NAV next computed after it is received by the Financial Intermediary.

 

The availability of sales charge waivers, discounts, and/or breakpoints may depend on the particular Financial Intermediary or type of account through which an investor purchases or holds Shares. Investors should contact their Financial Intermediary for more information regarding applicable sales charge waivers and discounts available to them and the Financial Intermediary’s related policies and procedures.

 

If an investment is made through an IRA, Keogh plan or 401(k) plan, an approved trustee must process and forward the subscription to the Fund. In such case, the Fund will send the confirmation and notice of its acceptance to the trustee.

 

By Mail

 

To make an initial purchase by mail, complete an account application and mail the application, together with a check made payable to Franklin BSP Private Credit Fund to:

 

Overnight:

Franklin BSP Private Credit Fund

DST Systems, Inc.

 

430 W 7th Street, Suite 219433

 

Kansas City, MO 64105-1407

Regular Mail:

Franklin BSP Private Credit Fund

DST Systems, Inc.

 

P.O. Box 219433

 

Kansas City, MO 64121-9433

 

All checks must be in US Dollars drawn on a domestic bank. The Fund will not accept payment in cash or money orders. The Fund may accept cashier’s checks in amounts greater than $10,000. To prevent check fraud, the Fund will neither accept third party checks, Treasury checks, credit card checks, traveler’s checks or starter checks for the purchase of shares, nor post-dated checks, postdated on-line bill pay checks, or any conditional purchase order or payment.

 

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The transfer agent will charge a $25 fee against an investor’s account, in addition to any loss sustained by the Fund, for any payment that is returned. It is the policy of the Fund not to accept applications under certain circumstances or in amounts considered disadvantageous to Shareholders. The Fund reserves the right to reject any application.

 

By Wire — Initial Investment

 

To make an initial investment in the Fund, the transfer agent must receive a completed account application from a Financial Intermediary before an investor wires funds. The Financial Intermediary may mail or overnight deliver an account application to the transfer agent. Upon receipt of the completed account application, the transfer agent will establish an account. The account number assigned will be required as part of the instruction that should be provided to an investor’s bank to send the wire. An investor’s bank must include both the name of the Fund, the account number, and the investor’s name so that monies can be correctly applied. If you wish to wire money to make an investment in the Fund, please call the Fund at 800-343-3736 for wiring instructions and to notify the Fund that a wire transfer is coming.

 

Any commercial bank can transfer same-day funds via wire. The Fund will normally accept wired funds for investment on the day received if they are received by the Fund’s designated bank before the close of regular trading on the NYSE. Your bank may charge you a fee for wiring same-day funds. The bank should transmit funds by wire to:

 

ABA #: 1010-0069-5

Credit: Franklin BSP Private Credit Fund

Account #: 9872585747

 

Further Credit:

Franklin BSP Private Credit Fund

(shareholder registration)

(shareholder account number)

 

Automatic Investment Plan — Subsequent Investments

 

You may participate in the Fund’s Automatic Investment Plan, an investment plan that automatically moves money from your bank account and invests it in the Fund through the use of electronic funds transfers or automatic bank drafts.

 

Subsequent investments may be made in any amount.

 

You may elect to make subsequent investments by transfers of any amount on specified days of each month into your established Fund account. Please contact your registered representative/investment advisor for more information about the Fund’s Automatic Investment Plan.

 

In compliance with the USA Patriot Act of 2001, the USB Administrator will verify certain information on each account application as part of the Fund’s Anti-Money Laundering Program. As requested on the application, investors must supply full name, date of birth, social security number and permanent street address. Mailing addresses containing only a P.O. Box will not be accepted. Registered representatives/investment advisors may call Investor Relations at 833-260-3565 for additional assistance when completing an application.

 

If the USB Administrator does not have a reasonable belief of the identity of a customer, the account will be rejected or the customer will not be allowed to perform a transaction on the account until such information is received. The Fund also may reserve the right to close the account within 5 business days if clarifying information/documentation is not received.

 

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Purchase Terms

 

The minimum initial purchase of Class A Shares by an investor is $2,500.  The Fund reserves the right to waive investment minimums. The minimum initial purchase for Advisor Class Shares by an investor is $1,000,000.  The Fund reserves the right to waive the investment minimum.  See “—Qualified Investors for Advisor Class.” The Fund’s Shares are offered for sale through its Distributor at NAV plus the applicable sales load. The price of the Shares during the Fund’s continuous offering will fluctuate over time with the NAV of the Shares.

 

Share Class Considerations

 

When selecting a share class, you should consider the following:

 

  which share classes are available to you;

 

  how much you intend to invest;

 

  how long you expect to own the shares; and

 

  total costs and expenses associated with a particular share class.

 

Each investor’s financial considerations are different. You should speak with your financial advisor to help you decide which share class is best for you. Not all Financial Intermediaries offer all classes of shares. If your Financial Intermediary offers more than one class of shares, you should carefully consider which class of shares to purchase.

 

Class A Shares

 

Investors purchasing Class A Shares may pay a sales load based on the amount of their investment in the Fund.  The sales load payable by each investor depends upon the amount invested by such investor in the Fund, but may range from 0.00% to 2.00%, as set forth below. A reallowance to participating broker-dealers may be made by the Distributor from the sales load paid by each investor. The following sales loads apply to your purchases of shares of the Fund:

 

Amount Purchased   Dealer
Reallowance*
    Sales
Load
as
% of
Offering
Price
    Sales
Load
as % of
Amount
Invested
 
Under $100,000     2.00 %     2.00 %     2.04 %
$100,000-$249,999     1.00 %     1.00 %     1.01 %
$250,000 and over     1.00 %     0.00 %     0.00 %

 

 

* Gross Dealer Concession paid to participating broker-dealers. The Distributor will compensate participating broker-dealers for purchases of $250,000 or more. With respect to those purchases of $250,000 or more only, investors will pay a contingent deferred sales charge of 1.00% for Class A Shares repurchased within 12 months of purchase.

 

You may be able to buy Class A Shares without a sales charge (i.e., “load-waived”) when you are:

 

  reinvesting dividends or distributions;
  a current or former Trustee of the Fund;
  an employee (including the employee’s spouse, domestic partner, children, grandchildren, parents, grandparents, siblings or any dependent of the employee, as defined in Section 152 of the Code) of the Fund’s Advisor or its affiliates or of a broker-dealer authorized to sell shares of the Fund;
  purchasing shares through the Fund’s Distributor;
  purchasing shares through a financial services firm that has a special arrangement with the Fund; or

 

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  participating in an investment advisory or agency commission program under which you pay a fee to an investment advisor or other firm for portfolio management or brokerage services.

 

The following are additional features that should be taken into account when purchasing Class A Shares:

 

  a minimum initial investment of $2,500, and a minimum subsequent investment in any amount (the Fund reserves the right to waive investment minimums); and
  a quarterly distribution and shareholder servicing fee at an annual rate of up to 0.50% of the average daily net assets of the Fund attributable to Class A Shares.
  with respect to purchases of $250,000 or more only, a contingent deferred sales charge of 1.00% for shares repurchased within 12 months of purchase.

 

Right of Accumulation

 

For the purposes of determining the applicable reduced sales charge, the right of accumulation allows you to include prior purchases of Class A Shares of the Fund as part of your current investment as well as reinvested dividends. To qualify for this option, you must be either:

 

  an individual;
  an individual and spouse purchasing shares for your own account or trust or custodial accounts for your minor children; or
  a fiduciary purchasing for any one trust, estate or fiduciary account, including employee benefit plans created under Sections 401, 403 or 457 of the Code, including related plans of the same employer.

 

If you plan to rely on this right of accumulation, you must notify the Distributor at the time of your purchase. You will need to give the Distributor your account numbers. Existing holdings of family members or other related accounts of a Shareholder may be combined for purposes of determining eligibility. If applicable, you will need to provide the account numbers of your spouse and your minor children as well as the ages of your minor children.

 

Letter of Intent

 

The letter of intent allows you to count all investments within a 13-month period in Class A Shares of the Fund as if you were making them all at once for the purposes of calculating the applicable reduced sales charges.  The minimum initial investment under a letter of intent is 5% of the total letter of intent amount.  The letter of intent does not preclude the Fund from discontinuing sales of its shares.  You may include a purchase not originally made pursuant to a letter of intent under a letter of intent entered into within 90 days of the original purchase.  To determine the applicable sales charge reduction, you also may include the cost of Class A Shares of the Fund which were previously purchased at a price including a front end sales charge during the 90-day period prior to the Distributor receiving the letter of intent.  You may combine purchases and exchanges by family members (limited to spouse and children, under the age of 21, living in the same household). You should retain any records necessary to substantiate historical costs because the Fund, the transfer agent and any Financial Intermediaries may not maintain this information. Shares acquired through reinvestment of dividends are not aggregated to achieve the stated investment goal.

 

Distribution Expenses

 

The Fund has adopted a “Distribution Plan” with respect to its Class A Shares under which the Fund may compensate financial industry professionals for providing ongoing services in respect of clients with whom they have distributed shares of the Fund.  Such services may include electronic processing of client orders, electronic fund transfers between clients and the Fund, account reconciliations with the Fund’s transfer agent, facilitation of electronic delivery to clients of Fund documentation, monitoring client accounts for back-up withholding and any other special tax reporting obligations, maintenance of books and records with respect to the foregoing, and such other information and liaison services as the Fund or the Advisor may reasonably request.  Under the Distribution Plan, the Fund, with respect to Class A Shares, may incur expenses on an annual basis equal up to 0.50% of its average net assets attributable to Class A.

 

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Class A Sales Load or Contingent Deferred Sales Charge Waivers

 

Class A shares may be purchased without an initial sales load or contingent deferred sales charge (a “CDSC”) by certain investors. If you would like information about available initial sales load or contingent deferred sales charge waivers (a “Waiver”), call your investment representative or DST Systems, Inc. at 833-260-3565.

 

Waivers for certain investors. The following investors or investments qualify to buy Class A shares without an initial sales load or CDSC due to anticipated economies in sales efforts and expenses, including:

 

  Employees of securities dealers that have executed a selling agreement with the Distributor and their affiliates and their family members, as allowed by the internal policies of their employer;

  Assets held in accounts managed by a subsidiary of Franklin Templeton, either (1) under an advisory agreement (including sub-advisory agreements) or (2) as trustee of an inter vivos or testamentary trust;

  Group annuity separate accounts offered to retirement plans;

  Purchases by a bank, trust company or thrift institution that is acting as a fiduciary exercising investment discretion;

  Shares acquired by an investor in connection with a comprehensive fee or other advisory fee arrangement (an “Advisory Fee Program”) between the investor and a registered broker-dealer, investment advisor, trust company, bank, or other financial intermediary (a “Sponsor”) in which the investor pays that Sponsor a fee for investment advisory services and the Sponsor or a broker dealer through whom the shares are acquired has an agreement with the Distributor authorizing the sale of the Fund’s shares. Such investments may be made in any amount;

  Clients of financial intermediaries who have entered into an agreement with the Distributor and have been approved by the Distributor to offer the Fund’s shares through a network, platform or self-directed investment brokerage account that may charge a transaction or other fee to customers; and

  Employer Sponsored Retirement Plans (“Plans” or individually, “Plan”) that invest through a record-keeper platform or third party retirement platform;

 

Advisor Class Shares

 

Advisor Class Shares will be sold at the NAV next computed after an order is received and accepted by the fund per Advisor Class Share and are not subject to any upfront sales charge. Advisor Class Shares are not subject to a distribution fee, shareholder servicing fees, or contingent deferred sales charge. Advisor Class Shares may only be available through certain Financial Intermediaries. Because the Advisor Class Shares of the Fund are sold at the NAV next computed after an order is received and accepted by the fund per Advisor Class Share without an upfront sales charge, the entire amount of your purchase is available for investment immediately. However, for all accounts, Advisor Class Shares require a minimum investment of $1,000,000, while subsequent investments may be made with any amount. The Fund reserves the right to waive the investment minimum.

 

Qualified Investors for Advisor Class

 

The following investors or investments qualify to buy Advisor Class shares of the Fund:

 

  Shares acquired by an investor in connection with an Advisory Fee Programs between the investor and a Sponsor in which the investor pays that Sponsor a fee for investment advisory services and the Sponsor or a broker dealer through whom the shares are acquired has an agreement with the Distributor authorizing the sale of the Fund’s shares. Such investments may be made in any amount;

  Governments, municipalities, and tax-exempt entities that meet the requirements for qualification under section 501 of the Internal Revenue Code when purchasing direct from the Fund;

  Current employees of securities dealers that have executed a selling agreement with the Distributor, and those employees’ affiliates and their family members, as allowed by the internal policies of their respective employers;

  Current and former officers, trustees, directors, and full-time employees (and, in each case, their family members) of Franklin Templeton or Franklin Templeton funds (including any foundation, trust or benefit plan maintained, owned, controlled, or established by or for any such person), consistent with our then current policies. The minimum initial investment is $1,000 or $25 for accounts with an automatic investment plan;

 

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  Assets held in accounts managed by a subsidiary of Franklin Templeton, either (1) under an advisory agreement (including sub-advisory agreements) or (2) as trustee of an inter vivos or testamentary trust;

  Plans that invest through a record-keeper or third party retirement platform;

  Purchases by a bank, trust company or thrift institution that is acting as a fiduciary exercising investment discretion;

  Any trust or plan established as part of a qualified tuition program under Section 529 of the Internal Revenue Code;

  An individual or entity associated with a current customer of Franklin Templeton Institutional, LLC (FTI, LLC) if approved by FTI, LLC in consultation with its customers;

  Unaffiliated U.S. registered mutual funds, including those that operate as “fund of funds”;

  Assets held in accounts under the recommendation of an investment consultant provided that (1) assets are held with a firm unaffiliated with the investment consultant’s firm; (2) the investment consultant is under a retainer or other similar fee arrangement with its clients; (3) the client is not an individual; and (4) a subsidiary of Franklin Resources, Inc. approves the investment; and

  Clients of financial intermediaries who have entered into an agreement with the Distributor and have been approved by the Distributor to offer the Fund’s shares through a network, platform, or self-directed investment brokerage account that may charge a transaction or other fee to customers. The minimum initial investment is $100,000, unless otherwise waived by the Distributor.

 

The Fund may permit the waiver of the minimum initial purchase amount in other situations, if deemed appropriate.

 

About the Distributor

 

Franklin Distributors, LLC, located at One Franklin Parkway San Mateo, CA 94403-1906, serves as distributor of the Fund’s Shares.

 

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DISTRIBUTIONS

 

The Fund intends to make a distribution each month to its Shareholders of the net investment income of the Fund after payment of Fund operating expenses. The dividend rate may be modified by the Board from time to time.

 

To the extent that any portion of the Fund’s monthly distributions are considered a return of capital to Shareholders, such portion would not be considered dividends for U.S. federal income tax purposes, and would represent a return of the amounts that such Shareholders invested. Although such return of capital distributions are not currently taxable to Shareholders, such distributions will have the effect of lowering a Shareholder’s tax basis in such Shares, and could result in a higher tax liability when the Shares are sold, even if they have not increased in value, or in fact, have lost value. The Fund’s final distribution for each tax year is expected to include any remaining investment company taxable income and net tax-exempt income undistributed during the tax year, as well as any undistributed net capital gain realized during the tax year. If the total distributions made in any tax year exceed investment company taxable income, net tax-exempt income and net capital gain, such excess distributed amount would be treated as ordinary dividend income to the extent of the Fund’s current and accumulated earnings and profits. This distribution policy, may, under certain circumstances, have adverse consequences to the Fund and its Shareholders because it may result in a return of capital resulting in less of a Shareholder’s assets being invested in the Fund and, over time, increase the Fund’s expense ratio. The distribution policy also may cause the Fund to sell securities at a time it would not otherwise do so to manage the distribution of income and gain. The initial distribution will be declared on date determined by the Board.

 

Each year, a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be furnished to Shareholders subject to IRS reporting. Fund ordinary distributions may exceed the Fund’s earnings, especially during the period before the Fund has substantially invested the proceeds from this offering. To the extent that the Fund pays distributions to Shareholders using proceeds it receives from Fund distributions, such distributions generally would constitute a return of investor capital and generally will lower an investor’s tax basis in his or her Shares. A return of capital generally is a return of an investor’s investment rather than a return of earnings or gains derived from the Fund’s investment activities. There can be no assurance that the Fund will be able to pay distributions at a specific rate or at all.

 

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As discussed in the “Tax Aspects” section, to qualify for and maintain RIC tax treatment, the Fund is required to distribute on a timely basis with respect to each tax year dividends for U.S. federal income tax purposes of an amount at least equal to the sum of 90% of  “investment company taxable income” and net tax-exempt interest income, determined without regard to any deduction for dividends paid, for such tax year. To avoid certain excise taxes imposed on RICs, the Fund is required to distribute in respect of each calendar year dividends of an amount at least equal to the sum of  (1) 98% of ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of capital gain net income (adjusted for certain ordinary losses) generally for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain net income for previous calendar years that were not distributed during such calendar years and on which the Fund paid no U.S. federal income tax. The Fund can offer no assurance that it will achieve results that will permit the payment of any cash distributions. If the Fund issues senior securities, the Fund will be prohibited from making distributions if doing so causes it to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of the Fund’s borrowings. Any such limitations would adversely impact the Fund’s ability to make distributions to Shareholders.

 

Distribution Reinvestment Plan

 

The Fund will operate under the DRP administered by DST. Pursuant to the plan, the Fund’s Distributions, net of any applicable U.S. withholding tax, are reinvested in the same class of shares of the Fund.

 

Shareholders automatically participate in the DRP, unless and until an election is made to withdraw from the plan on behalf of such participating shareholder. A shareholder who does not wish to have Distributions automatically reinvested may terminate participation in the DRP at any time by written instructions to that effect to DST. Shareholders who elect not to participate in the DRP will receive all distributions in cash paid to the shareholder of record (or, if the Shares are held in street or other nominee name, then to such nominee). Such written instructions must be received by DST at least one (1) business day prior to the record date of the Distribution or the shareholder will receive such Distribution in shares through the DRP. Under the DRP, the Fund’s Distributions to Shareholders are automatically reinvested in full and fractional shares as described below.

 

When the Fund declares a Distribution, DST, on the shareholder’s behalf, will receive additional authorized shares from the Fund either newly issued or repurchased from Shareholders by the Fund and held as treasury stock. The number of shares to be received when Distributions are reinvested will be determined by dividing the amount of the Distribution by the Fund’s NAV per share.

 

DST will maintain all shareholder accounts and furnish written confirmations of all transactions in the accounts, including information needed by Shareholders for personal and tax records. DST will hold shares in the account of the Shareholders in non-certificated form in the name of the participant, and each shareholder’s proxy, if any, will include those shares purchased pursuant to the DRP. Each participant, nevertheless, has the right to request certificates for whole and fractional shares owned. The Fund will issue certificates in its sole discretion. DST will distribute all proxy solicitation materials, if any, to participating Shareholders.

 

In the case of Shareholders, such as banks, brokers or nominees, that hold shares for others who are beneficial owners participating under the DRP, DST will administer the DRP on the basis of the number of shares certified from time to time by the record shareholder as representing the total amount of shares registered in the shareholder’s name and held for the account of beneficial owners participating under the DRP.

 

Neither DST nor the Fund shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or omitted pursuant to the DRP, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth herein. Neither shall they be liable hereunder for any act done in good faith or for any good faith omissions to act, including, without limitation, failure to terminate a participant’s account prior to receipt of written notice of his or her death or with respect to prices at which shares are purchased or sold for the participants account and the terms on which such purchases and sales are made, subject to applicable provisions of the federal securities laws.

 

86

 

 

The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. See “Tax Aspects.”

 

The Fund reserves the right to amend or terminate the DRP. There is no direct service charge to participants with regard to purchases under the DRP; however, the Fund reserves the right to amend the DRP to include a service charge payable by the participants.

 

All correspondence concerning the DRP should be directed to DST at Franklin BSP Private Credit Fund c/o DST Systems, Inc. P.O. Box 219433 Kansas City, MO 64121-9433. Certain transactions can be performed by calling the toll free number 833-260-3565.

 

FISCAL YEAR; REPORTS

 

For accounting purposes, the Fund’s fiscal year and tax year end on December 31. As soon as practicable after the end of each calendar year, a statement on Form 1099-DIV identifying the sources of the distributions paid by the Fund to Shareholders for tax purposes will be furnished to Shareholders subject to IRS reporting. In addition, the Fund will prepare and transmit to Shareholders an unaudited semi-annual and an audited annual report within 60 days after the close of the period for which the report is being made, or as otherwise required by the 1940 Act.

 

87

 

 

PRIVACY NOTICE

 

We are committed to maintaining the privacy of our Shareholders and to safeguarding their nonpublic personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

 

Generally, we will not receive any non-public personal information about Shareholders of the common stock of the Fund, although certain of our Shareholders’ non-public information may become available to us. The non-public personal information that we may receive falls into the following categories:

 

  Information we receive from Shareholders, whether we receive it orally, in writing or electronically. This includes Shareholders’ communications to us concerning their investment;

 

  Information about Shareholders’ transactions and history with us; or

 

  Other general information that we may obtain about Shareholders, such as demographic and contact information such as address.

 

We do not disclose any non-public personal information about Shareholders, except:

 

  to our affiliates (such as our investment advisor) and their employees that have a legitimate business need for the information;

 

  to our service providers (such as our administrator, accountants, attorneys, custodians, transfer agent, underwriter and proxy solicitors) and their employees as is necessary to service shareholder accounts or otherwise provide the applicable service;

 

  to comply with court orders, subpoenas, lawful discovery requests, or other legal or regulatory requirements; or

 

  as allowed or required by applicable law or regulation.

 

88

 

 

When the Fund shares non-public shareholder personal information referred to above, the information is made available for limited business purposes and under controlled circumstances designed to protect our Shareholders’ privacy. The Fund does not permit use of shareholder information for any non-business or marketing purpose, nor does the Fund permit third parties to rent, sell, trade or otherwise release or disclose information to any other party.

 

The Fund’s service providers, such as their advisor, administrator, and transfer agent, are required to maintain physical, electronic, and procedural safeguards to protect shareholder nonpublic personal information; to prevent unauthorized access or use; and to dispose of such information when it is no longer required.

 

Personnel of affiliates may access shareholder information only for business purposes. The degree of access is based on the sensitivity of the information and on personnel need for the information to service a shareholder’s account or comply with legal requirements.

 

If a shareholder ceases to be a shareholder, we will adhere to the privacy policies and practices as described above. We may choose to modify our privacy policies at any time. Before we do so, we will notify Shareholders and provide a description of our privacy policy.

 

In the event of a corporate change in control resulting from, for example, a sale to, or merger with, another entity, or in the event of a sale of assets, we reserve the right to transfer your non-public personal information to the new party in control or the party acquiring assets.

 

INQUIRIES

 

Inquiries concerning the Fund and the Shares should be directed to:

 

Benefit Street Partners L.L.C.

Investor Relations

9 West 57th St., 49th Floor, Suite 4920

New York, NY 10019

(212) 588-6770

 

89

 

 

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

 

INVESTMENT OBJECTIVES, POLICIES AND RISKS B-3
INVESTMENT RESTRICTIONS B-18
MANAGEMENT OF THE FUND B-20
PORTFOLIO TRANSACTIONS B-29
PROXY VOTING POLICY AND PROXY VOTING RECORD B-30
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES B-31
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM B-32
LEGAL COUNSEL B-32
ADDITIONAL INFORMATION B-32
FINANCIAL STATEMENTS B-42

 

90

 

 

Investors should rely only on the information contained in this prospectus. No dealer, salesperson or other individual has been authorized to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, investors should not rely upon such information or representations. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell to, or a solicitation of an offer to buy from, any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. Investors should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time subsequent to the date of this prospectus.

 

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

CLASS A SHARES OF BENEFICIAL INTEREST

 

ADVISOR CLASS SHARES OF BENEFICIAL INTEREST

 

PROSPECTUS

 

August 19, 2022

 

91

 

 

The information in this Statement of Additional Information is not complete and may be changed. The Fund may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 19, 2022

 

FRANKLIN BSP PRIVATE CREDIT FUND
CLASS A SHARES OF BENEFICIAL INTEREST

ADVISOR CLASS SHARES OF BENEFICIAL INTEREST

 

Statement of Additional Information

 

August 19, 2022

 

Franklin BSP Private Credit Fund (the “Fund”) is a Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company that is operated as an interval fund. The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income. There can be no assurance that the Fund will achieve its investment objectives.

 

This Statement of Additional Information (this “Statement of Additional Information”) is not a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by the Class A and Advisor Class, prospectus dated August 19, 2022 (the “Prospectus”). This Statement of Additional Information should be read in conjunction with the Prospectus, a copy of which may be obtained upon request and without charge by writing to the Fund at Benefit Street Partners L.L.C., 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10019 or by calling toll-free 833-260-3565 or by accessing the Fund’s website at https://www.franklintempleton.com. The information on the website is not incorporated by reference into this Statement of Additional Information and investors should not consider it a part of this Statement of Additional Information. The Prospectus, and other information about the Fund, is also available on the U.S. Securities and Exchange Commission’s (the “SEC”) website at http://www.sec.gov. The address of the SEC’s website is provided solely for the information of prospective investors and is not intended to be an active link.

 

Capitalized terms used but not defined in this Statement of Additional Information have the meanings ascribed to them in the Prospectus.

 

B-1

 

 

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

 

INVESTMENT OBJECTIVES, POLICIES AND RISKS B-3
INVESTMENT RESTRICTIONS B-18
MANAGEMENT OF THE FUND B-20
PORTFOLIO TRANSACTIONS B-29
PROXY VOTING POLICY AND PROXY VOTING RECORD B-30
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES B-31
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM B-32
LEGAL COUNSEL B-32
ADDITIONAL INFORMATION B-32
FINANCIAL STATEMENTS B-42

 

B-2

 

 

INVESTMENT OBJECTIVES, POLICIES AND RISKS

 

The following disclosure supplements the disclosure set forth under the caption “Types of Investments and Related Risks” in the Prospectus and does not, by itself, present a complete or accurate explanation of the matters disclosed. Prospective investors must refer also to “Types of Investments and Related Risks” in the Prospectus for a complete presentation of the matters disclosed below. The Fund will only make investments permitted by the 1940 Act.

 

Bank Loans and Participations

 

The Fund’s investment program may include bank loans and participations. These obligations are subject to unique risks, including (i) the possible avoidance of an investment transaction as a “preferential transfer,” “fraudulent conveyance” or “fraudulent transfer,” among other avoidance actions, under relevant bankruptcy, insolvency and/or creditors’ rights laws; (ii) so-called “lender liability” claims by the issuer of the obligations; (iii) environmental liabilities that may arise with respect to collateral securing the obligations; (iv) limitations on the ability of the Fund to directly enforce its rights with respect to participations; and (v) the contractual nature of participations where the Fund takes on the credit risk of the agent bank rather than the actual borrower.

 

The Fund may acquire interests in loans either directly (by way of assignment) or indirectly (by way of participation). The Fund typically acquires loans by assignment, but may in some instances purchase loans by participation. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a contracting party under the loan agreement with respect to the loan; however, its rights can be more restricted than those of the assigning institution. Participation in a portion of a loan typically results in a contractual relationship only with the institution participating out the interest and not with the obligor. The Fund would, in such a case, have the right to receive payments of principal and interest to which it is entitled only from the institution selling the participation, and not directly from the obligor, and only upon receipt by such institution of such payments from the obligor. As the owner of a participation, the Fund generally will have no right to enforce compliance by the obligor with the terms of the loan agreement or to vote on amendments to the loan agreement, nor any rights of set-off against the obligor, and the Fund may not directly benefit from collateral supporting the loan in which it has purchased the participation. In addition, in the event of the insolvency of the selling institution, the Fund may be treated as a general creditor of such selling institution, and may not have any exclusive or senior claim with respect to the selling institution’s interest in, or the collateral with respect to, the applicable loan. Consequently, the Fund will assume the credit risk of both the obligor and the institution selling the participation to the Fund. As a result, concentrations of participations from any one selling institution subject the Fund to an additional degree of risk with respect to defaults by such selling institution.

 

Fixed-Income Instruments

 

The Fund invests in fixed-income instruments, such as high-yield corporate debt securities or bonds. Corporate bonds (“Corporate Bonds”) and other fixed-income instruments are typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Underwriter”) for a group of investors (“Bond Investors”). In secured fixed-income instrument offerings, an institution, typically but not always an agent affiliated with the Underwriter, holds any collateral on behalf of the Bond Investors. The Fund may purchase fixed-income instruments either directly from the Underwriter or from a Bond Investor.

 

An issuer of fixed-income instruments must typically comply with the terms contained in a note purchase agreement or indenture between the issuer and the holders of the instruments (the “Bond Agreement”). These Bond Agreements generally detail the schedule of payments and also place certain restrictive financial and other covenants on the issuer, similar to those in loan agreements. A trustee typically administers and enforces the terms of the Bond Agreement and the fixed-income instrument on behalf of all holders of the instrument.

 

The rights of holders of high-yield corporate debt securities or bonds are generally subordinate to any existing senior or secured lenders in the issuer’s capital structure and are structurally subordinated to the rights of any existing or future lenders to an issuer’s subsidiaries that do not guarantee the high-yield corporate debt securities or bonds, and thus have a lower priority in payment than such lenders.

 

B-3

 

 

Commercial Real Estate Loans

 

Senior Mortgage Loans. These mortgage loans are typically secured by first liens on commercial properties, including the following property types: office, multifamily, retail, industrial, hospitality and mixed-use. In some cases, first lien mortgages may be divided into an A-Note and a B-Note. The A-Note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties that is senior to a B-Note secured by the same first mortgage property or group.

 

Subordinated Debt. These loans may include structurally subordinated first mortgage loans and junior participations in first mortgage loans or participations in these types of assets. As noted above, a B-Note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties and is subordinated to an A-Note secured by the same first mortgage property or group. The subordination of a B-Note or junior participation typically is evidenced by participations or intercreditor agreements with other holders of interests in the note. B-Notes are subject to more credit risk with respect to the underlying mortgage collateral than the corresponding A-Note.

 

Preferred Equity. Real estate preferred equity investments are subordinate to first mortgage loans and are not collateralized by the property underlying the investment. As a holder of preferred equity, the Fund seeks to enhance its position with covenants that limit the activities of the entity in which the Fund has an interest and protect the Fund’s equity by obtaining an exclusive right to control the underlying property after an event of default, should such a default occur on the Fund’s investment.

 

Mezzanine Loans. Like B-Notes, these loans are also subordinated, but are usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. In a liquidation, these loans are generally junior to any mortgage liens on the underlying property, but senior to any preferred equity or common equity interests in the entity that owns the property. Investor rights are usually governed by intercreditor agreements.

 

Commercial Mortgage-Backed Securities

 

Commercial Mortgage-Backed Securities (“CMBS”) are fixed income instruments that are secured by mortgage loans on commercial real property. CMBS typically take the form of multi-class debt or pass-through certificates secured by mortgage loans on commercial properties. They generally are structured to provide protection to investors in senior tranches against potential losses on the underlying mortgage loans. Such protection generally is provided by causing holders of subordinated classes of securities (“Subordinated CMBS”) to take the first loss in the event of defaults on the underlying commercial mortgage loans. The Fund may invest in CMBS of any credit quality, including, without limitation,

 

CMBS are subject to credit risk and prepayment risk. Although prepayment risk is present, it is of a lesser degree in CMBS than in the residential mortgage market; commercial real estate property loans often contain provisions which substantially reduce the likelihood that such securities will be prepaid (e.g., significant prepayment penalties on loans and, in some cases, prohibition on principal payments for several years following origination).

 

Debtor-in-Possession (“DIP”) Loans

 

The Fund may invest in or extend loans to companies that have filed for protection under Chapter 11 of the United States Bankruptcy Code. These DIP loans are most often working-capital facilities put into place at the outset of a Chapter 11 case to provide the debtor with both immediate cash and the ongoing working capital that will be required during the reorganization process. While such loans are generally viewed as less risky than many other types of loans as a result of their seniority in the debtor’s capital structure, their underlying collateral and because their terms will have been approved by a federal bankruptcy court order, the debtor’s reorganization efforts may fail and the proceeds of the ensuing liquidation of the DIP lender’s collateral might be insufficient to repay the DIP loan.

 

B-4

 

 

Lender Liability

 

Under common law principles that in some cases form the basis for lender liability claims, if a lender (i) intentionally takes an action that results in the undercapitalization of a borrower or issuer to the detriment of other creditors of such borrower or issuer; (ii) engages in other inequitable conduct to the detriment of such other creditors; or (iii) engages in fraud with respect to, or makes misrepresentations to, such other creditors, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors (a remedy called “equitable subordination”). The Fund does not intend to engage in conduct that would form the basis for a successful cause of action based upon the equitable subordination doctrine; however, because of the nature of the debt obligations, the Fund may be subject to claims from creditors of an obligor that debt obligations of such obligor which are held by the Fund should be equitably subordinated.

 

Restricted and Illiquid Securities

 

The Fund may not be able to readily dispose of illiquid securities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations.

 

The Fund may purchase certain securities eligible for resale to qualified institutional buyers as contemplated by Rule 144A under the Securities Act of 1933, as amended (the “Securities Act” and, such securities, “Rule 144A Securities”). Rule 144A provides an exemption from the registration requirements of the Securities Act for the resale of certain restricted securities to certain qualified institutional buyers. One effect of Rule 144A is that certain restricted securities may be considered liquid, though no assurance can be given that a liquid market for Rule 144A Securities will develop or be maintained. However, where a substantial market of qualified institutional buyers has developed for certain unregistered securities purchased by the Fund pursuant to Rule 144A under the Securities Act, the Fund intends to treat such securities as liquid securities in accordance with procedures approved by the Board. Because it is not possible to predict with assurance how the market for Rule 144A Securities will develop, the Board directs Benefit Street Partners L.L.C. (“BSP” or “Advisor”), or to carefully monitor the Fund’s investments in such securities with particular regard to trading activity, availability of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Fund’s investing in such securities may have the effect of increasing the level of illiquidity in its investment portfolio during such period.

 

Special Situations

 

The Fund may invest in companies undergoing work-outs, liquidations, reorganizations, bankruptcies, insolvencies or other fundamental changes or similar transactions. In any investment opportunity involving any such type of special situation, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities the value of which will be less than the purchase price to the Fund of the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, the Fund may be required to sell its investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including but not limited to (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which the Fund intends to invest, there is a potential risk of loss by the Fund of its entire investment in such companies.

 

Structured Credit

 

The Fund may invest in asset-backed opportunities across broad sectors such as corporate credit or real estate. The Fund will target investment opportunities that are directly originated and privately negotiated that may include (1) financings secured by pools of real estate assets; and (2) debt and equity investments in U.S.-dollar-denominated collateralized loan obligations (“CLOs”) that are primarily backed by corporate leveraged loans issued to primarily U.S. obligors (“U.S. CLOs”). The investments in the “equity” of structured credit products (including CLOs) refers to the junior-most or residual debt tranche of such structured credit products (i.e., the tranche whose rights to payment are not senior to any other tranche, which does not typically receive a credit rating and is typically not secured (and is also typically referred to as subordinated notes, income notes, preferred shares or preferred securities, or, more generally, as “equity”)) (the “Residual Tranche”).

 

B-5

 

 

CLO equity tranches (or other similar junior tranches) and privately issued asset-backed securities in which the Fund invests may be highly leveraged, which magnifies the Fund’s risk of loss on such investments.

 

Collateralized Debt Obligations

 

The Fund may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”), CLOs and other securitized products. CDOs are types of asset-backed securities. The risks of an investment in a CDO depend largely on the type of collateral securities and the class of the CDO in which the Fund invests. The Fund may invest in CDOs backed by corporate bond obligations, real estate loans and other asset classes. Normally, CDOs, CBOs, CLOs and other securitized products are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be characterized by the Fund as illiquid securities. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for transactions under Rule 144A of the Securities Act. In addition to the normal risks associated with fixed income securities and asset-backed securities generally discussed elsewhere in this Statement of Additional Information, CDOs carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the risk that the collateral may default or decline in value or be downgraded, if rated by a NRSRO; (iii) the Fund is likely to invest in tranches of CDOs that are subordinate to other tranches; (iv) the structure and complexity of the transaction and the legal documents could lead to disputes among investors regarding the characterization of proceeds; (v) the investment return achieved by the Fund could be significantly different than those predicted by financial models; (vi) the lack of a readily available secondary market for CDOs; (vii) risk of forced “fire sale” liquidation due to technical defaults such as coverage test failures; and (viii) the CDO’s manager may perform poorly.

 

Structured Products Risk. The Fund may invest in structured products, consisting of CLOs and credit-linked notes. CLOs and structured products are generally backed by an asset or a pool of assets (often senior secured loans and other credit-related assets in the case of a CLO) that serve as collateral. Holders of structured products bear the risks, including credit risk, of the underlying investments, index or reference obligation and are subject to prepayment and counterparty risks.

 

In some instances, such as in the case of most CLOs, structured products are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their degree of risk. If there are defaults or the relevant collateral otherwise underperforms, scheduled payments to senior tranches of such securities take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches.

 

The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured products generally pay their share of the structured product’s administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured products will rise or fall, these prices (and, therefore, the prices of structured products) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter-term financing to purchase longer-term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value of the structured products owned by the Fund.

 

Certain structured products may be thinly traded or have a limited trading market. CLOs and credit-linked notes are typically privately offered and sold. Structured products, and particularly subordinated interests thereof, are less liquid than many other types of securities and may be more volatile than the underlying assets. As a result, investments in CLOs and credit-linked notes may be subject to liquidity risk and may be characterized by the Fund as illiquid securities. In addition to the general risks associated with debt securities discussed herein, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the fact that investments in CLO equity and junior debt tranches will likely be subordinate to other senior classes of CLO debt; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

B-6

 

 

In addition, changes in the collateral held by a CLO may cause payments on the instruments the Fund holds to be reduced, either temporarily or permanently. Further, the performance of a CLO or other structured products will be affected by a variety of factors, including the security’s priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets. There are also the risks that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting in loss to the CLO. In addition, the complex structure of the security may produce unexpected investment results, especially during times of market stress or volatility.

 

Rights Offerings and Warrants to Purchase

 

The Fund may participate in rights offerings and may purchase warrants, which are privileges issued by corporations enabling the owners to subscribe for and purchase a specified number of shares of the corporation at a specified price during a specified period of time. Subscription rights normally have a short life span to expiration. The purchase of rights or warrants involves the risk that the Fund could lose the purchase value of a right or warrant if the right to subscribe for additional shares is not exercised prior to the rights’ or warrants’ expiration. Also, the purchase of rights and/or warrants involves the risk that the effective price paid for the right and/or warrant added to the subscription price of the related security may exceed the value of the related security’s market price such as when there is no movement in the level of the underlying security.

 

Equity Securities

 

In addition to common stock, the Fund may invest in other equity securities, including preferred stock, convertible securities and depositary receipts.

 

Preferred Stock. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of the issuer’s preferred stock than in more senior credit securities with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of trustees. Preferred stock also may be subject to optional or mandatory redemption provisions.

 

Convertible Securities. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles its holder to receive interest that is generally paid or accrued on debt or a dividend that is paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument.

 

B-7

 

 

Depositary Receipts. The Fund may hold investments in sponsored and unsponsored American depositary receipts (“ADRs”), European depositary receipts (“EDRs”), global depositary receipts (“GDRs”) and other similar global instruments. ADRs typically are issued by a U.S. bank or trust company and evidence ownership of underlying securities issued by a non-U.S. corporation. EDRs, which are sometimes referred to as continental depositary receipts, are receipts issued in Europe, typically by non-U.S. banks and trust companies that evidence ownership of either non-U.S. or domestic underlying securities. GDRs are depositary receipts structured like global debt issues to facilitate trading on an international basis. Unsponsored ADR, EDR and GDR programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, available information concerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored by the issuer. Investments in ADRs, EDRs and GDRs present the additional investment considerations of non-U.S. securities.

 

Cash Equivalents and Short-Term Debt Securities

 

For temporary defensive purposes, the Fund may invest up to 100% of its assets in cash equivalents and short-term debt securities. Short-term debt securities are defined to include, without limitation, the following:

 

(1) U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government securities include securities issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association, the securities of which are supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks and Tennessee Valley Authority, the securities of which are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, the securities of which are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association, the securities of which are supported only by its credit. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate. The economic crisis in the United States during 2008 and 2009 negatively impacted government-sponsored entities. As the real estate market has deteriorated through declining home prices and increasing foreclosure, government-sponsored entities, which back the majority of U.S. mortgages have experienced extreme volatility, and in some cases, a lack of liquidity. The Advisor will monitor developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment objectives, but there can be no assurance that it will be successful in doing so.

 

(2) Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Certificates of deposit purchased by the Fund may not be fully insured by the Federal Deposit Insurance Corporation.

 

(3) Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities; certificates of deposit; or bankers’ acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The Advisor will monitor the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The Advisor will do so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.

 

B-8

 

 

(4) Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time. The Advisor will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporation’s ability to meet all of its financial obligations, because the Fund’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or floating rate of interest.

 

Risks of Foreign Investments

 

Investments in foreign issuers or securities principally traded outside the United States may involve special risks due to foreign economic, political and legal developments, including favorable or unfavorable changes in currency exchange rates, exchange control regulations (including currency blockage), expropriation, nationalization or confiscatory taxation of assets, and possible difficulty in obtaining and enforcing judgments against foreign entities. The Fund may be subject to foreign taxation on realized capital gains, dividends or interest payable on foreign securities, on transactions in those securities and on the repatriation of proceeds generated from those securities. Transaction-based charges are generally calculated as a percentage of the transaction amount and are paid upon the sale or transfer of portfolio securities subject to such taxes. Any taxes or other charges paid or incurred by the Fund in respect of its foreign securities will reduce the Fund’s yield.

 

In addition, the tax laws of some foreign jurisdictions in which the Fund may invest are unclear and interpretations of such laws can change over time. As a result, to comply with guidance related to the accounting and disclosure of uncertain tax positions under generally accepted accounting principles (“GAAP”), the Fund may be required to accrue for book purposes certain foreign taxes in respect of its foreign securities or other foreign investments that it may or may not ultimately pay. Such tax accruals will reduce the Fund’s net asset value (“NAV”) at the time accrued, even though, in some cases, the Fund ultimately will not pay the related tax liabilities. Conversely, the Fund’s NAV will be increased by any tax accruals that are ultimately reversed.

 

Issuers of foreign securities are subject to different, often less comprehensive, accounting, custody, reporting and disclosure requirements than U.S. issuers. The securities of some foreign governments, companies and securities markets are less liquid, and at times more volatile, than comparable U.S. securities and securities markets. Foreign brokerage commissions and related fees also are generally higher than those in the United States. Investments in foreign securities also may be affected by different custody and/or settlement practices or delayed settlements in some foreign markets. The laws of some foreign countries may limit the Fund’s ability to invest in securities of certain issuers located in those countries. Foreign countries may have reporting requirements with respect to the ownership of securities, and those reporting requirements may be subject to interpretation or change without prior notice to investors. No assurance can be given that the Fund will satisfy applicable foreign reporting requirements at all times.

 

When-Issued and Forward Commitment Securities

 

The Fund may purchase securities on a “when-issued” basis and may purchase or sell securities on a “forward commitment” basis to acquire the security or to hedge against anticipated changes in interest rates and prices. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund will enter into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. If the Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it might incur a gain or loss. At the time the Fund enters into a transaction on a when-issued or forward commitment basis, it will designate on its books and records cash or liquid credit securities equal to at least the value of the when-issued or forward commitment securities, unless future SEC staff guidance permits designation or segregation to a lesser extent. The value of these assets will be monitored daily to ensure that their marked-to-market value will at all times equal or exceed the corresponding obligations of the Fund. There is always a risk that the securities may not be delivered and that the Fund may incur a loss. Settlements in the ordinary course, which may take substantially more than five business days, are not treated by the Fund as when-issued or forward commitment transactions and accordingly are not subject to the foregoing restrictions.

 

B-9

 

 

Securities purchased on a forward commitment or when-issued basis are subject to changes in value (generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise) based upon the public’s perception of the creditworthiness of the issuer and changes, actual or anticipated, in the level of interest rates. Securities purchased on a forward commitment or when-issued basis may expose the Fund to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a when-issued basis can involve the additional risks that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when-issued basis when the Fund is fully invested may result in greater potential fluctuation in the Fund’s NAV.

 

The risks and effect of settlements in the ordinary course on the Fund’s NAV are not the same as the risks and effect of when-issued and forward commitment securities.

 

The purchase price of when-issued and forward commitment securities are expressed in yield terms, which reference a floating rate of interest, and is therefore subject to fluctuations of the security’s value in the market from the date of the Fund’s commitment (the “Commitment Date”) to the date of the actual delivery and payment for such securities (the “Settlement Date”). There is a risk that, on the Settlement Date, the Fund’s payment of the final purchase price, which is calculated on the yield negotiated on the Commitment Date, will be higher than the market’s valuation of the security on the Settlement Date. This same risk is also borne if the Fund disposes of its right to acquire a when-issued security, or its right to deliver or receive, a forward commitment security, and there is a downward market movement in the value of the security from the Commitment Date to the Settlement Date. In some instances, no income accrues to the Fund during the period from the Commitment Date to the Settlement Date. On the other hand, the Fund may incur a gain if the Fund invests in when-issued and forward commitment securities and correctly anticipates the rise in interest rates and prices in the market.

 

The settlements of secondary market purchases of senior loans in the ordinary course, on a settlement date beyond the period expected by loan market participants (i.e., T+7 for par loans and T+20 for distressed loans, in other words more than seven or twenty business days beyond the trade date, respectively) are subject to the delayed compensation mechanics prescribed by the Loan Syndications and Trading Association (“LSTA”). For par loans, income accrues to the buyer of the senior loan (the “Buyer”) during the period beginning on the last date by which the senior loan purchase should have settled (T+7) to and including the actual settlement date. Should settlement of a par senior loan purchase in the secondary market be delayed beyond the T+7 period prescribed by the LSTA, the Buyer is typically compensated for such delay through a payment from the seller of the senior loan (this payment may be netted from the wire released on settlement date for the purchase price of the senior loan paid by the Buyer). In brief, the adjustment is typically calculated by multiplying the notional amount of the trade by the applicable margin in the Loan Agreement prorated for the number of business days (calculated using a year of 360 days) beyond the settlement period prescribed by the LSTA, plus any amendment or consent fees that the buyer should have received. Furthermore, the purchase of a senior loan in the secondary market is typically negotiated and finalized pursuant to a binding trade confirmation, and therefore, the risk of non-delivery of the security to the Fund is reduced or eliminated when compared with such risk when investing in when-issued or forward commitment securities.

 

Stressed Investments

 

The Fund invests in securities and other obligations of companies that involve significant financial or business distress, including companies involved in bankruptcy or other reorganization and liquidation proceedings. In any investment opportunity involving any such type, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or new securities, the value of which may be less than the purchase price paid by the Fund for the securities or other financial instruments in respect of which such distribution is received. Similarly, if an anticipated transaction does not in fact occur, the Fund may be required to sell its investment at a loss. The consummation of such transactions can be prevented or delayed by a variety of factors, including, but not limited to: (i) intervention of a regulatory agency; (ii) market conditions resulting in material changes in securities prices; (iii) compliance with any applicable bankruptcy, insolvency or securities laws; and/or (iv) the inability to obtain adequate financing. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies in which the Fund invests, there is a potential risk of loss by the Fund of its entire investment in such companies.

 

B-10

 

 

Certain Bankruptcy and Insolvency Issues

 

Some of the companies in which the Fund invests may be involved in complex bankruptcy or insolvency proceedings in the United States or elsewhere. There are a number of significant risks inherent in the bankruptcy or insolvency process. The Fund cannot guarantee the outcome of any bankruptcy or insolvency proceeding.

 

Under U.S. bankruptcy or other insolvency proceedings, the Fund may risk taking a loss on its investment and having its claim released or discharged against the debtor and third parties. For example, under a plan of reorganization, the Fund could receive a cash distribution for less than its initial investment or receive securities or other financial instruments in exchange for its claims, which then could be discharged and released against the debtor or other third parties. In addition, through U.S. bankruptcy proceedings, a debtor can effectuate a sale of assets with a purchaser acquiring such assets free and clear of any claims or liens underlying the Fund’s investment, with the Fund having only potential recourse to the proceeds of the sale.

 

Under certain circumstances, payments or grants of security to the Fund may be reclaimed, recharacterized or avoided if any such payment or grant is later determined by the applicable court to have been a fraudulent conveyance, fraudulent transfer, preferential payment or otherwise subject to avoidance under applicable law. In addition, especially in the case of investments made prior to the commencement of bankruptcy proceedings, creditors can lose their ranking and priority if they exercise “domination and control” of a debtor and other creditors can demonstrate that they have been harmed by such actions.

 

Many events in a bankruptcy are often beyond the control of the creditors. While creditors may be given an opportunity to object to or otherwise participate in significant actions, there can be no assurance that a court in the exercise of its broad powers or discretion would not approve actions that would be contrary to the interests of the Fund.

 

The duration of a bankruptcy or insolvency proceeding is difficult to predict. A creditor’s return on investment can be adversely impacted by delays while a plan of reorganization is being negotiated, approved by the creditors and confirmed by the bankruptcy court and until the plan ultimately becomes effective. Similar delays can occur while a court considers a sale or other restructuring transaction. In addition, the administrative costs in connection with a bankruptcy or insolvency proceeding are frequently high and will be paid out of the debtor’s estate prior to any return to unsecured creditors or equity holders. If a proceeding involves protracted or difficult litigation, or turns into a liquidation, substantial assets may be devoted to administrative costs. Also, in the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. Further, certain claims that have priority by law (for example, claims for taxes) may be quite substantial.

 

The effect of a bankruptcy filing on or by a portfolio company may adversely and permanently affect the portfolio company. The portfolio company may lose its market position, going concern value and key employees and otherwise become incapable of restoring itself as a viable entity. If the proceeding is converted to a liquidation, the liquidation value of the portfolio company may not equal the liquidation value that was believed to exist at the time of the investment.

 

Other Portfolio Strategies

 

Short Sales

 

The Fund may engage in short sales of securities, particularly of Corporate Bonds and other fixed-income instruments. A short sale is a transaction in which the Fund sells a security it does not own as a means of attractive financing for purchasing other assets or in anticipation that the market price of that security will decline. The Fund may make short sales for financing, for risk management, to maintain portfolio flexibility or to enhance income or gain.

 

B-11

 

 

When the Fund makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.

 

The Fund’s obligation to replace the borrowed security may be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other liquid securities. The Fund may also be required to designate on its books and records similar collateral with its custodian to the extent, if any, necessary so that the aggregate collateral value is at all times at least equal to the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security, the Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer.

 

Short selling involves a number of risks. If a security sold short increases in price, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. The Fund may, but is not expected to, have substantial short positions and may engage in short sales where it does not own or have the immediate right to acquire the security sold short, and as such must borrow those securities to make delivery to the buyer under the short sale transaction. The Fund may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable price and may have to sell related long positions earlier than it had expected. Thus, the Fund may not be able to successfully implement any short sale strategy it employs due to limited availability of desired securities or for other reasons. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to the Fund.

 

Until the Fund replaces a security borrowed in connection with a short sale, it may be required to maintain a segregated account of cash or liquid assets with a broker or custodian to cover the Fund’s short position.

 

Generally, securities held in a segregated account cannot be sold unless they are replaced with other liquid assets. The Fund’s ability to access the pledged collateral may also be impaired in the event the broker becomes bankrupt, insolvent or otherwise fails to comply with the terms of the contract. In such instances, the Fund may not be able to substitute or sell the pledged collateral and may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. Additionally, the Fund must maintain sufficient liquid assets, less any additional collateral pledged to the broker, marked-to-market daily, to cover the borrowed securities obligations. This may limit the Fund’s investment flexibility, as well as its ability to meet other current obligations.

 

In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully or partially, to implement its short selling strategy. Periods of unusual or adverse market, economic, regulatory or political conditions generally may exist for as long as six months and, in some cases, much longer.

 

Derivatives

 

General Limitations on Futures and Options Transactions. The Fund has filed a notice of eligibility for exclusion from the definition of the term “commodity pool operator” with the U.S. Commodity Futures Trading Commission (the “CFTC”) and the National Futures Association, which regulate trading in the futures markets. Pursuant to CFTC Regulation 4.5, the Fund is not subject to regulation as a commodity pool under the Commodity Exchange Act (the “CEA”).

 

Various exchanges and regulatory authorities have undertaken reviews of options and futures trading in light of market volatility. Among the possible actions that have been presented are proposals to adopt new or more stringent daily price fluctuation limits for futures and options transactions and proposals to increase the margin requirements for various types of futures transactions.

 

B-12

 

 

Foreign currency forward contracts. The Fund may enter into foreign currency forward contracts to reduce the Fund’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. In a foreign currency forward contract, the Fund agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Forward foreign currency contracts are marked-to-market at the applicable forward rate.

 

There is no guarantee that it will be practical to hedge currency risks or that any efforts to do so will be successful.

 

Asset Coverage for Futures and Options Positions. The Fund complies with the regulatory requirements of the SEC and the CFTC with respect to coverage of options and futures positions by registered investment companies and, if the guidelines so require, will segregate cash, U.S. government securities, high-grade liquid debt securities and/or other liquid assets permitted by the SEC and CFTC on the Fund’s records in the amount prescribed. Securities segregated on the Fund’s records cannot be sold while the futures or options position is outstanding, unless replaced with other permissible assets, and will be marked-to-market daily.

 

Options. The Fund may purchase put and call options on currencies or securities. A put option gives the purchaser the right to compel the writer of the option to purchase from the option holder an underlying currency or security or its equivalent at a specified price at any time during the option period. In contrast, a call option gives the purchaser the right to buy the underlying currency or security covered by the option or its equivalent from the writer of the option at the stated exercise price.

 

As a holder of a put option, the Fund will have the right to sell the currencies or securities underlying the option and as the holder of a call option, the Fund will have the right to purchase the currencies or securities underlying the option, in each case at their exercise price at any time prior to the option’s expiration date. The Fund may seek to terminate its option positions prior to their expiration by entering into closing transactions. The ability of the Fund to enter into a closing sale transaction depends on the existence of a liquid secondary market. There can be no assurance that a closing purchase or sale transaction can be effected when the Fund so desires.

 

Certain Considerations Regarding Options. The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of options involves the risk that the premium and transaction costs paid by the Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities on which the option is based. Imperfect correlation between the options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for the Fund.

 

Some, but not all, of the Fund’s derivative instruments may be traded and listed on an exchange. There is no assurance that a liquid secondary market on an options exchange will exist for any particular option at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If the Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities.

 

Futures Contracts. The Fund may enter into securities-related futures contracts, including security futures contracts, as an anticipatory hedge. The Fund’s derivative investments may include sales of futures as an offset against the effect of expected declines in securities prices and purchases of futures as an offset against the effect of expected increases in securities prices. The Fund does not enter into futures contracts which are prohibited under the CEA and will, to the extent required by regulatory authorities, enter only into futures contracts that are traded on exchanges and are standardized as to maturity date and underlying financial instrument. A security futures contract is a legally binding agreement between two parties to purchase or sell in the future a specific quantity of a security or of the component securities of a narrow-based security index, at a certain price. A person who buys a security futures contract enters into a contract to purchase an underlying security and is said to be “long” the contract. A person who sells a security futures contract enters into a contract to sell the underlying security and is said to be “short” the contract. The price at which the contract trades (the “contract price”) is determined by relative buying and selling interest on a regulated exchange.

 

B-13

 

 

Transaction costs are incurred when a futures contract is bought or sold and margin deposits must be maintained. To enter into a security futures contract, the Fund must deposit funds with its custodian in the name of the futures commodities merchant equal to a specified percentage of the current market value of the contract as a performance bond. Moreover, all security futures contracts are marked-to-market at least daily, usually after the close of trading. At that time, the account of each buyer and seller reflects the amount of any gain or loss on the security futures contract based on the contract price established at the end of the day for settlement purposes.

 

An open position, either a long or short position, is closed or liquidated by entering into an offsetting transaction (i.e., an equal and opposite transaction to the one that opened the position) prior to the contract expiration. Traditionally, most futures contracts are liquidated prior to expiration through an offsetting transaction and, thus, holders do not incur a settlement obligation. If the offsetting purchase price is less than the original sale price, a gain will be realized; if it is more, a loss will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be realized. The transaction costs must also be included in these calculations. However, there can be no assurance that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract and the Fund may not be able to realize a gain in the value of its future position or prevent losses from mounting. This inability to liquidate could occur, for example, if trading is halted due to unusual trading activity in either the security futures contract or the underlying security; if trading is halted due to recent news events involving the issuer of the underlying security; if systems failures occur on an exchange or at the firm carrying the position; or, if the position is on an illiquid market. Even if the Fund can liquidate its position, it may be forced to do so at a price that involves a large loss.

 

Under certain market conditions, it may also be difficult or impossible to manage the risk from open security futures positions by entering into an equivalent but opposite position in another contract month, on another market, or in the underlying security. This inability to take positions to limit the risk could occur, for example, if trading is halted across markets due to unusual trading activity in the security futures contract or the underlying security or due to recent news events involving the issuer of the underlying security.

 

There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures contract position. The Fund would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Fund’s NAV. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.

 

Security futures contracts that are not liquidated prior to expiration must be settled in accordance with the terms of the contract. Depending on the terms of the contract, some security futures contracts are settled by physical delivery of the underlying security. At the expiration of a security futures contract that is settled through physical delivery, a person who is long the contract must pay the final settlement price set by the regulated exchange or the clearing organization and take delivery of the underlying securities. Conversely, a person who is short the contract must make delivery of the underlying securities in exchange for the final settlement price. Settlement with physical delivery may involve additional costs.

 

Depending on the terms of the contract, other security futures contracts are settled through cash settlement. In this case, the underlying security is not delivered. Instead, any positions in such security futures contracts that are open at the end of the last trading day are settled through a final cash payment based on a final settlement price determined by the exchange or clearing organization. Once this payment is made, neither party has any further obligations on the contract.

 

As noted above, margin is the amount of funds that must be deposited by the Fund to initiate futures trading and to maintain the Fund’s open positions in futures contracts. A margin deposit is intended to ensure the Fund’s performance of the futures contract. The margin required for a particular futures contract is set by the exchange on which the futures contract is traded and may be significantly modified from time to time by the exchange during the term of the futures contract.

 

B-14

 

 

If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. In computing daily NAV, the Fund marks to market the current value of its open futures contracts. The Fund expects to earn interest income on its margin deposits.

 

Because of the low margin deposits required, futures contracts trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial loss or gain to the investor. For example, if at the time of purchase 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, before any deduction for the transaction costs, if the account were then closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount initially invested in the futures contract. However, the Fund would presumably have sustained comparable losses if, instead of the futures contract, it had invested in the underlying financial instrument and sold it after the decline.

 

In addition to the foregoing, imperfect correlation between futures contracts and the underlying securities may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. Under certain market conditions, the prices of security futures contracts may not maintain their customary or anticipated relationships to the prices of the underlying security or index. These pricing disparities could occur, for example, when the market for the security futures contract is illiquid, when the primary market for the underlying security is closed, or when the reporting of transactions in the underlying security has been delayed.

 

In addition, the value of a position in security futures contracts could be affected if trading is halted in either the security futures contract or the underlying security. In certain circumstances, regulated exchanges are required by law to halt trading in security futures contracts. For example, trading on a particular security futures contract must be halted if trading is halted on the listed market for the underlying security as a result of pending news, regulatory concerns or market volatility. Similarly, trading of a security futures contract on a narrow-based security index must be halted under circumstances where trading is halted on securities accounting for at least 50% of the market capitalization of the index. In addition, regulated exchanges are required to halt trading in all security futures contracts for a specified period of time when the Dow Jones Industrial Average experiences one-day declines of 10%, 20% and 30%. The regulated exchanges may also have discretion under their rules to halt trading in other circumstances, such as when the exchange determines that the halt would be advisable in maintaining a fair and orderly market.

 

A trading halt, either by a regulated exchange that trades security futures or an exchange trading the underlying security or instrument, could prevent the Fund from liquidating a position in security futures contracts in a timely manner, which could expose the Fund to a loss.

 

Each regulated exchange trading a security futures contract may also open and close for trading at different times than other regulated exchanges trading security futures contracts or markets trading the underlying security or securities. Trading in security futures contracts prior to the opening or after the close of the primary market for the underlying security may be less liquid than trading during regular market hours.

 

Swap Agreements. The Fund may enter into swap agreements. In a standard “swap” transaction, two parties agree to exchange the returns, differentials in rates of return or some other amount earned or realized on the “notional amount” of predetermined investments or instruments, which may be adjusted for an interest factor. Some swaps are structured to include exposure to a variety of different types of investments or market factors, such as interest rates, commodity prices, non-U.S. currency rates, mortgage securities, corporate borrowing rates, security prices, indexes or inflation rates. Swap agreements may be negotiated bilaterally and traded OTC between two parties or, in some instances, must be transacted through a futures commission merchant and cleared through a clearinghouse that serves as a central counterparty. Certain risks are reduced (but not eliminated) if a fund invests in cleared swaps. Certain standardized swaps, including certain credit default swaps, are subject to mandatory clearing, and more are expected to be in the future. The counterparty risk for cleared derivatives is generally lower than for uncleared derivatives, but cleared contracts are not risk-free.

 

B-15

 

 

Swap agreements may increase or decrease the overall volatility of the Fund’s investments and the price of the shares of the Fund (“Shares”). The performance of swap agreements may be affected by a change in the specific interest rate, currency or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty’s creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses.

 

Generally, swap agreements have fixed maturity dates that are agreed upon by the parties to the swap. The agreement can be terminated before the maturity date only under limited circumstances, such as default by or insolvency of one of the parties and can be transferred by a party only with the prior written consent of the other party. The Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counterparty is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, the Fund may not be able to recover the money it expected to receive under the contract.

 

A swap agreement can be a form of leverage, which can magnify the Fund’s gains or losses. To reduce the risk associated with leveraging, the Fund will segregate assets equal to the full notional value of the swap agreements, unless future SEC staff guidance permits asset segregation to a lesser extent.

 

The use of swaps can cause the Fund to be subject to additional regulatory requirements, which may generate additional Fund expenses.

 

The Fund monitors any swaps with a view towards ensuring that the Fund remains in compliance with all applicable regulatory, investment and tax requirements.

 

Equity Swaps. In a typical equity swap, one party agrees to pay another party the return on a security, security index or basket of securities in return for a specified interest rate. By entering into an equity index swap, the index receiver can gain exposure to securities making up the index of securities without actually purchasing those securities. Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including dividends, will not exceed the interest that the Fund will be committed to pay under the swap.

 

Zero Coupon and PIK Bonds

 

The Fund may invest in zero coupon or PIK bonds. Because investors in zero coupon or PIK bonds receive no cash prior to the maturity or cash payment date applicable thereto, an investment in such securities generally has a greater potential for complete loss of principal and/or return than an investment in debt securities that make periodic interest payments. Such investments are more vulnerable to the creditworthiness of the issuer and any other parties upon which performance relies.

 

Reverse Repurchase Agreements

 

The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the investment restrictions set forth herein. Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement by the Fund to repurchase the securities at an agreed upon price, date and interest payment. At the time the Fund enters into a reverse repurchase agreement, it may designate on its books and records liquid instruments having a value not less than the repurchase price (including accrued interest). If the Fund establishes and maintains such a segregated account, a reverse repurchase agreement will not be considered a borrowing by the Fund; however, under certain circumstances in which the Fund does not establish and maintain such a segregated account, such reverse repurchase agreement will be considered a borrowing for the purpose of the Fund’s limitation on borrowings. The use by the Fund of reverse repurchase agreements involves many of the same risks of leverage since the proceeds derived from such reverse repurchase agreements may be invested in additional securities. Reverse repurchase agreements involve the risk that the market value of the securities acquired in connection with the reverse repurchase agreement may decline below the price of the securities the Fund has sold but is obligated to repurchase. Also, reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund in connection with the reverse repurchase agreement may decline in price.

 

B-16

 

 

If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Also, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement.

 

Repurchase Agreements

 

The Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during the Fund’s holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The Fund will only enter into repurchase agreements with registered securities dealers or domestic banks that, in the opinion of the Advisor, present minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. The Advisor will monitor the value of the collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral declines below the repurchase price, the Advisor will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.

 

Securities Lending

 

To the extent permitted by the 1940 Act, the Fund may make secured loans of its marginable securities to brokers, dealers and other financial institutions; provided, however, that the value of such loaned securities may not exceed one-third of the Fund’s total asset value, including collateral received in respect of such loans. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. However, such loans will be made only to broker-dealers and other financial institutions that are believed by the Advisor to be of relatively high credit standing. Loans of securities are made to broker-dealers pursuant to agreements requiring that such loans be continuously secured by collateral consisting of U.S. government securities, cash or cash equivalents (negotiable certificates of deposit, bankers’ acceptances or letters of credit) maintained on a daily mark-to-market basis in an amount at least equal at all times to the market value of the securities lent. The borrower pays to the Fund, as the lender, an amount equal to any dividends or interest received on the securities lent. The collateral must have a market value at least equal to 100% of the market value of the loaned securities at all times during the duration of the loan. The Fund invests the cash collateral received in accordance with its investment objectives, subject to the Fund’s agreement with the borrower of the securities. In the case of cash collateral, the Fund typically pays a rebate to the borrower. The reinvestment of cash collateral will result in a form of effective leverage for the Fund. Although voting rights or rights to consent with respect to the loaned securities pass to the borrower, the Fund, as the lender, retains the right to call the loans and obtain the return of the securities loaned at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the Fund’s investment. The Fund may also call such loans to sell the securities involved. When engaged in securities lending, the Fund’s performance will continue to reflect changes in the value of the securities loaned and will also reflect the receipt of interest through investment of cash collateral by the Fund in permissible investments.

 

B-17

 

 

ESG Risk

 

From an environmental, social and governance perspective, the deal team will evaluate potential investments against BSP’s Responsible Investment Policies and Principles and may highlight in the diligence process an investment where the industry is not ESG-aligned in a manner that presents risk to the Fund (e.g., issues associated with the current governance of a company). Consideration of ESG factors as part of BSP’s overall investment diligence process may negatively impact the performance of the Fund and cause it to pass on investments in which the Fund would otherwise invest. Although the Fund takes ESG factors into account as part of its overall investment diligence process, investments may be made in certain circumstances even if negative ESG factors are present. In contrast, the investment team may also determine not to make an investment in a company with negative ESG factors as they may present reputational and investment risk that could be viewed as adversely impacting the performance of the Fund.

 

INVESTMENT RESTRICTIONS

 

FUNDAMENTAL INVESTMENT RESTRICTIONS

 

The Fund may not:

 

(1)        Make investments for the purpose of exercising control or management;

 

(2)        Purchase or sell real estate, commodities or commodity contracts, except that, to the extent permitted by applicable law, the Fund may (i) invest in securities directly or indirectly secured by real estate or interests therein or issued by entities that invest in real estate or interests therein; (ii) acquire, hold and sell real estate acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Fund’s ownership of other assets; (iii) invest in instruments directly or indirectly secured by commodities or securities issued by entities that invest in or hold such commodities and acquire temporarily commodities as a result thereof; and (iv) purchase and sell forward contracts, financial futures contracts and options thereon;

 

(3)        Issue senior securities or borrow money except as permitted by Section 18 of the 1940 Act or otherwise as permitted by applicable law;

 

(4)        Underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act in selling its own securities or portfolio securities;

 

(5)        Make loans to other persons, except that (i) the Fund will not be deemed to be making a loan to the extent that the Fund makes investments in accordance with its stated investment strategies or otherwise purchases senior, secured corporate loans (“Syndicated Loans”), subordinated loans (“Subordinated Loans”), Corporate Bonds, investment grade rate debt securities issued by CLOs, debentures or other loans or debt securities of any type, preferred securities, commercial paper, pass through instruments, loan participation interests, corporate loans, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments; (ii) the Fund may take short positions in any security or financial instrument; and (iii) the Fund may lend its portfolio securities in an amount not in excess of 331∕3% of its total assets, taken at market value, provided that such loans shall be made in accordance with applicable law; and

 

B-18

 

 

(6)        Invest more than 25% of its total assets (taken at market value at the time of each investment) in the securities of issuers in any one industry; provided that securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or securities of state and municipal governments or their political subdivisions (other than those securities backed only by the assets and revenues of non-governmental users with respect to which the Fund will not invest 25% or more of the value of its total assets (taken at market value at the time of each investment) in securities backed by the same source of revenue).

 

In addition, the Fund has adopted a fundamental policy that it will make quarterly repurchase offers pursuant to Rule 23c-3 of the 1940 Act, as such rule may be amended from time to time, for between 5% and 25% of the Shares outstanding at NAV, unless suspended or postponed in accordance with regulatory requirements, and each repurchase pricing shall occur no later than the 14th day after the Repurchase Request Deadline (as defined in the Prospectus), or the next business day if the 14th day is not a business day.

 

The fundamental investment limitations set forth above restrict the ability of the Fund to engage in certain practices and purchase securities and other instruments other than as permitted by, or consistent with, applicable law, including the 1940 Act. Relevant limitations of the 1940 Act as they presently exist are described below. These limitations are based either on the 1940 Act itself, the rules or regulations thereunder or applicable orders of the SEC. In addition, interpretations and guidance provided by the SEC staff may be taken into account to determine if a certain practice or the purchase of securities or other instruments is permitted by the 1940 Act, the rules or regulations thereunder or applicable orders of the SEC. As a result, the foregoing fundamental investment policies may be interpreted differently over time as the statute, rules, regulations or orders (or, if applicable, interpretations) that relate to the meaning and effect of these policies change, and no vote of Shareholders, as applicable, will be required or sought.

 

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

 

The Fund is also subject to the following non-fundamental restrictions and policies, which may be changed by the Board of Trustees without the approval of the holders of a majority of the outstanding voting securities of the Fund. The Fund may not:

 

(1)        Change or alter the Fund’s investment objective;

 

(2)        Purchase securities of other investment companies, except to the extent that such purchases are permitted by applicable law, including any exemptive orders issued by the SEC; and

 

(3)        Purchase any securities on margin except as may be necessary in connection with transactions described under “The Fund’s Investments” above and except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio investments (the deposit or payment by the Fund of initial or variation margin in connection with swaps, forward contracts and financial futures contracts and options thereon is not considered the purchase of a security on margin).

 

Compliance with any policy or limitation of the Fund that is expressed as a percentage of assets is determined at the time of purchase of portfolio securities. The policy will not be violated if these limitations are exceeded because of changes in the market value or investment rating of the Fund’s assets or if a Borrower distributes equity securities incident to the purchase or ownership of a Syndicated Loan or in connection with a reorganization of a Borrower. The Fund interprets its policies with respect to borrowing and lending to permit such activities as may be lawful for the Fund, to the full extent permitted by the 1940 Act or by exemption from the provisions therefrom pursuant to an exemptive order of the SEC.

 

B-19

 

 

 

MANAGEMENT OF THE FUND

 

The Fund’s business and affairs are managed under the direction of the Board. The Board currently consists of nine members, five of whom are not “interested persons” of the Fund as defined in Section 2(a)(19) of the 1940 Act. The Fund refers to these individuals as its independent trustees. The Board annually elects the Fund’s officers, who serve at the discretion of the Board. The Board maintains an audit committee and a nominating and governance committee and may establish additional committees from time to time as necessary.

 

Board of Trustees and Executive Officers

 

Trustees

 

Information regarding the members of the Board is set forth below. The Trustees have been divided into two groups — Interested Trustees and Independent Trustees. As set forth in the Fund’s declaration of trust, each Trustee’s term of office shall continue until his or her death, resignation or removal.

 

Name, address(1)
and age
  Position(s) Held
with the Fund
  Term of
Office and
Length of
Time Served
  Principal
Occupation(s)
During Past 5
Years
  Number of
Portfolios in Fund
Complex
Overseen
by Trustee(2)
  Other
Directorships
Held by
Trustee
Interested Trustees(3)                    
Richard J. Byrne (60)   Trustee   Indefinite Length - Since 2020   President of Benefit Street Partners L.L.C.   4   Interested Director of Business Development Corporation of America, Franklin BSP Capital Corporation, Benefit Street Partners Realty Trust, Inc., Broadtree Residential, Inc., and Broadstone Real Estate Access Fund. Director of Wynn Resorts, Limited and New York Road Runners.
Independent Trustees                    
Lee F. Hillman (65)   Trustee   Indefinite Length - Since 2020   President of Liberation Advisory Group   3   Director of Broadtree Residential, Inc., Business Development Corporation of America, Franklin BSP Capital Corporation, Lawson Products, Inc., HC2 Holdings, Inc. and Adelphia Recovery Trust.
Ronald J. Kramer (62)   Trustee   Indefinite Length - Since 2020   Chief Executive Officer of Griffon Corporation   3   Director of Griffon Corporation and Business Development Corporation of America.
Leslie D. Michelson (70)   Trustee   Indefinite Length - Since 2020   Chief Executive Officer of Private Health Management   3   Director of Business Development Corporation of America, Franklin BSP Capital Corporation, Healthcare Trust, Inc., and American Finance Trust, Inc.
Edward G. Rendell (77)   Trustee   Indefinite Length - Since 2020   Retired   3   Director of Global Net Lease, Inc., American Finance Trust, Inc., Franklin BSP Capital Corporation, Business Development Corporation of America, and Healthcare Trust, Inc., Franklin BSP Capital Corporation, and
Dennis M. Schaney (64)   Trustee   Indefinite Length - Since 2020   Retired   3   Director of Business Development Corporation of America and Franklin BSP Capital Corporation.

 

 

 

(1)  The address of each Trustee is care of the Secretary of the Fund at 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10019.

 

(2)  The Fund Complex includes Business Development Corporation of America, Broadstone Real Estate Access Fund, Franklin BSP Capital Corporation and Franklin BSP Private Credit Fund and is defined as two or more registered investment companies that (a) hold themselves out to investors as related companies for purposes of investment and investor services; or (b) have a common investment adviser or have an investment adviser that is an affiliated person of any of the other registered investment companies.

 

(3) “Interested person,” as defined in the 1940 Act, of the Fund. Richard J. Byrne is an interested person of the Fund due to his affiliation with the Advisor.

 

B-20

 

 

Executive Officers

 

Name, address(1)
and age
  Position(s)
Held with
the Trust
  Term of Office
and
Length of Time
Served
  Principal Occupation(s)
During Past 5 Years
Richard J. Byrne   Chief Executive Officer and President    Indefinite Length - Since 2020   President of Benefit Street Partners L.L.C.
Nina K. Baryski   Chief Financial Officer and Treasurer   Indefinite Length - Since 2020   Managing Director and Fund Controller at Benefit Street Partners L.L.C.; Chief Financial Officer of Business Development Corporation of America; Chief Financial Officer of Franklin BSP Capital Corporation
Michael Frick   Secretary   Indefinite Length - Since 2022   Chief Operating Officer of Private Debt and a Director at Benefit Street Partners L.L.C.; Secretary of Franklin BSP Lending Corporation; Secretary of Franklin BSP Capital Corporation
Guy F. Talarico   Chief Compliance Officer   Indefinite Length - Since 2020   Chief Executive Officer of Alaric Compliance Services LLC; Managing Director at Foreside Financial Group, LLC;

 

 

(1) The address of each officer is care of the Secretary of the Fund at 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10019.

 

B-21

 

 

Biographical Information and Discussion of Experience and Qualifications, etc.

 

Trustees

 

The following is a summary of the experience, qualifications, attributes and skills of each Trustee that support the conclusion, as of the date of this Statement of Additional Information, that each Trustee should serve as a Trustee of the Fund.

 

Interested Trustees

 

Richard J. Byrne has served as chairman of the Board of Directors, Chief Executive Officer and President of the Company since March 2020. Mr. Byrne serves as President of BSP and chairman of the board of directors, Chief Executive Officer and President of Business Development Corporation of America (“BDCA”), Benefit Street Partners Realty Trust, Inc., Franklin BSP Capital Corporation, Broadtree Residential, Inc. and Broadstone Real Estate Access Fund. Prior to joining BSP in April 2013, Mr. Byrne was Chief Executive Officer of Deutsche Bank Securities, Inc. He was also the Global Co-Head of Capital Markets at Deutsche Bank. Before joining Deutsche Bank, Mr. Byrne was Global Co-Head of the Leveraged Finance Group and Global Head of Credit Research at Merrill Lynch & Co. He was also a perennially top-ranked credit analyst. Mr. Byrne earned an M.B.A. from the Kellogg School of Management at Northwestern University and a B.A. from Binghamton University. Mr. Byrne is currently a member of the Boards of Directors of Wynn Resorts, Limited (NASDAQ: WYNN) and New York Road Runners. Mr. Byrne previously served as a member of the Board of Directors of MFA Financial, Inc. (NYSE: MFA) from March 2014 to December 2019.

 

We believe that Mr. Byrne’s current and prior experience as a director and/or executive officer of the companies described above and his extensive knowledge of the financial services industry and the capital markets make him well qualified to serve as a member of our Board of Trustees.

 

Independent Trustees

 

Lee S. Hillman has served as an independent trustee of the Fund since March 2020. Mr. Hillman has served as President of Liberation Advisory Group, a private management consulting firm, since 2003. Mr. Hillman has also served as Chief Executive Officer of Performance Health Systems, LLC, an early-stage business distributing Power PlateTM and bioDensity® branded, specialty health and exercise equipment since 2012, and its predecessor since 2009. Since March 2020, Mr. Hillman has been a director of Franklin BSP Capital Corporation. From February 2006 to May 2008, Mr. Hillman served as Executive Chairman and Chief Executive Officer of Power Plate International (“Power Plate”) and from 2004 through 2006 as CEO of Power Plate North America. Previously, from 1996 through 2002, Mr. Hillman was CEO of Bally Total Fitness Corporation, then the world’s largest fitness membership club business. Mr. Hillman serves as a member of the board of directors of Business Development Corporation of America where he serves as chairman of the Audit Committee. Mr. Hillman also serves as a member of the board of directors of Broadtree Residential, Inc. Mr. Hillman currently serves as a member of the board of directors of Lawson Products, Inc. where he serves as the lead independent director and member of its Audit Committee and Financial Strategies Committee as well as chair of its Compensation Committee. He also serves as a board member and member of the Audit, Compensation and Nominating/Governance Committees of HC2 Holdings, Inc. and as trustee and member of the Audit Committee of Adelphia Recovery Trust. Previously he has served as a member of the Board of Directors of HealthSouth Corporation, Wyndham International, RCN Corporation (where he was Chairman of the Board), Bally Total Fitness Corporation (where he was Chairman of the Board) and Professional Diversity Network. Mr. Hillman holds a B.S. in Finance and Accounting from the Wharton School of the University of Pennsylvania and an M.B.A. in Finance and Accounting from the Booth School of Business of the University of Chicago. Mr. Hillman is a Certified Public Accountant and former audit partner with Ernst & Young.

 

B-22

 

 

We believe that Mr. Hillman’s experience as a director or executive officer of the companies described above make him well qualified to serve as a member of our Board of Trustees.

 

Ronald J. Kramer was elected as an independent trustee of the Fund in March 2020. He has served as the Chief Executive Officer of Griffon Corporation (NYSE:GFF) since April 2008, as Chairman of the Board of Griffon Corporation from January 2018, and as a director of Griffon Corporation since 1993. Griffon Corporation is a diversified holding company with a portfolio of businesses in the following industries: home and building products, specialty plastic films and defense electronics. From 2002 through March 2008, he was President and a director of Wynn Resorts, Ltd. (NASDAQ:WYNN), a developer, owner and operator of destination casino resorts. From 1999 to 2001, Mr. Kramer was a Managing Director at Dresdner Kleinwort Wasserstein, an investment banking firm, and its predecessor Wasserstein Perella & Co. Since March 2020, Mr. Kramer has been a director of Franklin BSP Capital Corporation. Since October 2016, Mr. Kramer has been a director of Business Development Corporation of America. He was formerly a member of the Board of Directors of Leap Wireless International, Inc. (formerly NASDAQ:LEAP), Monster Worldwide, Inc. (NYSE:MWW) and Sapphire Industrials Corporation (formerly AMEX:FYR). Mr. Kramer currently serves as a member of the board of directors of Business Development Corporation of America. Mr. Kramer holds a BS degree from the Wharton School of the University of Pennsylvania and an MBA from New York University.

 

We believe that Mr. Kramer’s experience as a director or executive officer of the companies described above make him well qualified to serve as a member of our Board of Trustees.

 

Leslie D. Michelson has served as an independent trustee of the Fund since March 2020.  Mr. Michelson has served as an independent director of Healthcare Trust, Inc. (“HTI”) since December 2015, including as non-executive chair since October 2016. Mr. Michelson has served as an independent director of American Finance Trust, Inc. (“AFIN”) since February 2017. Since March 2020, Mr. Michelson has been a director of Franklin BSP Capital Corporation. Since January 2011, Mr. Michelson has been a director of Business Development Corporation of America.

 

Mr. Michelson previously served as an independent director of American Realty Capital — Retail Centers of America, Inc. (“RCA”) from November 2015 until the close of RCA’s merger with AFIN in February 2017, and previously served as an independent director of RCA from March 2012 until October 2012. Mr. Michelson previously served as an independent trustee of Realty Capital Income Funds Trust, a family of mutual funds advised by an affiliate of AR Global, from April 2013 until its dissolution in January 2017. Mr. Michelson previously served as an independent director of American Realty Capital Healthcare Trust, Inc. (“HT”) from January 2011 until July 2012 and as lead independent director of HT from July 2012 until January 2015 when HT closed its merger with Ventas, Inc. Mr. Michelson served as an independent director of American Realty Capital Trust, Inc. from January 2008, including as lead independent director from July 2012, until the close of its merger with Realty Income Corporation in January 2013. Mr. Michelson also served as an independent director of VEREIT, Inc. (“VEREIT”) from October 2012 until April 2015. Mr. Michelson served as an independent director of American Realty Capital Daily Net Asset Value Trust, Inc. from August 2011 until February 2012 and as an independent director of New York REIT, Inc. (“NYRT”) from October 2009 until August 2011.

 

B-23

 

 

Since April 2007, Mr. Michelson has served as the chairman and chief executive officer of Private Health Management, a company which assists corporate employees and their dependents, families and individuals obtain the best medical care. Mr. Michelson has served as a member of the Board of Advisors of the UCLA Fielding School of Public Health since October 2013. He has served as a director of Druggability Technology Holdings, Ltd., a proprietary pharmaceutical product business dedicated to the development and commercialization of high-value pharmaceutical products, since April 2013. He has served as founder and chief executive officer of Michelson on Medicine, LLC since January 2011. Mr. Michelson served as vice chairman and chief executive officer of the Prostate Cancer Foundation, the world’s largest private source of prostate cancer research funding, from 2002 until 2006 and served on its Board of Directors from 2002 until 2013. Mr. Michelson served on the Board of Directors of Catellus Development Corp. (“Catellus”), from 1997 until 2004 when the company was sold to ProLogis. Mr. Michelson was a member of the Audit Committee of the Board of Directors of Catellus for five years and served at various times as the chairman of the Audit Committee and the Compensation Committee. From 2001 to 2002, he was an investor in, and served as an advisor or director of, a portfolio of entrepreneurial healthcare, technology and real estate companies. From 2000 to 2001, he served as chief executive officer and as a director of Acurian, Inc., an Internet company that accelerates clinical trials for new prescription drugs. From 1998 to 1999, Mr. Michelson served as chairman and co-chief executive officer of Protocare, Inc., a manager of clinical trials for the pharmaceutical industry and disease management firm. From 1988 to 1998, he served as chairman and chief executive officer of Value Health Sciences, Inc., an applied health services research firm he co-founded. Mr. Michelson served as a director of Nastech Pharmaceutical Company Inc., a NASDAQ-traded biotechnology company focused on innovative drug delivery technology, from 2004 to 2008, of Highlands Acquisition Company, an AMEX-traded special purpose acquisition company, from 2007 to 2009, of G&L Realty Corp., a NYSE-traded medical office building REIT from 1995 to 2001, and of Landmark Imaging, a privately held diagnostic imaging and treatment company, from 2007 to 2010. Also since 2004, he has served as a director of ALS-TDI, a philanthropy dedicated to curing Amyotrophic Lateral Sclerosis, commonly known as Lou Gehrig’s disease. Mr. Michelson received his B.A. from The Johns Hopkins University in 1973 and a J.D. from Yale Law School in 1976.

 

We believe that Mr. Michelson’s experience as a director or executive officer of the companies described above make him well qualified to serve as a member of our Board of Trustees.

 

Governor Edward G. Rendell has served as an independent trustee of the Fund since March 2020. Gov. Rendell has also served as an independent director of American Realty Capital — Retail Centers of America, Inc. (“RCA”) from October 2012 to February 2017 and previously served as an independent director of RCA from February 2011 until March 2012. Gov. Rendell has also served as an independent director of Global Net Lease, Inc. since March 2012. Governor Rendell served as an independent director of American Realty Capital Trust III, Inc. (“ARCT III”) from March 2012 to February 2013. Gov. Rendell served as an independent director of VEREIT from February 2013 until April 2015. Since March 2020, Gov. Rendell has been a director of Franklin BSP Capital Corporation. Since January 2011, Gov. Rendell has been a director of Business development corporation of America. Governor Rendell served as the 45th Governor of the Commonwealth of Pennsylvania from January 2003 through January 2011. As the Governor of the Commonwealth of Pennsylvania, Gov. Rendell served as the chief executive of the nation’s sixth most populous state and oversaw a budget of $28.3 billion. Gov. Rendell also served as the Mayor of Philadelphia from January 1992 through January 2000. As the Mayor of Philadelphia, Gov. Rendell eliminated a $250 million deficit, balanced the city’s budget and generated five consecutive budget surpluses. Gov. Rendell was also the General Chairperson of the National Democratic Committee from November 1999 through February 2001. Gov. Rendell served as the District Attorney of Philadelphia from January 1978 through January 1986. In 1986, Gov. Rendell was a candidate for governor of the Commonwealth of Pennsylvania. In 1987, Gov. Rendell was a candidate for the mayor of Philadelphia.

 

From 1988 through 1991, Gov. Rendell was an attorney at the law firm of Mesirov, Gelman and Jaffe. From 2000 through 2002, Gov. Rendell was an attorney at the law firm of Ballard Spahr. Gov. Rendell worked on several real estate transactions as an attorney in private practice. An Army veteran, Governor Rendell holds a B.A. from the University of Pennsylvania and a J.D. from Villanova Law School.

 

We believe that Governor Rendell’s experience as a director or executive officer of the companies described above and his over 30 years of legal, political and management experience gained from serving in his capacities as the Governor of Pennsylvania and as the Mayor and District Attorney of Philadelphia, including his experience in overseeing the acquisition and management of Pennsylvania’s real estate development transactions, including various state hospitals, make him well qualified to serve as a member of our Board of Trustees.

 

B-24

 

 

Dennis M. Schaney has served as an independent trustee of the Fund since March 2020. Mr. Schaney previously served as Managing Director and Head of High Yield and Leveraged Loans at Morgan Stanley Investment Management. Mr. Schaney also served as Co-Head of Morgan Stanley Credit Partners. During this time, he was responsible for leveraged loan, high yield bond and mezzanine investments across a variety of funds including closed-end, open-end and institutional separate accounts. Mr. Schaney retired from Morgan Stanley Investment Management in 2010. From 2003 to 2007, he served as Managing Director and Global Head of Fixed Income for Credit Suisse Asset Management. He oversaw global teams responsible for all fixed income investments and served on the asset management’s Executive Committee and the Management Committee for Credit Suisse. Prior to Credit Suisse, Mr. Schaney founded BlackRock Financial Management’s Leveraged Finance Group which was responsible for high yield, leveraged loan and mezzanine investments. He was also responsible for the alternative investment effort for leveraged assets including the Magnetite CLO/CBO products. In addition to those responsibilities, he co-headed the firm’s credit research effort. Mr. Schaney worked at Merrill Lynch from 1988 through 1997 where he was Global Head of Corporate and Municipal Bond Research and an analyst covering the media, entertainment, and cable sectors. Prior to Merrill Lynch, Mr. Schaney was a Vice President at First Boston Corporation focusing on corporate restructuring and credit advisory services. He was also a Rating Officer for Standard & Poor’s Rating Services. Mr. Schaney serves as a member of the board of directors of Business Development Corporation of America and Franklin BSP Capital Corporation. Mr. Schaney holds a B.S. in Psychology from the University of Bridgeport and an M.S. in Finance from Fairfield University.

 

We believe that Mr. Schaney’s experience as a director or executive officer of the companies described above make him well qualified to serve as a member of our Board of Trustees.

 

Board structure and role of the Board in risk oversight

 

The 1940 Act requires that at least 40% of the trustees be independent trustees. Certain exemptive rules promulgated under the 1940 Act require that at least 50% of the trustees be independent trustees. Currently, five of the six Trustees (83.3%) are Independent Trustees. The independent trustees exercise their informed business judgment to appoint an individual of their choosing to serve as Chairman of the Board of Trustees, regardless of whether the trustee happens to be independent or a member of management. The Board of Trustees has determined that its leadership structure, in which the Chairman of the Board of Trustees is an interested person of the Fund, is appropriate because the Independent Trustees believe that an interested Chairman has a personal and professional stake in the quality and continuity of services provided by management to the Fund. The independent trustees have determined that they can act independently and effectively without having an independent trustee serve as Chairman and that a key factor for assuring that they are in a position to do so is for the trustees who are independent of management to constitute a majority of the Board.

 

The Board expects to perform its risk oversight function primarily through (a) its two standing committees, which report to the entire Board and are comprised solely of independent trustees and (b) monitoring by the Fund’s Chief Compliance Officer in accordance with the Fund’s compliance policies and procedures.

 

Committees of the Board

 

The Board has established an audit committee and a nominating and governance committee. The Fund does not have a compensation committee because its executive officers do not receive any direct compensation from the Fund.

 

Audit Committee. The members of the audit committee are Lee S. Hillman, Leslie D. Michelson and Ronald J. Kramer, each of whom is independent for purposes of the 1940 Act. Lee S. Hillman serves as chairman of the audit committee. The Board has adopted a charter for the audit committee, which is available on the Fund’s website at https://www.franklintempleton.com. The audit committee is responsible for approving the Fund’s independent accountants, reviewing with the Fund’s independent accountants the plans and results of the audit engagement, approving professional services provided by the Fund’s independent accountants, reviewing the independence of the Fund’s independent accountants and reviewing the adequacy of the Fund’s internal accounting controls.

 

B-25

 

 

Nominating and Governance Committee. The members of the nominating and governance committee are Ronald J. Kramer, Leslie D. Michelson, Edward G. Rendell and Dennis M. Schaney, each of whom is independent for purposes of the 1940 Act. Ronald J. Kramer serves as chairman of the nominating and governance committee. The Board has adopted a charter for the nominating and governance committee, which is available on the Fund’s website at https://www.franklintempleton.com. The nominating and governance committee is responsible for selecting, researching and nominating trustees for election by the Fund’s Shareholders, selecting nominees to fill vacancies on the Board or a committee of the Board Trustees, developing and recommending to the Board a set of corporate governance principles and overseeing the evaluation of the Board and its committees.

 

The nominating and governance committee may consider recommendations for nomination of individuals for election as trustees from Shareholders.

 

Trustee Beneficial Ownership of Shares

 

The following table sets forth the dollar range of Shares beneficially owned by each Trustee as of August 19, 2022 and the aggregate dollar range of equity securities in all registered investment companies overseen by each Trustee in the family of investment companies that includes the Fund.

 

Name of Trustee     Dollar Range of Equity
Securities in the Fund(1)
    Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by Trustee in Family of
Investment Companies(1)(2)(3)
Interested Trustees              
Richard J. Byrne     $ None     Over $100,000
Independent Trustees              
Lee F. Hillman     $ None     None
Ronald J. Kramer       None     None
Leslie D. Michelson       None     Over $100,000
Edward G. Rendell       None     None
Dennis M. Schaney       None     None

 

(1) Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000 or Over $100,000.

 

(2) Beneficial ownership determined in accordance with Rule 16a-1(a)(2) under the Exchange Act.

 

(3) The family of investment companies includes Business Development Corporation of America, Broadstone Real Estate access Fund and Franklin BSP Private Credit Fund and is defined any two or more registered investment companies that (a) share the same investment adviser or principal underwriter; and (b) hold themselves out to investors as related companies for purposes of investment and investor services.

 

Compensation of Trustees

 

The Independent Trustees are paid an annual retainer of  $30,000. The Chairperson of the Audit Committee and the Chairperson of the Nominating and Governance Committee are also paid an additional annual fee of $2,500. All Trustees are reimbursed for their reasonable out-of-pocket expenses. The Trustees do not receive any pension or retirement benefits from the Fund.

 

B-26

 

 

The following table shows information regarding the compensation to be received by the Trustees, none of whom is an employee of the Fund, for services as a trustee for the fiscal year ending December 31, 2022. The Trustees who are “interested persons”, as defined in the 1940 Act, of the Fund and the Fund’s officers do not receive compensation from the Fund.

 

Name of Trustee     Aggregate Compensation
from the Fund
 
Interested Trustees          
Richard J. Byrne     $ 0  
Independent Trustees          
Lee F. Hillman     $ 35,000  
Ronald J. Kramer       32,500  
Leslie D. Michelson       30,000  
Edward G. Rendell       30,000  
Dennis M. Schaney       30,000  

 

Shareholder Communications

 

Shareholders may send communications to the Board. Shareholders should send communications intended for the Board by addressing the communication directly to the Board (or individual Trustees) and/or otherwise clearly indicating in the salutation that the communication is for the Board (or individual Trustees) and by sending the communication to the Fund’s office at 9 West 57th St., 49th Floor, Suite 4920, New York, NY 10016. Other Shareholder communications received by the Fund not directly addressed and sent to the Board will be reviewed and generally responded to by management, and will be forwarded to the Board only at management’s discretion based on the matters contained therein.

 

Codes of Ethics

 

The Fund and the Advisor have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restrict certain personal securities transactions. Personnel subject to these codes may invest in securities for their personal investment accounts, including securities that may be purchased or held by the Fund, so long as such investments are made in accordance with the applicable code’s requirements. The codes of ethics are included as exhibits to the registration statement of which this Statement of Additional Information forms a part. Shareholders may also read and copy these codes of ethics at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Shareholders may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, the codes of ethics are available on the EDGAR database on the SEC’s website at http://www.sec.gov. Shareholders may also obtain copies of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: [email protected], or by writing the SEC’s Public Reference Section, 100 F Street, NE, Washington, DC 20549-0102.

 

The Advisor

 

BSP, an investment advisor registered with the SEC under the Investment Advisers Act of 1940, as amended, serves as the Fund’s investment advisor. As of December 31, 2021, BSP had assets under management of over $37 billion. For more information regarding BSP, see “The Advisor” in the Prospectus. For more information on the services provided by the Advisor to the Fund, see “Management of the Fund” in the Prospectus.

 

The Investment Advisory Agreement (the “Investment Advisory Agreement”) was approved by the Board. The Investment Advisory Agreement will continue in effect for an initial two year period and for successive periods of twelve months thereafter, provided that each continuance is specifically approved at least annually by both (1) the vote of a majority of the Board or the vote of a majority of the outstanding securities of the Fund entitled to vote and (2) by the vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. In addition, the Investment Advisory Agreement has termination provisions that allow the parties to terminate the agreement without penalty. The Investment Advisory Agreement and the Administration Agreement may be terminated at any time, without penalty, by the Advisor and/or Administrator upon 60 days’ notice to the Fund, as applicable.

 

B-27

 

 

Portfolio Management

 

Other Accounts Managed by Portfolio Managers

 

The portfolio managers primarily responsible for the day-to-day management of the Fund also manage other registered investment companies, other pooled investment vehicles and other accounts, as indicated below. The following table identifies, as of December 31, 2021: (i) the number of other registered investment companies, other pooled investment vehicles and other accounts managed by each portfolio manager; (ii) the total assets of such companies, vehicles and accounts; and (iii) the number and total assets of such companies, vehicles and accounts that are subject to an advisory fee based on performance.

 

   Number of
Accounts
   Assets of
Accounts
(in millions)
   Number of
Accounts
Subject to
a Performance
Fee
   Assets Subject to
a Performance
Fee
(in millions)
 
Saahil Mahajan                    
Registered Investment Companies   3   $3,496.9    2   $3,436.3 
Other Pooled Investment Vehicles   4   $1,133.1    2   $806.5 
Other Accounts   0   $0    0   $0 
Anant Kumar                    
Registered Investment Companies   1   $1.0    0   $0 
Other Pooled Investment Vehicles   0   $0    0   $0 
Other Accounts   0   $0    0   $0 

 

Compensation of Portfolio Managers

 

The Advisor’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The portfolio managers may receive, all or some combination of, salary, an annual bonus and interests in the carried interest in certain of BSP’s funds.

 

Base compensation

 

Generally, when portfolio managers receive base compensation it is based on their individual seniority and their position within the firm.

 

Discretionary compensation

 

In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation may be based on individual seniority and contribution.

 

Securities Ownership of Portfolio Managers

 

The following table shows the dollar range of equity securities in the Fund beneficially owned by each of the portfolio managers as of August 19, 2022.

 

Name     Aggregate Dollar Range
of
Equity
Securities in the Fund(1)
 
Saahil Mahajan     None  
Anant Kumar     None  

 

 

(1) Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, $100,001 – $500,000, $500,001 – $1,000,000 or Over $1,000,000.

 

B-28

 

 

PORTFOLIO TRANSACTIONS

 

The Advisor is responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the transactions and the negotiation of prices and any brokerage commissions. With respect to Syndicated Loans and Subordinated Loans, the Fund generally will engage in privately negotiated transactions for purchase or sale in which the Advisor will negotiate on behalf of the Fund. Most of these transactions will be principal transactions at net prices for which the Fund will generally incur little or no brokerage costs. The Fund may be required to pay fees, or forgo a portion of interest and any fees payable to the Fund, to a lender selling assignment or participations to the Fund. The Advisor will determine the lenders from whom the Fund will purchase assignments and participations by considering their professional ability, level of service, relationship with the Borrower, financial condition, credit standards and quality of management. Affiliates of the Advisor may participate in the primary and secondary market for Syndicated Loans and Subordinated Loans. Because of certain limitations imposed by the 1940 Act, this may restrict the Fund’s ability to acquire some Syndicated Loans and Subordinated Loans. The Advisor does not believe that this will have a material effect on the Fund’s ability to acquire Syndicated Loans and Subordinated Loans consistent with its investment policies. Sales to dealers are effected at bid prices. The illiquidity of some Syndicated Loans and Subordinated Loans may restrict the ability of the Advisor to locate in a timely manner persons willing to purchase the Fund’s interests in Syndicated Loans and Subordinated Loans at a fair price should the Fund desire to sell such interests.

 

With respect to other types of securities, the Fund may purchase certain money market instruments directly from an issuer, in which case no commissions or discounts are paid, may purchase securities in the over-the-counter market from an underwriter or dealer serving as market maker for the securities, in which case the price includes a fixed amount of compensation to the underwriter or dealer, and may purchase and sell listed securities on an exchange, which are effected through brokers who charge a commission for their services.

 

B-29

 

 

The Advisor is responsible for arranging for the execution of the Fund’s portfolio transactions and will do so in a manner deemed fair and reasonable to the Fund and in accordance with the Advisor’s conflicts policy. The primary consideration in all portfolio transactions is prompt execution of orders in an effective manner at the most favorable price. In selecting broker-dealers and in negotiating prices and any brokerage commissions on such transactions, the Advisor considers the firm’s reliability, integrity and financial condition and the firm’s execution capability, the size and breadth of the market for the security, the size of and difficulty in executing the order, and the best net price. There may be instances when, in the judgment of the Advisor, more than one firm can offer comparable execution services. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Advisor determines in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Advisor to the Fund and their other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long-term. The advisory fees that the Fund pays to the Advisor will not be reduced if the Advisor receives brokerage and research services. Commission rates for brokerage transactions on foreign stock exchanges are generally fixed.

 

PROXY VOTING POLICY AND PROXY VOTING RECORD

 

The Fund has delegated its proxy voting responsibility to BSP. The proxy voting policies and procedures of BSP are set forth below. The guidelines are reviewed periodically by BSP and the Independent Trustees and, accordingly, are subject to change.

 

It is the policy of the Fund to delegate the responsibility for voting proxies relating to portfolio securities held by the Fund to the Fund’s Advisor as a part of the Advisor’s general management of the Fund’s portfolio, subject to the continuing oversight of the Board. The Board hereby delegates such responsibility to the Advisor, and directs the Advisor to vote proxies relating to portfolio securities held by the Fund consistent with the duties and procedures set forth below. The Advisor may retain one or more vendors to review, monitor and recommend how to vote proxies in a manner consistent with the duties and procedures set forth below, to ensure that such proxies are voted on a timely basis and to provide reporting and/or record retention services in connection with proxy voting for the Fund.

 

The right to vote a proxy with respect to portfolio securities held by the Fund is an asset of the Fund. The Advisor, to which authority to vote on behalf of the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies in a manner consistent with the best interest of the Fund and its Shareholders. In discharging this fiduciary duty, the Advisor must maintain and adhere to its policies and procedures for addressing conflicts of interest and must vote proxies in a manner substantially consistent with its policies, procedures and guidelines, as presented to the Board.

 

The Fund shall file an annual report of each proxy voted with respect to portfolio securities of the Fund during the twelve-month period ended June 30 Form N-PX not later than August 31 of each year.

 

B-30

 

 

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

 

To the knowledge of the Fund, as of August 19, 2022, the following persons owned of record or beneficially 5% or more of the outstanding Shares of a class. A control person is any person who owns beneficially more than 25% of the common shares or who is otherwise deemed to “control” the Fund. Such person may be able to determine or significantly influence the outcome of matters submitted to a vote of the Fund’s Shareholders. As of August 19, 2022, BSP Fund Holdco (Debt Strategy) L.P. “controlled” the Fund.

 

Class   Name & Address   Percentage of Class  
Class A Shares   BSP Fund Holdco (Debt Strategy) L.P.(1)     100.0 %
Advisor Class Shares   BSP Fund Holdco (Debt Strategy) L.P.(1)     100.0 %

 

*   Ownership indicated is beneficial ownership

 

 

(1)

The business address of each individual or entity listed in the table is 9 West 57th Street, 49th Floor, Suite 4920, New York, New York, 10019.

 

B-31

 

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

An independent registered public accounting firm for the Fund performs an annual audit of the Fund’s financial statements. The Board has engaged Ernst & Young LLP, located at One Manhattan West, New York, NY 10001, to serve as the Fund’s independent registered public accounting firm.

 

LEGAL COUNSEL

 

The Board has engaged Dechert LLP, located at 1095 Avenue of the Americas, New York, New York 10036, to serve as the Fund’s legal counsel.

 

TRANSFER AGENT

 

DST Systems, Inc. (“DST”), which has its principal office at 333 West 11th Street, 5th Floor, Kansas City, Missouri 64105, serves as the Fund’s distribution paying agent, transfer agent and registrar.

 

DST receives a fee for servicing Fund shareholder accounts. The Fund also will reimburse DST for certain out-of-pocket expenses necessarily incurred in servicing the shareholder accounts in accordance with the terms of its servicing contract with the Fund.

 

In addition, DST may make payments to financial intermediaries that provide administrative services to defined benefit plans. DST does not seek reimbursement by the Fund for such payments

 

For all classes of shares of the Fund, DST may also pay servicing fees, that will be reimbursed by the Fund, in varying amounts to certain financial institutions (to help offset their costs associated with client account maintenance support, statement preparation and transaction processing) that (i) maintain omnibus accounts with the Fund in the institution’s name on behalf of numerous beneficial owners of Fund shares who are either direct clients of the institution or are participants in an IRS-recognized tax-deferred savings plan (including employer-sponsored retirement plans and Section 529 plans) for which the institution, or its affiliate, provides participant level recordkeeping services (called “Beneficial Owners”); or (ii) provide support for Fund shareholder accounts by sharing account data with DST through the National Securities Clearing Corporation (NSCC) networking system. In addition to servicing fees received from the Fund, these financial institutions also may charge a fee for their services directly to their clients. DST will also receive a fee from the Fund for services provided in support of Beneficial Owners and NSCC networking system accounts.

 

ADDITIONAL INFORMATION

 

A registration statement on Form N-2, including amendments thereto, relating to the Shares offered hereby, has been filed by the Fund with the SEC. The Prospectus and this Statement of Additional Information do not contain all of the information set forth in the registration statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the Shares offered hereby, reference is made to the registration statement. A copy of the registration statement may be reviewed and copied at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549 or on the EDGAR database on the SEC’s website at http://www.sec.gov. Information on the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Prospective investors can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address ([email protected]) or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-1520.

 

B-32

 

 

Other Information Regarding the Plan of Distribution

 

Shares of the Fund will be continuously offered through Franklin Distributors, LLC, as the exclusive distributor. The Fund has authorized one or more intermediaries (e.g., brokers, investment advisers, etc., collectively “Intermediaries”) to receive orders on its behalf. Such Intermediaries are authorized to designate other Intermediaries to receive orders on the Fund’s behalf. The Fund will be deemed to have received an order when an authorized broker or, if applicable, a broker’s authorized designee, receives the order. The Shares will be offered based on the NAV per Share calculated each regular business day.

 

Intermediary Compensation

 

The Distributor and/or its non-fund affiliates may make the following additional payments to Intermediaries that sell shares of the Fund:

 

Marketing support payments. The Distributor may make payments to certain financial intermediaries in connection with their efforts to educate financial advisors and provide services which may facilitate, directly or indirectly, investment in the Fund and other registered funds distributed by the Distributor, collectively “the Funds”. An Intermediary’s marketing support services may include business planning assistance, advertising, educating Intermediary personnel about the Fund and investor financial planning needs, placement on the Intermediary’s list of offered funds, and access to sales meetings, sales representatives and management representatives of the Intermediary. The Distributor may compensate Intermediaries differently depending upon, among other factors, sales and assets levels, redemption rates and the level and/or type of marketing and educational activities provided by the Intermediary. Such compensation may include financial assistance to Intermediaries that enable the Distributor to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events and other financial intermediary-sponsored events. These payments may vary depending upon the nature of the event. The Distributor will, on an annual basis, determine whether to continue such payments. Any assets held on behalf of employer-sponsored retirement plans for which payment is made to an Intermediary pursuant to the following paragraph will be excluded from the calculation of marketing support payments pursuant to this paragraph.

 

The Distributors may also make marketing support payments to Intermediaries in connection with their activities that are intended to assist in the sale of shares of the Fund, directly or indirectly, to certain employer-sponsored retirement plans that have retained such Intermediaries as plan service providers. Payments may be made on account of activities that may include, but are not limited to, one or more of the following: business planning assistance for Intermediary personnel, educating Intermediary personnel about the Fund, access to sales meetings, sales representatives, wholesalers, and management representatives of the Intermediary, and detailed sales reporting. An Intermediary may perform the services itself or may arrange with a third party to perform the services. The Distributor will, on an annual basis, determine whether to continue such payments.

 

Consistent with the provisions and limitations set forth in the Plan of Distribution, the Fund may reimburse the Distributor for the cost of a portion of these marketing support payments.

 

Marketing support payments may be in addition to any servicing and other fees paid by DST, the Fund’s transfer agent, as described above.

 

Intermediaries engaged by the Fund may include Financial Industry Regulatory Authority (“FINRA”) member firms (or, in some instances, their respective affiliates) that, the Distributor anticipates will receive marketing support payments. In addition to member firms of FINRA, the Distributor may also make marketing support payments, and the Distributors’ non-fund affiliates may make administrative services payments, to certain other Intermediaries, such as banks, insurance companies, and plan administrators, that sell Fund shares or provide services to the Fund and investors. You should ask your Intermediary if it receives such payments.

 

Marketing support payments made to organizations located outside the U.S., with respect to investments in the Fund by non-U.S. persons, may exceed the above-stated limitation.

 

In addition to marketing support payments, to the extent permitted by SEC and FINRA rules and other applicable laws and regulations, the Distributor may, from time to time, at its expense make or allow other promotional incentives or additional payments to Intermediaries that sell or arrange for the sale of shares of the Fund. These payments may include additional compensation to Intermediaries, including Intermediaries not listed above, related to transaction support, various Intermediary-sponsored events intended to educate financial advisers and their clients about the Fund, and data analytics and support.

 

B-33

 

 

Transaction support payments. The types of payments that the Distributor may make under this category include, among others, payment of ticket charges per purchase or exchange order placed by an Intermediary. Other payments may include ancillary services such as set-up, ongoing support, and assistance with an Intermediary’s fund trading system.

 

Conference support payments. Compensation may include financial assistance to Intermediaries that enable the Distributor to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events, co-operative advertising, newsletters, and other Intermediary-sponsored events. These payments may vary depending upon the nature of the event, and can include travel expenses, such as lodging incurred by registered representatives and other employees in connection with training and educational meetings, client prospecting and due diligence trips.

 

The Distributor may routinely sponsor due diligence meetings for registered representatives during which they receive updates on the Fund and are afforded the opportunity to speak with portfolio managers. Invitation to these meetings is not conditioned on selling a specific number of shares. Those who have shown an interest in the Fund, however, are more likely to be considered. To the extent permitted by their firm’s policies and procedures, registered representatives’ expenses in attending these meetings may be covered by the Distributor.

 

Data support payments. Compensation may include data support payments to certain holders or Intermediaries of record for accounts in the Fund. An Intermediary’s data support services may include the provision of analytical data on such accounts.

 

Other payments. Other compensation may be offered to the extent not prohibited by federal or state laws or any self-regulatory agency, such as FINRA. The Distributor makes payments for events it deems appropriate, subject to the Distributor’s guidelines and applicable law.

 

You should ask your Intermediary for information about any payments it receives from the Distributor and any services provided.

 

B-34

 

   

Franklin BSP Private Credit Fund

 

INDEX TO FINANCIAL STATEMENTS

 

  Page  
Financial Statements:  
Statement of Assets and Liabilities B-36
Statements of Operations B-37
Notes to Financial Statements B-38

 

B-35

 

   

Franklin BSP Private Credit Fund

 

Statement of Assets and Liabilities

 

July 31, 2022

(Unaudited)

 

Assets      
Cash   $ 1,000,000  
Total assets   $ 1,000,000  
         
Liabilities        
Total liabilities   $ -  
         
Net assets   $ 1,000,000  
         
Net assets are comprised of:        
Par value ($0.001 per share)   $ 100  
Paid-in capital     999,900  
Net assets   $ 1,000,000  
         
Net assets   $ 1,000,000  
Shares outstanding (Class A: 10,000 shares issued, unlimited shares authorized; Advisor Class: 90,000 shares issued, unlimited shares authorized)     100,000  
Net asset value per share   $ 10.00  

 

See Notes to Financial Statements

 

B-36

 

 

Franklin BSP Private Credit Fund

 

Statement of Operations

 

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

Expenses      
Organizational costs   $ 55,184  
Total expenses     55,184  
Less:  Expenses reimbursed by affiliate (See Note 2)     (55,184 )
Net expenses   $ -  
         
Net investment income   $ -  

 

See Notes to Financial Statements

 

B-37

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements

 

As of July 31, 2022 and

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

1. Organization

 

Franklin BSP Private Credit Fund (the “Fund”) was formed on November 12, 2019 as a Delaware statutory trust that is registered under the Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end management investment company. Unlike most closed-end funds, which typically list their shares on a securities exchange, the Fund does not currently intend to list the shares for trading on any securities exchange, and the Fund does not expect any secondary market to develop for the shares in the foreseeable future. To provide limited liquidity to shareholders, the Fund is structured as an interval fund and conducts quarterly repurchase offers for a limited amount of the Fund’s shares.

 

The Fund intends to offer two separate classes of common shares: Class A and Advisor Class. Advisor Class Shares are not subject to either a distribution or a shareholder servicing fee. Class A Shares may be charged an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly of the average daily net assets attributable to Class A Shares. Investors purchasing Class A Shares may be charged a sales load of up to 2.00% of the investor’s subscription.

 

The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income. The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets. The Fund’s portfolio will be deemed to be non diversified under the 1940 Act, meaning it may invest a greater percentage of its assets in a single or limited number of issuers than a diversified fund.

 

Benefit Street Partners L.L.C. (“BSP”) serves as the Fund’s investment advisor (the “Advisor”). The Fund has had no operations to date other than matters relating to its organization and offering as a closed-end management investment company under the 1940 Act. To date, the only capital contribution to the Fund resulted in the issuance of 100,000 shares of beneficial interest (“Shares”) of the Fund at an aggregate purchase price of $1,000,000. An affiliate of the Advisor owns 100% of the outstanding Shares of the Fund.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are stated in United States (“U.S.”) dollars. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates. A statement of changes in net assets and financial highlights have not been presented because the Fund has not commenced operations.

  

B-38

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of July 31, 2022 and

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

2. Summary of Significant Accounting Policies (continued)

 

Basis of Presentation (continued)

 

The Fund is an investment company and accordingly applies specific accounting and financial reporting requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Topic 946, Financial Services-Investment Companies.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three or fewer months. There was $1,000,000 of cash as of July 31, 2022.

 

Organization and Offering Costs

 

Organization costs consist of costs incurred to establish the Fund and enable it legally to do business. Organization costs are expensed as incurred. Organization costs incurred from inception through July 31, 2022 were $272,811. Offering costs consist of costs incurred in connection with the offering of common shares of the Fund. Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months from the commencement of operations, which has not yet occurred. The total amount of the offering costs incurred by the Fund from inception through July 31, 2022 were $387,123. Initial organization and offering costs will be paid by the Advisor, subject to potential recoupment in future periods (see Footnote 3).

 

Income Taxes

 

The Fund has elected to be treated for U.S. federal income tax purposes as a “regulated investment company” (“RIC”) under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of ‘‘investment company taxable income,’’ as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year's tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Fund intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Fund may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts.

 

The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether it is “more-likely-than-not” (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The Fund did not record any tax provision in the current period. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities on-going analysis of and changes to tax laws, regulations and interpretations thereof.

  

B-39

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of July 31, 2022 and

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

2. Summary of Significant Accounting Policies (continued)

 

Litigation and Regulatory Matters

 

In the ordinary course of business, the Fund may become subject to litigation, claims, and regulatory matters. The Fund has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Fund at this time.

 

Indemnifications

 

In the ordinary course of its business, the Fund may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Fund. Based on its history and experience, management feels that the likelihood of such an event is remote.

 

3. Related Party Transactions and Agreements

 

Investment Advisory Agreement

 

On February 14, 2022, the Fund entered into an investment advisory agreement with the Advisor (the “Investment Advisory Agreement”). In consideration of the advisory and other services provided by the Advisor to the Fund, the Fund will pay the Advisor a fee at the annual rate of 1.25% of the average daily value of the Fund’s Net Assets (the “Management Fee”). “Net Assets” is defined as the total assets of the Fund minus the sum of the Fund’s accrued liabilities. For the period February 15, 2022 to July 31, 2022, no Management Fees have been accrued as the Fund has yet to commence operations.

 

Administration Agreement

 

On March 19, 2020, the Fund entered into an administration agreement with BSP (the “Administration Agreement”), pursuant to which BSP provides us with office facilities and administrative services.

 

Expense Limitation Agreement

 

On March 10, 2022, the Fund and the Advisor entered into an amended and restated expense limitation agreement the (“Expense Limitation Agreement”). Under the Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organization and offering costs, as well as the Fund’s operating expenses (each such reimbursement, an “Expense Payment”) on a quarterly basis to the extent that the Fund’s annualized operating expenses, but excluding (i) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation and extraordinary expenses and (ii) any distribution and shareholder servicing fees in respect of the relevant month, exceed 2.25% of the Fund’s quarter-end net asset value (the “Expense Limitation”). In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor in the amount of expenses reimbursed pursuant to the Expense Limitation Agreement (an “Advisor Recoupment”); provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that (i) for Expense Payments made prior to the Fund’s first investment (the “Fund Launch Date”), it is payable not more than three years from the Fund Launch Date; (ii) for Expense Payments made after the Fund Launch Date, it is payable not more than three years from the date on which the applicable Expense Payment was made by BSP; and (iii) the Advisor Recoupment does not cause the Fund’s total annual Operating Expenses (on an annualized basis and net of any Advisor Recoupments received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Limitation. The Expense Limitation Agreement has an initial term of one year and may be renewed by the mutual agreement of the Advisor and the Fund for successive terms. The Fund’s obligation to make Advisor Recoupment payments shall survive the termination of this Agreement.

 

B-40

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of July 31, 2022 and

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

3. Related Party Transactions and Agreements (continued)

 

Expense Limitation Agreement (continued)

 

For the period February 15, 2022 to July 31, 2022, organization expenses of $55,184 and deferred offering costs of $154,010 were paid by the Advisor. As of July 31, 2022, $659,934 is subject to the Advisor Recoupment. The Fund has assessed the likelihood that a recoupment will be paid by the Fund in accordance with the provisions of ASC 450. Based on this assessment, it has been determined that the recoupment is not probable or estimable as of July 31, 2022, and as such, an accrual has not been made on the statement of assets and liabilities.

 

Other

 

Certain officers of the Fund are also officers of the Advisor. Such officers are paid no fees by the Fund for serving as officers of the Fund.

 

4. Subsequent Events

 

In preparing these financial statements, the Fund’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no subsequent events identified, other than those mentioned below, that require recognition or disclosure.

 

On August 17, 2022, the Fund entered into an amended investment advisory agreement with the Advisor. Under the amended agreement, the Advisor is entitled to an incentive fee (the “Incentive Fee”). The Incentive Fee is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on the Fund’s net assets, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a “catch-up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income, income generated from original issue discounts, payment-in-kind income, and any other income earned or accrued during the calendar quarter, minus the Fund’s operating expenses (which, for this purpose shall not include any distribution and/or shareholder servicing fees, litigation, any extraordinary expenses or Incentive Fee) for the quarter. For purposes of computing the Fund’s pre-incentive fee net investment income, the calculation methodology will look through total return swaps as if the Fund owned the referenced assets directly. As a result, the Fund’s pre-incentive fee net investment income includes net interest, if any, associated with a derivative or swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Fund to the derivative or swap counterparty. Net assets means the total assets of the Fund minus the Fund’s liabilities. For purposes of the Incentive Fee, net assets are calculated for the relevant quarter as the weighted average of the net asset value of the Fund as of the first business day of each month therein. The weighted average net asset value shall be calculated for each month by multiplying the net asset value as of the beginning of the first business day of the month times the number of days in that month, divided by the number of days in the applicable calendar quarter.

  

B-41

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of July 31, 2022 and

For the Period from February 15, 2022 to July 31, 2022

(Unaudited)

 

4. Subsequent Events (continued)

 

The calculation of the Incentive Fee for each calendar quarter is as follows:

 

No Incentive Fee is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, does not exceed the quarterly hurdle rate of 1.50%;

 

100% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the hurdle rate but is less than or equal to 1.71425% (the “catch-up”) is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, exceeds the hurdle rate but is less than or equal to 1.71425% (6.857% annualized). The “catch-up” provision is intended to provide the Advisor with an incentive fee of 12.5% on all of the Fund’s pre-incentive fee net investment income when the Fund’s pre-incentive fee net investment income reaches 1.71425% of net assets; and

 

12.5% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the “catch-up” is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets.

 

On August 17, 2022, the Fund entered into an amendment and restatement of the Expense Limitation Agreement with the Advisor (the “Second Amended and Restated Expense Limitation Agreement”). Under the Second Amended and Restated Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organization and offering costs, as well as the Fund’s operating expenses (each such reimbursement, an “Expense Payment”) on a quarterly basis to the extent that the Fund’s annualized operating expenses, but excluding (i) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation and extraordinary expenses, (ii) incentive fees, and (iii) any distribution and shareholder servicing fees in respect of the relevant month, exceed 2.25% of the Fund’s quarter-end net asset value (the “Expense Limitation”). In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor in the amount of expenses reimbursed pursuant to the Expense Limitation Agreement (an “Advisor Recoupment”); provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that (i) for Expense Payments made prior to the Fund’s first investment (the “Fund Launch Date”), it is payable not more than three years from the Fund Launch Date; (ii) for Expense Payments made after the Fund Launch Date, it is payable not more than three years from the date on which the applicable Expense Payment was made by BSP; and (iii) the Advisor Recoupment does not cause the Fund’s total annual Operating Expenses (on an annualized basis and net of any Advisor Recoupments received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Limitation. The Expense Limitation Agreement has an initial term of one year and may be renewed by the mutual agreement of the Advisor and the Fund for successive terms. The Fund’s obligation to make Advisor Recoupment payments shall survive the termination of this Agreement.

 

B-42

 

 

  

FINANCIAL STATEMENTS

 

Franklin BSP Private Credit Fund

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Financial Statements:  
Report of Independent Registered Public Accounting Firm B-44
Statement of Assets and Liabilities B-45
Statements of Operations B-46
Notes to Financial Statements B-47

 

B-43

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholder of

Franklin BSP Private Credit Fund

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities of Franklin BSP Private Credit Fund (the “Fund”) as of February 14, 2022, and the related statements of operations for the period ended February 14, 2022, each of the two years in the period ended December 31, 2021 and for the period from November 12, 2019 (date of inception) to December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at February 14, 2022, and the results of its operations for the period ended February 14, 2022, each of the two years in the period ended December 31, 2021 and 2020 and for the period from November 12, 2019 (date of inception) to December 31, 2019, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

 

We have served as the auditor of the Fund since 2021.

 

Boston, MA

 

March 11, 2022

 

B-44

 

 

Franklin BSP Private Credit Fund

 

Statement of Assets and Liabilities

 

February 14, 2022

 

Assets     
Cash  $1,000,000 
Total assets  $1,000,000 
      
Liabilities     
Total liabilities  $- 
      
Net assets  $1,000,000 
      
Net assets are comprised of:     
Par value ($0.001 per share)  $100 
Paid-in capital   999,900 
Net assets  $1,000,000 
      
Net assets  $1,000,000 
Shares outstanding (Class A: 10,000 shares issued, unlimited shares authorized; Advisor Class: 90,000 shares issued, unlimited shares authorized)   100,000 
Net asset value per share  $10.00 

 

See Notes to Financial Statements

 

B-45

 

 

Franklin BSP Private Credit Fund

 

Statements of Operations

 

   For the Period
from November
12, 2019 (date of
inception) to
December 31,
2019
   Year Ended
December 31,
2020
   Year Ended
December 31,
2021
   For the Period
from January
1, 2022 to
February 14,
2022
 
Expenses                
Organizational costs  $49,672   $136,143   $21,812   $10,000 
Total expenses   49,672    136,143    21,812    10,000 
Less: Expenses paid by affiliate (See Note 3)   (49,672)   (136,143)   (21,812)   (10,000)
Net expenses  $-   $-   $-   $- 
Net investment income  $-   $-   $-   $- 

 

See Notes to Financial Statements

 

B-46

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements

 

As of February 14, 2022 and For the Period from November 12, 2019 (date of inception) to February 14, 2022

 

1. Organization

 

Franklin BSP Private Credit Fund (the “Fund”) was formed on November 12, 2019 as a Delaware statutory trust that is registered under the Investment Company Act of 1940 (the “1940 Act”) as a non-diversified, closed-end management investment company. Unlike most closed-end funds, which typically list their shares on a securities exchange, the Fund does not currently intend to list the shares for trading on any securities exchange, and the Fund does not expect any secondary market to develop for the shares in the foreseeable future. To provide limited liquidity to shareholders, the Fund is structured as an interval fund and conducts quarterly repurchase offers for a limited amount of the Fund’s shares.

 

The Fund intends to offer two separate classes of common shares: Class A and Advisor Class. Advisor Class Shares are not subject to either a distribution or a shareholder servicing fee. Class A Shares may be charged an annual distribution and shareholder servicing fee of up to 0.50% per year, payable quarterly of the average daily net assets attributable to Class A Shares. Investors purchasing Class A Shares may be charged a sales load of up to 2.25% of the investor’s subscription.

 

The Fund’s investment objective is to generate attractive risk-adjusted returns with consistent current income. The Fund seeks to achieve its investment objective by investing in private credit investments in middle market companies in the United States. The investment portfolio will primarily consist of private credit investments, which include privately offered secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt) across directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds. Under normal circumstances, private credit investments will represent at least 80% of the Fund’s Managed Assets. The Fund’s portfolio will be deemed to be non diversified under the 1940 Act, meaning it may invest a greater percentage of its assets in a single or limited number of issuers than a diversified fund.

 

Benefit Street Partners L.L.C. (“BSP”) serves as the Fund’s investment advisor (the “Advisor”). The Fund has had no operations to date other than matters relating to its organization and offering as a closed-end management investment company under the 1940 Act. To date, the only capital contribution to the Fund resulted in the issuance of 100,000 shares of beneficial interest (“Shares”) of the Fund at an aggregate purchase price of $1,000,000 on February 14, 2022. An affiliate of the Advisor owns 100% of the outstanding Shares of the Fund.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are stated in United States (“U.S.”) dollars. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates. A statement of changes in net assets and financial highlights have not been presented because the Fund has not commenced operations.

 

The Fund is an investment company and accordingly applies specific accounting and financial reporting requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Topic 946, Financial Services-Investment Companies.

 

B-47

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of February 14, 2022 and For the Period from November 12, 2019 (date of inception) to February 14, 2022

 

2. Summary of Significant Accounting Policies (continued)

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three or fewer months. There was $1,000,000 of cash as of February 14, 2022.

 

Organization and Offering Costs

 

Organization costs consist of costs incurred to establish the Fund and enable it legally to do business. Organization costs are expensed as incurred. Organization costs incurred from inception through February 14, 2022 were $217,627. Offering costs consist of costs incurred in connection with the offering of common shares of the Fund. Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months from the commencement of operations, which has not yet occurred. The total amount of the offering costs incurred by the Fund from inception through February 14, 2022 were $233,113. Initial organization and offering costs will be paid by the Advisor, subject to potential recoupment in future periods (see Footnote 3 – Related Party Transactions and Agreements).

 

Income Taxes

 

The Fund has elected to be treated for U.S. federal income tax purposes as a “regulated investment company” (“RIC”) under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of ’‘investment company taxable income,’’ as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year’s tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Fund intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Fund may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts.

 

The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether it is “more-likely-than-not” (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The Fund did not record any tax provision in the current period. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities on-going analysis of and changes to tax laws, regulations and interpretations thereof.

 

Litigation and Regulatory Matters

 

In the ordinary course of business, the Fund may become subject to litigation, claims, and regulatory matters. The Fund has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Fund at this time.

 

B-48

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of February 14, 2022 and for the Period from November 12, 2019 (date of inception) to February 14, 2022

 

2. Summary of Significant Accounting Policies (continued)

 

Indemnifications

 

In the ordinary course of its business, the Fund may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Fund. Based on its history and experience, management feels that the likelihood of such an event is remote.

 

3. Related Party Transactions and Agreements

 

Investment Advisory Agreement

 

On February 14, 2022, the Fund entered into an investment advisory agreement with the Advisor (the “Investment Advisory Agreement”). In consideration of the advisory and other services provided by the Advisor to the Fund, the Fund will pay the Advisor a fee at the annual rate of 1.25% of the average daily value of the Fund’s Net Assets (the “Management Fee”). “Net Assets” is defined as the total assets of the Fund minus the sum of the Fund’s accrued liabilities. For the period November 12, 2019 (date of inception) to February 14, 2022, no Management Fees have been accrued as the Fund has yet to commence operations.

  

Administration Agreement

 

On March 19, 2020, the Fund entered into an administration agreement with BSP (the “Administration Agreement”), pursuant to which BSP provides us with office facilities and administrative services.

 

Other

 

Certain officers of the Fund are also officers of the Advisor. Such officers are paid no fees by the Fund for serving as officers of the Fund.

 

B-49

 

 

Franklin BSP Private Credit Fund

 

Notes to Financial Statements (continued)

 

As of February 14, 2022 and for the Period from November 12, 2019 (date of inception) to February 14, 2022

 

4. Subsequent Events

 

In preparing these financial statements, the Fund’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no subsequent events identified, other than those mentioned below, that require recognition or disclosure.

 

Expense Limitation Agreement

 

On March 10, 2022, the Fund and the Advisor entered into an expense limitation agreement (the “Expense Limitation Agreement”). Under the Expense Limitation Agreement, the Advisor has agreed to reimburse the Fund’s initial organization and offering costs, as well as the Fund’s operating expenses (each such reimbursement, an “Expense Payment”) on a quarterly basis to the extent that the Fund’s annualized operating expenses exceed 2.25% of the Fund’s quarter-end net asset value (the “Expense Limitation”). In consideration of the Advisor’s agreement to reimburse the Fund’s operating expenses, the Fund has agreed to repay the Advisor in the amount of expenses reimbursed pursuant to the Expense Limitation Agreement (an “Advisor Recoupment”); provided, however, the Fund will pay the Advisor Recoupment only if and to the extent that (i) for Expense Payments made prior to the Fund’s first investment (the “Fund Launch Date”), it is payable not more than three years from the Fund Launch Date; (ii) for Expense Payments made after the Fund Launch Date, it is payable not more than three years from the date on which the applicable Expense Payment was made by BSP; and (iii) the Advisor Recoupment does not cause the Fund’s total annual Operating Expenses (on an annualized basis and net of any Advisor Recoupments received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Limitation. The Expense Limitation Agreement has an initial term of one year and may be renewed by the mutual agreement of the Advisor and the Fund for successive terms. The Fund’s obligation to make Advisor Recoupment payments shall survive the termination of this Agreement.

 

For the period November 12, 2019 (date of inception) to February 14, 2022, organization expenses amounted to $217,627 and deferred offering costs of $233,113 were paid by the Advisor. As of February 14, 2022, $450,740 is subject to the Advisor Recoupment. The Fund has assessed the likelihood that a recoupment will be paid by the Fund in accordance with the provisions of ASC 450. Based on this assessment, it has been determined that the recoupment is not probable or estimable as of February 14, 2022, and as such, an accrual has not been made on the statement of assets and liabilities.

 

B-50

 

 

PART C: OTHER INFORMATION

 

Item 25. Financial Statements and Exhibits

         
(1)   Financial Statements:
   
    Part A: Not applicable, as Registrant has not yet commenced operations.
   
    Part B: Statement of Assets and Liabilities. Financial statements indicating that the Registrant has met the net worth requirements of Section 14(a) of the Investment Company Act of 1940 are included in Part B of this Registration Statement.
   
(2)   Exhibits:
     
    (a)   (1)     Certificate of Trust dated November 12, 2019.*
     
        (2)     Declaration of Trust dated November 12, 2019.**
     
      (3)     Amended and Restated Declaration of Trust dated March 11, 2020.****
     
    (b)   By-laws dated March 11, 2020.**
     
    (c)   Not applicable.
     
    (d)   Not applicable.
     
    (e)   Form of Dividend Reinvestment Plan.****
     
    (f)   Not applicable.
     
    (g)   (i)        Form of Investment Advisory Agreement between Registrant and Benefit Street Partners L.L.C.****
     
    (h)   (i)        Form of Distribution Agreement.***
     
    (i)   Not applicable.
     
    (j)   Form of Custodian Agreement.****
     
    (k)   (1)     Form of Transfer Agency and Service Agreement.****

 

 C-1 

 

 

        (2)     Form of BSP Administration Agreement.***
         
        (3)     Form of USB  Administration Agreement.****
         
        (4)     Form of Expense Limitation Agreement.****
         
    (l)   Opinion and Consent of Dechert LLP.***
     
    (m)   Not applicable.
     
    (n)   Consent of Independent Registered Public Accounting Firm.****
     
    (o)   Not applicable.
     
    (p)   Form of Subscription Agreement.****
     
    (q)   Not applicable.
     
    (r)   (1)     Code of Ethics of the Registrant.****
     
        (2)     Code of Ethics of Benefit Street Partners LLC.****
         
        (3)     Code of Ethics of Franklin Distributors, LLC****
     
    (s)   Powers of Attorney.**

 

 

* Incorporated herein by reference to the corresponding exhibit of the Registrant’s initial Registration Statement on N-2 (File Nos. 333-234759; 811-23492), filed on November 18, 2019.
** Incorporated herein by reference to the corresponding exhibit of the Registrant’s initial Registration Statement on N-2 (File Nos. 333-234759; 811-23492), filed on March 24, 2020.
*** Incorporated herein by reference to the corresponding exhibit of the Registrant’s initial Registration Statement on N-2 (File Nos. 333-234759; 811-23492), filed on March 11, 2022.
**** filed herewith

 

Item 26. Marketing Arrangements

 

The information contained under the heading “Plan of Distribution” in this Registration Statement is incorporated herein by reference.

 

Item 27. Other Expenses of Issuance or Distribution

 

Not applicable.

 

Item 28. Persons Controlled by or Under Common Control with the Registrant

 

Immediately prior to this offering, BSP Fund Holdco (Debt Strategy) L.P., and affiliate of the Adviser, will own 100% of the outstanding common shares of the Registrant. Following the completion of this offering, BSP Fund Holdco (Debt Strategy) L.P.’s share ownership is expected to represent less than 1% of the Registrant’s outstanding common shares. See “Control Persons and Principal Shareholders” in the Prospectus contained herein.

 

 C-2 

 

 

Item 29. Number of Holder of Securities

 

As of August 19, 2022:

 

Title of Class  Number of
Record Holders
 
Class A Shares, par value $0.001   1 
Advisor Class Shares, par value $0.001   1 

 

Item 30. Indemnification

 

Reference is made to Article 6, Article 7 and Article 8 of Registrant’s Declaration of Trust filed as Exhibit (2)(a)(2) to this Registration Statement.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to the trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by the trustees, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by the trustees, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

Item 31. Business and Other Connections of Investment Adviser

 

Benefit Street Partners L.L.C. (“BSP”) serves as the investment adviser to the Registrant. BSP is engaged in the investment advisory business. For information as to the business, profession, vocation or employment of a substantial nature in which BSP and its executive officers and directors is or has been, during the last two fiscal years, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee, reference is made to the information set forth in BSP’s Form ADV (File No. 801-72843), as filed with the SEC and incorporated herein by reference.

 

Item 32. Location of Accounts and Records

 

The Declaration of Trust, Bylaws and minute books of the Registrant and certain investment adviser records will be in the physical possession of BSP. All other accounts, books and other documents required to be maintained under Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder will be in the physical possession of BSP, except for certain transfer agency records which are maintained by DST Systems, Inc.

 

Item 33. Management Services

 

Not applicable.

 

Item 34. Undertakings

 

1. Registrant undertakes to suspend the offering of its Shares until it amends the prospectus filed herewith if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement, or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus.

 

 C-3 

 

 

2. Not applicable.

 

3. The Registrant undertakes that:

 

a. To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:

 

  1.   to include any prospectus required by Section 10(a)(3) of the 1933 Act;

 

  2.   to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and

 

  3.  to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

b. that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;

 

c. to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

 

d. that, for the purpose of determining liability under the 1933 Act to any purchaser:

 

  1. if the Registrant is relying on Rule 430B [17 CFR 230.430B]:

 

  (A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

  (B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

 

  2.  if the Registrant is subject to Rule 430C [17 CFR 230.430C]: each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

 C-4 

 

 

e. that for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities, undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

 

  1.   any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act [17 CFR 230.497];

 

  2.   the portion of any advertisement pursuant to Rule 482 under the 1933 Act [17 CFR 230.482] relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

 

3.  any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

 

4. Not applicable.

 

5. Not applicable.

 

6. Not applicable.  

 

7. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any prospectus or Statement of Additional Information.

 

 C-5 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 19th day of August, 2022.

 

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

(A Delaware statutory trust)

     
  By: /s/ Richard J. Byrne
    Richard J. Byrne
    Trustee

 

 C-6 

 

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

         
Name   Title   Date
         
/s/ Richard J. Byrne   Trustee, Chief Executive Officer and President   August 19, 2022
    (Principal Executive Officer)    
         
         
/s/ Nina K. Baryski   Chief Financial Officer and Treasurer   August 19, 2022
    (Principal Financial and Principal Accounting Officer)    
         
         
/s/ Lee S. Hillman*   Trustee   August 19, 2022
         
         
/s/ Ronald J. Kramer*   Trustee   August 19, 2022
         
         
/s/ Leslie D. Michelson*   Trustee   August 19, 2022
         
         
/s/ Edward G. Rendell*   Trustee   August 19, 2022
         
         
/s/ Dennis M. Schaney*   Trustee   August 19, 2022
         

 

*By:  /s/ Nina K. Baryski  
  Nina K. Baryski, Attorney-in-Fact  

 

 C-7 

 

 

 

Exhibit 99.(a)(3)

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

AMENDED AND RESTATED DECLARATION OF TRUST

 

Dated as of March 19, 2020

 

 

 

 

TABLE OF CONTENTS

 

  PAGE
   
ARTICLE I THE TRUST 1
1.1 Name 1
1.2 Definitions 2
ARTICLE II TRUSTEES 3
2.1 Number 3
2.2 Term and Election 3
2.3 Resignation and Removal 3
2.4 Vacancies 4
2.5 Meetings 4
2.6 Trustee Action by Written Consent 5
2.7 Chairman 5
2.8 Officers 5
ARTICLE III POWERS AND DUTIES OF TRUSTEES 5
3.1 General 5
3.2 Investments 5
3.3 Legal Title 6
3.4 Issuance and Repurchase of Shares 6
3.5 Borrow Money or Utilize Leverage 6
3.6 Delegation; Committees 6
3.7 Collection and Payment 7
3.8 Expenses 7
3.9 By-Laws 7
3.10 Miscellaneous Powers 7
3.11 Further Powers 8
ARTICLE IV ADVISORY, MANAGEMENT AND DISTRIBUTION ARRANGEMENTS 8
4.1 Advisory and Management Arrangements 8
4.2 Distribution Arrangements 8
4.3 Parties to Contract 9
ARTICLE V LIMITATIONS OF LIABILITY AND INDEMNIFICATION 9
5.1 No Personal Liability of Shareholders, Trustees, etc 9
5.2 Mandatory Indemnification 10
5.3 No Bond Required of Trustees 11
5.4 No Duty of Investigation; No Notice in Trust Instruments, etc 11
5.5 Reliance on Experts, etc 11
ARTICLE VI SHARES OF BENEFICIAL INTEREST 11
6.1 Beneficial Interest 11
6.2 Other Securities 12
6.3 Rights of Shareholders 13
6.4 Exchange and Conversion Privileges 13
6.5 Trust Only 13
6.6 Issuance of Shares 13
6.7 Register of Shares 13
6.8 Transfer Agent and Registrar 14

 

i

 

 

TABLE OF CONTENTS

(continued)

  

    PAGE
     
6.9 Transfer of Shares 14
6.10 Notices 14
ARTICLE VII DETERMINATION OF NET ASSET VALUE 15
7.1 Net Asset Value 15
7.2 Power to Modify Foregoing Procedures 15
ARTICLE VIII CUSTODIANS 15
8.1 Appointment and Duties 15
8.2 Central Certificate System 16
ARTICLE IX REPURCHASES OF Shares 16
9.1 Repurchase of Shares. 16
9.2 Disclosure of Holding.. 16
ARTICLE X SHAREHOLDERS 16
10.1 Meetings of Shareholders 16
10.2 Voting 17
10.3 Notice of Meeting and Record Date 17
10.4 Quorum and Required Vote 17
10.5 Proxies, etc 17
10.6 Reports 18
10.7 Inspection of Records 18
10.8 Shareholder Action by Written Consent 18
ARTICLE XI DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC. 18
11.1 Duration 18
11.2 Termination 19
11.3 Amendment Procedure 19
11.4 Merger, Consolidation and Sale of Assets 20
11.5 Subsidiaries 20
11.6 Certain Transactions 21
ARTICLE XII MISCELLANEOUS 22
12.1 Filing 22
12.2 Resident Agent 22
12.3 Governing Law 22
12.4 Counterparts 23
12.5 Reliance by Third Parties 23
12.6 Provisions in Conflict with Law or Regulation 23

  

ii

 

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

AMENDED AND RESTATED DECLARATION OF TRUST

 

AMENDED AND RESTATED DECLARATION OF TRUST made as of the 19th day of March, 2020, by the Trustees hereunder.

 

WHEREAS, this Trust has been formed to carry on business as set forth more particularly hereinafter;

 

WHEREAS, this Trust is authorized to issue an unlimited number of its shares of beneficial interest all in accordance with the provisions hereinafter set forth;

 

WHEREAS, the Trustees have agreed to manage all property coming into their hands as Trustees of a Delaware statutory trust in accordance with the provisions hereinafter set forth;

 

WHEREAS, the parties hereto intend that the Trust created by the Declaration of Trust dated November 12, 2019 and the Certificate of Trust dated November 12, 2019 and filed with the Secretary of State of the State of Delaware shall constitute a statutory trust under the Delaware Statutory Trust Act and that this Declaration shall constitute the governing instrument of such statutory trust; and

 

WHEREAS, the Trustees have determined to amend and restate in its entirety the Trust’s Declaration of Trust dated as of November 12, 2019.

 

NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities, and other assets which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the benefit of the holders from time to time of shares of beneficial interest in this Trust as hereinafter set forth.

 

ARTICLE I

 

THE TRUST

 

1.1          Name. This Trust shall be known as the “Franklin BSP Private Credit Fund” and the Trustees shall conduct the business of the Trust under that name or any other name or names as they may from time to time determine. Any name change shall become effective upon the execution by a majority of the then Trustees of an instrument setting forth the new name and the filing of a certificate of amendment pursuant to Section 3810(b) of the Delaware Statutory Trust Act. Any such instrument shall not require the approval of the Shareholders, but shall have the status of an amendment to this Declaration.

 

 

 

 

 

1.2          Definitions. As used in this Declaration, the following terms shall have the following meanings:

 

The “1940 Act” refers to the Investment Company Act of 1940 and the rules and regulations promulgated thereunder and exemptions granted therefrom, as amended from time to time.

 

The terms “Affiliated Person,” “Assignment,” “Interested Person” and “Principal Underwriter” shall have the meanings given them in the 1940 Act.

 

By-Laws” shall mean the By-Laws of the Trust as amended from time to time by the Trustees.

 

Class” shall mean a class of Shares the Trust established in accordance with the provisions hereof.

 

Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

Commission” shall mean the Securities and Exchange Commission.

 

Declaration” shall mean this Amended and Restated Declaration of Trust, as amended, supplemented or amended and restated from time to time.

 

Delaware General Corporation Law” means the Delaware General Corporation Law, 8 Del. C. § 100, et. seq., as amended from time to time.

 

Delaware Statutory Trust Act” shall mean the provisions of the Delaware Statutory Trust Act, 12 Del. C. § 3801, et. seq., as such Act may be amended from time to time.

 

Fiscal Year” means each period commencing on January 1 of each year and ending on December 31 of that year (or on the date of a final distribution made in accordance with Section 12.2 of this Declaration), unless the Trustees designate another fiscal year for the Trust. The taxable year of the Trust will end on December 31 of each year, or on any other date designated by the Trustees that is a permitted taxable year-end for tax purposes, and need not be the same as the Fiscal Year.

 

Fundamental Policies” shall mean the investment policies and restrictions as set forth from time to time in any Registration Statement on Form N-2 of the Trust filed with the Commission and designated as fundamental policies therein, as they may be amended from time to time in accordance with the requirements of the 1940 Act.

 

Majority Shareholder Vote” shall mean a vote of “a majority of the outstanding voting securities” (as such term is defined in the 1940 Act) of the Trust with all classes of Shares voting together as a single class, except as with respect to votes which affect only one or more Classes, as provided for herein, in which case it shall mean a vote of a majority of outstanding voting securities of such Class or Classes, as applicable.

 

Person” shall mean and include individuals, corporations, partnerships, trusts, limited liability companies, associations, joint ventures and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof.

 

2

 

  

Prospectus” shall mean the Prospectus and Statement of Additional Information of the Trust, if any, as in effect and as may be amended from time to time.

 

Shareholders” shall mean as of any particular time the holders of record of outstanding Shares of the Trust, at such time.

 

Shares” shall mean the transferable units of beneficial interest into which the beneficial interest in the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares.

 

Trust” shall mean the trust established by this Declaration, as amended from time to time, inclusive of each such amendment.

 

Trust Property” shall mean as of any particular time any and all property, real or personal, tangible or intangible, which at such time is owned or held by or for the account of the Trust or the Trustees in such capacity.

 

Trustees” shall mean the signatories to this Declaration, so long as they shall continue in office in accordance with the terms hereof, and all other persons who at the time in question have been duly elected or appointed and have qualified as trustees in accordance with the provisions hereof and are then in office.

 

ARTICLE II

TRUSTEES

 

2.1          Number. As of the date hereof, the number of Trustees shall be six (6) and such Trustees shall be the signatories hereto. Thereafter, the number of Trustees shall be determined by a written instrument signed by a majority of the Trustees then office, provided that the number of Trustees shall be no less than one (1) and no more than fifteen (15). No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term. Trustees need not own Shares and may succeed themselves in office.

 

2.2          Term and Election. The term of office of a Trustee shall continue until death, resignation, removal, bankruptcy, adjudicated incompetence or other incapacity to perform the duties of the office of a Trustee. Subject to the provisions of the 1940 Act, the Trustees at any time may appoint individuals to fill vacancies on the Board of Trustees. Each Trustee elected shall hold office until his or her successor shall have been elected and shall have qualified.

 

2.3          Resignation and Removal. Any of the Trustees may resign their trust (without need for prior or subsequent accounting) by an instrument in writing signed by such Trustee and delivered or mailed to the Trustees or the Chairman (if any), the President, or the Secretary and such resignation shall be effective upon such delivery, or at a later date according to the terms of the instrument. Any of the Trustees may be removed (provided the aggregate number of Trustees after such removal shall not be less than the minimum number required by Section 2.1 hereof) for cause only, and not without cause, and only by action taken by a majority of the remaining Trustees. Upon the resignation or removal of a Trustee, each such resigning or removed Trustee shall execute and deliver such documents as the remaining Trustees shall require for the purpose of conveying to the Trust or the remaining Trustees any Trust Property held in the name of such resigning or removed Trustee. Upon the incapacity or death of any Trustee, such Trustee’s legal representative shall execute and deliver on such Trustee’s behalf such documents as the remaining Trustees shall require as provided in the preceding sentence.

 

3

 

  

2.4          Vacancies. Whenever a vacancy in the Board of Trustees shall occur, the remaining Trustees may fill such vacancy by appointing any individual as they may determine in their sole discretion by a vote of a majority of the Trustees then in office or may leave such vacancy unfilled or may reduce the number of Trustees; provided the aggregate number of Trustees after such reduction shall not be less than the minimum number required by Section 2.1 hereof. Any vacancy created by an increase in Trustees may be filled by the appointment of an individual made by a vote of a majority of the Trustees then in office. The Trustees may appoint a new Trustee as provided above in anticipation of a vacancy expected to occur because of the retirement, resignation or removal of a Trustee, or an increase in the number of Trustees, provided that such appointment shall become effective only at or after the expected vacancy occurs. No vacancy shall operate to annul this Declaration or to revoke any existing agency created pursuant to the terms of this Declaration. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled as provided herein, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration.

 

2.5          Meetings. Meetings of the Trustees shall be held from time to time upon the call of the Chairman, if any, or the President, the Secretary or any two Trustees. Regular meetings of the Trustees may be held without call or notice, except as may be otherwise required by law, at a time and place fixed by the By-Laws or by resolution of the Trustees. Notice of any other meeting shall be given by the Secretary and shall be delivered to the Trustees orally or via electronic transmission not less than 24 hours, or in writing not less than 72 hours, before the meeting, but may be waived in writing by any Trustee either before or after such meeting. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been properly called or convened. Any time there is more than one Trustee, a quorum for all meetings of the Trustees shall be one-third, but not less than two, of the Trustees. Unless provided otherwise in this Declaration and except as required under the 1940 Act, any action of the Trustees may be taken at a meeting by vote of a majority of the Trustees present (a quorum being present) or without a meeting by written consent of a majority of the Trustees.

 

Any committee of the Trustees, including an executive committee, if any, may act with or without a meeting. A quorum for all meetings of any such committee shall be one-third, but not less than two, of the members thereof. Unless provided otherwise in this Declaration, any action of any such committee may be taken at a meeting by vote of a majority of the members present (a quorum being present) or without a meeting by written consent of a majority of the members.

 

With respect to actions of the Trustees and any committee of the Trustees, Trustees who are Interested Persons in any action to be taken may be counted for quorum purposes under this Section and shall be entitled to vote to the extent not prohibited by the 1940 Act.

 

4

 

 

 

All or any one or more Trustees may participate in a meeting of the Trustees or any committee thereof by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other; participation in a meeting pursuant to any such communications system shall constitute presence in person at such meeting.

 

2.6          Trustee Action by Written Consent. Any action which may be taken by Trustees by vote may be taken without a meeting if that number of the Trustees, or members of a committee, as the case may be, required for approval of such action at a meeting of the Trustees or of such committee consent to the action in writing and the written consents are filed with the records of the meetings of Trustees. Such consent shall be treated for all purposes as a vote taken at a meeting of Trustees.

 

2.7          Chairman. The Trustees may designate a Chairman and a Vice Chairman of the Board of Trustees, who shall have such powers and duties as determined by the Board of Trustees from time to time. Any Chairman or Vice Chairman shall be a Trustee.

 

2.8          Officers. The Trustees shall elect a President, a Secretary and a Treasurer. Officers shall serve at the pleasure of the Trustees or until their successors are elected. The Trustees may elect or appoint or may authorize the Chairman, if any, or President to appoint such other officers or agents with such powers as the Trustees may deem to be advisable. The President, Secretary and Treasurer may, but need not, be a Trustee.

 

ARTICLE III

POWERS AND DUTIES OF TRUSTEES

 

3.1          General. The Trustees shall owe to the Trust and its Shareholders the same fiduciary duties as owed by directors of corporations to such corporations and their stockholders under the Delaware General Corporation Law. The Trustees shall have exclusive and absolute control over the Trust Property and over the business of the Trust to the same extent as if the Trustees were the sole owners of the Trust Property and business in their own right, but with such powers of delegation as may be permitted by this Declaration. The Trustees may perform such acts as in their sole discretion are proper for conducting the business of the Trust. The enumeration of any specific power herein shall not be construed as limiting the aforesaid power. Such powers of the Trustees may be exercised without order of or resort to any court.

 

3.2          Investments. The Trustees shall have power, subject to the Fundamental Policies in effect from time to time with respect to the Trust, to:

 

(a)          manage, conduct, operate and carry on the business of an investment company; and

 

(b)          subscribe for, invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise deal in or dispose of any and all sorts of property, tangible or intangible, including but not limited to securities of any type whatsoever, whether equity or non-equity, of any issuer, evidences of indebtedness of any person and any other rights, interests, instruments or property of any sort and to exercise any and all rights, powers and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons to exercise any of said rights, powers and privileges in respect of any of said investments. The Trustees shall not be limited by any law limiting the investments which may be made by fiduciaries.

 

5

 

  

3.3          Legal Title. Legal title to all the Trust Property shall be vested in the Trust except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of any other Person as nominee, custodian or pledgee, on such terms as the Trustees may determine, provided that the interest of the Trust therein is appropriately protected.

 

The right, title and interest of the Trustees in the Trust Property shall vest automatically in each person who may hereafter become a Trustee upon his due election and qualification. Upon the ceasing of any person to be a Trustee for any reason, such person shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.

 

3.4          Issuance and Repurchase of Shares. The Trustees shall have the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, classify and/or reclassify, dispose of, transfer, and otherwise deal in, Shares, including Shares in fractional denominations, and, subject to the more detailed provisions set forth in Articles VIII and IX, to apply to any such repurchase, redemption, retirement, cancellation or acquisition of Shares any funds or property whether capital or surplus or otherwise, to the full extent now or hereafter permitted corporations formed under the Delaware General Corporation Law.

 

3.5          Borrow Money or Utilize Leverage. Subject to the Fundamental Policies in effect from time to time with respect to the Trust, the Trustees shall have the power to borrow money or otherwise obtain credit or utilize leverage to the maximum extent permitted by law or regulation as such may be needed from time to time and to secure the same by mortgaging, pledging or otherwise subjecting as security the assets of the Trust, including the lending of portfolio securities, and to endorse, guarantee, or undertake the performance of any obligation, contract or engagement of any other person, firm, association or corporation.

 

3.6          Delegation; Committees. The Trustees shall have the power, consistent with their continuing exclusive authority over the management of the Trust and the Trust Property, to delegate from time to time to such of their number or to officers, employees or agents of the Trust the doing of such things, including any matters set forth in this Declaration, and the execution of such instruments either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient or appropriate to the extent permitted by law. The Trustees may designate one or more committees which shall have all or such lesser portion of the authority of the entire Board of Trustees as the Trustees shall determine from time to time except to the extent action by the entire Board of Trustees or particular Trustees is required by the 1940 Act.

 

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3.7          Collection and Payment. The Trustees shall have power to collect all property due to the Trust; to pay all claims, including taxes, against the Trust Property or the Trust, the Trustees or any officer, employee or agent of the Trust; to prosecute, defend, compromise or abandon any claims relating to the Trust Property or the Trust, or the Trustees or any officer, employee or agent of the Trust; to foreclose any security interest securing any obligations, by virtue of which any property is owed to the Trust; and to enter into releases, agreements and other instruments. Except to the extent required for a corporation formed under the Delaware General Corporation Law, the Shareholders shall have no power to vote as to whether or not a court action, legal proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders.

 

3.8          Expenses. The Trustees shall have power to incur and pay out of the assets or income of the Trust any expenses which in the opinion of the Trustees are necessary or incidental to carry out any of the purposes of this Declaration, and the business of the Trust, and to pay reasonable compensation from the funds of the Trust to themselves as Trustees. The Trustees shall fix the compensation of all officers, employees and Trustees. The Trustees may pay themselves such compensation for special services, including legal, underwriting, syndicating and brokerage services, as they in good faith may deem reasonable and reimbursement for expenses reasonably incurred by themselves on behalf of the Trust. The Trustees shall have the power, as frequently as they may determine, to cause each Shareholder to pay directly, in advance or arrears, for charges of distribution, of the custodian or of the transfer, Shareholder servicing or similar agent, a pro rata amount as defined from time to time by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends or distributions owed such Shareholder and/or by reducing the number of shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder.

 

3.9          By-Laws. The Trustees shall have the exclusive authority to adopt and from time to time amend or repeal By-Laws for the conduct of the business of the Trust.

 

3.10         Miscellaneous Powers. The Trustees shall have the power to: (a) employ or contract with such Persons as the Trustees may deem desirable for the transaction of the business of the Trust; (b) enter into joint ventures, partnerships and any other combinations or associations; (c) purchase, and pay for out of Trust Property, insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisors, distributors, selected dealers or independent contractors of the Trust against all claims arising by reason of holding any such position or by reason of any action taken or omitted by any such Person in such capacity, whether or not constituting negligence, or whether or not the Trust would have the power to indemnify such Person against such liability; (d) establish pension, profit-sharing, share purchase, and other retirement, incentive and benefit plans for any Trustees, officers, employees and agents of the Trust; (e) make donations, irrespective of benefit to the Trust, for charitable, religious, educational, scientific, civic or similar purposes; (f) to the extent permitted by law, indemnify any Person with whom the Trust has dealings, including without limitation any advisor, administrator, manager, transfer agent, custodian, distributor or selected dealer, or any other person as the Trustees may see fit to such extent as the Trustees shall determine; (g) guarantee indebtedness or contractual obligations of others; (h) determine and change the fiscal year of the Trust and the method in which its accounts shall be kept; and (i) adopt a seal for the Trust, even though the absence of such seal shall not impair the validity of any instrument executed on behalf of the Trust.

 

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3.11         Further Powers. The Trustees shall have the power to conduct the business of the Trust and carry on its operations in any and all of its branches and maintain offices both within and without the State of Delaware, in any and all states of the United States of America, in the District of Columbia, and in any and all commonwealths, territories, dependencies, colonies, possessions, agencies or instrumentalities of the United States of America and of foreign governments, and to do all such other things and execute all such instruments as they deem necessary, proper or desirable in order to promote the interests of the Trust although such things are not herein specifically mentioned. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration, the presumption shall be in favor of a grant of power to the Trustees. The Trustees will not be required to obtain any court order to deal with the Trust Property.

 

ARTICLE IV

ADVISORY, MANAGEMENT AND DISTRIBUTION ARRANGEMENTS

 

4.1          Advisory and Management Arrangements. Subject to the requirements of applicable law as in effect from time to time, the Trustees may in their discretion from time to time enter into advisory, administration or management contracts (including, in each case, one or more sub-advisory, sub-administration or sub-management contracts) whereby the other party to any such contract shall undertake to furnish such advisory, administrative and management services with respect to the Trust as the Trustees shall from time to time consider desirable and all upon such terms and conditions as the Trustees may in their discretion determine. Notwithstanding any provisions of this Declaration, the Trustees may authorize any advisor, administrator or manager (subject to such general or specific instructions as the Trustees may from time to time adopt) to exercise any of the powers of the Trustees, including to effect investment transactions with respect to the assets on behalf of the Trust to the full extent of the power of the Trustees to effect such transactions or may authorize any officer, employee or Trustee to effect such transactions pursuant to recommendations of any such advisor, administrator or manager (and all without further action by the Trustees). Any such investment transaction shall be deemed to have been authorized by the Board of Trustees.

 

4.2          Distribution Arrangements. Subject to compliance with the 1940 Act, the Trustees may retain underwriters and/or selling agents to sell Shares and other securities of the Trust. The Trustees may in their discretion from time to time enter into one or more contracts, providing for the sale of securities of the Trust, whereby the Trust may either agree to sell such securities to the other party to the contract or appoint such other party its sales agent for such securities. In either case, the contract shall be on such terms and conditions as the Trustees may in their discretion determine not inconsistent with the provisions of this Article IV or the By-Laws; and such contract may also provide for the repurchase or sale of securities of the Trust by such other party as principal or as agent of the Trust and may provide that such other party may enter into selected dealer agreements with registered securities dealers and brokers and servicing and similar agreements with persons who are not registered securities dealers to further the purposes of the distribution or repurchase of the securities of the Trust.

 

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4.3          Parties to Contract. Any contract of the character described in Sections 4.1 and 4.2 of this Article IV or in Article VIII hereof may be entered into with any Person, although one or more of the Trustees, officers or employees of the Trust may be an officer, director, trustee, shareholder, or member of such other party to the contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship, nor shall any Person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Trust under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, provided that the contract when entered into was reasonable and fair and not inconsistent with the provisions of this Article IV or the By-Laws. The same Person may be the other party to contracts entered into pursuant to Sections 4.1 and 4.2 above or Article VIII, and any individual may be financially interested or otherwise affiliated with Persons who are parties to any or all of the contracts mentioned in this Section 4.3.

 

ARTICLE V

LIMITATIONS OF LIABILITY AND INDEMNIFICATION

 

5.1          No Personal Liability of Shareholders, Trustees, etc. No Shareholder of the Trust shall be subject in such capacity to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust. Shareholders shall have the same limitation of personal liability as is extended to stockholders of a private corporation for profit incorporated under the Delaware General Corporation Law. No Trustee or officer of the Trust shall be subject in such capacity to any personal liability whatsoever to any Person, save only liability to the Trust or its Shareholders arising from bad faith, willful misfeasance, gross negligence or reckless disregard for his duty to such Person; and, subject to the foregoing exception, all such Persons shall look solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. No Trustee who has been determined to be an “audit committee financial expert” (for purposes of Section 407 of the Sarbanes-Oxley Act of 2002 or any successor provision thereto) by the Trustees shall be subject to any greater liability or duty of care in discharging such Trustee’s duties and responsibilities by virtue of such determination than is any Trustee who has not been so designated. If any Shareholder, Trustee or officer, as such, of the Trust, is made a party to any suit or proceeding to enforce any such liability, subject to the foregoing exception, he shall not, on account thereof, be held to any personal liability. Any repeal or modification of this Section 5.1 shall not adversely affect any right or protection of a Trustee or officer of the Trust existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

 

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5.2          Mandatory Indemnification. (a) The Trust hereby agrees to indemnify each person who at any time serves as a Trustee or officer of the Trust (each such person being an “indemnitee”) against any liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees reasonably incurred by such indemnitee in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while acting in any capacity set forth in this Article V by reason of his having acted in any such capacity, except with respect to any matter as to which he shall not have acted in good faith in the reasonable belief that his action was in the best interest of the Trust or, in the case of any criminal proceeding, as to which he shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that no indemnitee shall be indemnified hereunder against any liability to any person or any expense of such indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence, or (iv) reckless disregard of the duties involved in the conduct of his position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as “disabling conduct”). Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit or other proceeding by such indemnitee (1) was authorized by a majority of the Trustees or (2) was instituted by the indemnitee to enforce his or her rights to indemnification hereunder in a case in which the indemnitee is found to be entitled to such indemnification. The rights to indemnification set forth in this Declaration shall continue as to a person who has ceased to be a Trustee or officer of the Trust and shall inure to the benefit of his or her heirs, executors and personal and legal representatives. No amendment or restatement of this Declaration or repeal of any of its provisions shall limit or eliminate any of the benefits provided to any person who at any time is or was a Trustee or officer of the Trust or otherwise entitled to indemnification hereunder in respect of any act or omission that occurred prior to such amendment, restatement or repeal.

 

(b)          Notwithstanding the foregoing, no indemnification shall be made hereunder unless there has been a determination (i) by a final decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification hereunder was brought that such indemnitee is entitled to indemnification hereunder or, (ii) in the absence of such a decision, by (1) a majority vote of a quorum of those Trustees who are neither “Interested Persons” of the Trust nor parties to the proceeding (“Disinterested Non-Party Trustees”), that the indemnitee is entitled to indemnification hereunder, or (2) if such quorum is not obtainable or even if obtainable, if such majority so directs, independent legal counsel in a written opinion concludes that the indemnitee should be entitled to indemnification hereunder. All determinations to make advance payments in connection with the expense of defending any proceeding shall be authorized and made in accordance with the immediately succeeding paragraph (c) below.

 

(c)          The Trust shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Trust receives a written affirmation by the indemnitee of the indemnitee’s good faith belief that the standards of conduct necessary for indemnification have been met and a written undertaking to reimburse the Trust unless it is subsequently determined that the indemnitee is entitled to such indemnification and if a majority of the Trustees determine that the applicable standards of conduct necessary for indemnification appear to have been met. In addition, at least one of the following conditions must be met: (i) the indemnitee shall provide adequate security for his undertaking, (ii) the Trust shall be insured against losses arising by reason of any lawful advances, or (iii) a majority of a quorum of the Disinterested Non-Party Trustees, or if a majority vote of such quorum so direct, independent legal counsel in a written opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the indemnitee ultimately will be found entitled to indemnification.

 

(d)          The rights accruing to any indemnitee under these provisions shall not exclude any other right which any person may have or hereafter acquire under this Declaration, the By-Laws of the Trust, any statute, agreement, or vote of Shareholders or Trustees who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) or any other right to which he or she may be lawfully entitled.

 

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(e)          Subject to any limitations provided by the 1940 Act and this Declaration, the Trust shall have the power and authority to indemnify and provide for the advance payment of expenses to employees, agents and other Persons providing services to the Trust or serving in any capacity at the request of the Trust or provide for the advance payment of expenses for such Persons, provided that such indemnification has been approved by a majority of the Trustees.

 

5.3          No Bond Required of Trustees. No Trustee shall, as such, be obligated to give any bond or other security for the performance of any of his duties hereunder.

 

5.4          No Duty of Investigation; No Notice in Trust Instruments, etc. No purchaser, lender, transfer agent or other person dealing with the Trustees or with any officer, employee or agent of the Trust shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trustees or by said officer, employee or agent or be liable for the application of money or property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee or agent. Every obligation, contract, undertaking, instrument, certificate, Share, other security of the Trust, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively taken to have been executed or done by the executors thereof only in their capacity as Trustees under this Declaration or in their capacity as officers, employees or agents of the Trust. The Trustees may maintain insurance for the protection of the Trust Property, Shareholders, Trustees, officers, employees and agents in such amount as the Trustees shall deem adequate to cover possible tort liability and such other insurance as the Trustees in their sole judgment shall deem advisable or as is required by the 1940 Act.

 

5.5          Reliance on Experts, etc. Each Trustee and officer or employee of the Trust shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel, or upon reports made to the Trust by any of the Trust’s officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the Trustees, officers or employees of the Trust, regardless of whether such counsel or expert may also be a Trustee.

 

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

 

6.1          Beneficial Interest.

 

(a)            The interest of the beneficiaries shall be divided into an unlimited number of transferable shares of beneficial par value $0.001 per share. The Trustees may divide Shares into one or more Classes and the Trustees hereby establish the Classes listed in Schedule A hereto and made part hereof. Schedule A may be revised from time to time by resolution of a majority of the then Trustees, including in connection with the establishment and designation or re-designation of any Class. All Shares issued in accordance with the terms hereof, including, without limitation, Shares issued in connection with a dividend or distribution in Shares or a split of Shares, shall be fully paid and, except as provided in the last sentence of Section 3.8, nonassessable when the consideration determined by the Trustees (if any) therefor shall have been received by the Trust.

 

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(b)               Subject to the further provisions of this Article VI, any restriction set forth in the By-Laws and any applicable requirements of the 1940 Act or any applicable exemptive relief issued by the SEC, the Trustees shall have full power and authority, in their sole discretion, and without obtaining any authorization or vote of the Shareholders of any Class to: (i) divide the beneficial interest in each Class into Shares as the Trustees shall determine; (ii) establish, designate, redesignate, classify, reclassify and change in any manner any Class—and fix such preferences, voting powers, rights, duties and privileges and business purpose of each Class as the Trustees may from time to time determine, which preferences, voting powers, rights, duties and privileges may be different from any existing Class; provided, however, that the Trustees may not reclassify or change outstanding Shares in a manner materially adverse to Shareholders of such Shares, without obtaining the authorization or vote of the Class of Shareholders that would be materially adversely affected; (iii) divide or combine the Shares of any Class into a greater or lesser number without thereby materially changing the proportionate beneficial interest of the Shares of such Class in the assets held with respect to that Class; (iv) change the name of any Class; (v) dissolve and terminate any one or more Classes; and (vi) take such other action with respect to the Classes as the Trustees may deem desirable.

 

(c)               The establishment and designation of any Class of Shares of the Trust shall be effective upon the adoption by a majority of the then Trustees of a resolution that sets forth such establishment and designation and the relative rights and preferences of such Class of Shares of the Trust, whether directly in such resolution or by reference to another document including, without limitation, any registration statement of the Trust, or as otherwise provided in such resolution.

 

(d)               With respect to any Class of Shares of the Trust, each such Class shall represent interests in the assets of the Trust and have the same voting, dividend, liquidation and other rights and terms and conditions as each other Class of Shares of the Trust, except that, subject to applicable law, expenses allocated to a Class may be borne solely by such Class as determined by the Trustees and as provided herein, and a Class may have exclusive voting rights with respect to matters affecting only that Class.

 

(e)               To the fullest extent permitted by Section 3804 of the Delaware Statutory Trust Act and subject to the restrictions of the 1940 Act and any applicable exemptive relief issued by the SEC, the Trustees may allocate expenses of the Trust to a particular Class or to apportion the same between or among two or more Classes, provided that any expenses incurred by a particular Class shall be payable solely out of the assets belonging to that Class.

 

6.2              Other Securities. The Trustees may, subject to the Fundamental Policies and the requirements of the 1940 Act, authorize and issue such other securities of the Trust as they determine to be necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions as the Trustees see fit, including preferred shares, debt securities or other senior securities. The Trustees are also authorized to take such actions and retain such persons as they see fit to offer and sell such securities.

 

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6.3              Rights of Shareholders. The Shares shall be personal property giving only the rights in this Declaration specifically set forth. The ownership of the Trust Property of every description and the right to conduct any business hereinbefore described are vested exclusively in the Trustees on behalf of the Trust, and the Shareholders shall have no interest therein other than the beneficial interest conferred by their Shares, and they shall have no right to call for any partition or division of any property, profits, rights or interests of the Trust nor can they be called upon to share or assume any losses of the Trust or, subject to the right of the Trustees to charge certain expenses directly to Shareholders, as provided in the last sentence of Section 3.8, suffer an assessment of any kind by virtue of their ownership of Shares. The Shares shall not entitle the holder to preference, preemptive or appraisal rights.

 

6.4              Exchange and Conversion Privileges. Subject to the provisions of the 1940 Act and provisions of this Declaration, the Trustees shall have the power and authority to provide that the Shareholders of any Class shall have the right to convert such Shares for Shares of one or more other Classes. Subject to the provisions of the 1940 Act and provisions of this Declaration, the Trustees shall have the power and authority to provide that the Shareholders of any Class may exchange their Shares for those of another fund.

 

6.5              Trust Only. It is the intention of the Trustees to create only the relationship of Trustee and beneficiary between the Trustees and each Shareholder from time to time. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment or any form of legal relationship other than a trust. Nothing in this Declaration shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association.

 

6.6              Issuance of Shares. The Trustees, in their discretion, may from time to time without vote of the Shareholders issue Shares in addition to the then issued and outstanding Shares and Shares held in the treasury, to such party or parties and for such amount and type of consideration, including cash or property, at such time or times, and on such terms as the Trustees may determine, and may in such manner acquire other assets (including the acquisition of assets subject to, and in connection with the assumption of, liabilities) and businesses. The Trustees may from time to time divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interest in such Shares. Issuances and redemptions of Shares may be made in whole Shares and/or 1/1,000ths of a Share or multiples thereof as the Trustees may determine.

 

6.7              Register of Shares. A register shall be kept at the offices of the Trust or any transfer agent duly appointed by the Trustees under the direction of the Trustees which shall contain the names and addresses of the Shareholders and the number of Shares held by them respectively and a record of all transfers thereof. Each such register shall be conclusive as to who are the holders of the Shares and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein provided, until he has given his address to a transfer agent or such other officer or agent of the Trustees as shall keep the register for entry thereon. It is not contemplated that certificates will be issued for the Shares; however, the Trustees, in their discretion, may authorize the issuance of share certificates and promulgate appropriate fees therefor and rules and regulations as to their use.

 

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6.8              Transfer Agent and Registrar. The Trustees shall have power to employ a transfer agent or transfer agents, and a registrar or registrars, with respect to the Shares. The transfer agent or transfer agents may keep the applicable register and record therein, the original issues and transfers, if any, of the said Shares. Any such transfer agents and/or registrars shall perform the duties usually performed by transfer agents and registrars of certificates of stock in a corporation, as modified by the Trustees.

 

6.9              Transfer of Shares. Except as otherwise provided by the Trustees, Shares shall be transferable on the records of the Trust only by the record holder thereof or by its agent thereto duly authorized in writing, upon delivery to the Trustees or a transfer agent of the Trust of a duly executed instrument of transfer, together with such evidence of the genuineness of each such execution and authorization and of other matters (including compliance with any securities laws and contractual restrictions) as may reasonably be required. Upon such delivery the transfer shall be recorded on the applicable register of the Trust. Until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereof and neither the Trustees nor any transfer agent or registrar nor any officer, employee or agent of the Trust shall be affected by any notice of the proposed transfer. Each Shareholder will indemnify and hold harmless the Trust, the Trustees, each other Shareholder and any Affiliated Person of the Trust, the Trustees, and each of the other Shareholders against all losses, claims, damages, liabilities, costs and expenses (including legal or other expenses incurred in investigating or defending against any losses, claims, damages, liabilities, costs and expenses or any judgments, fines and amounts paid in settlement), joint or several, to which these Persons may become subject by reason of or arising from (1) any transfer made by the Shareholder in violation of this Section 6.9 and (2) any misrepresentation by the transferring Shareholder or substituted Shareholder in connection with the transfer. Pursuant to Section 3.8 hereof, a Shareholder transferring Shares may be charged reasonable expenses, including attorneys’ and accountants’ fees, incurred by the Trust in connection with the transfer.

 

Any person becoming entitled to any Shares in consequence of the death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation of law, shall be recorded on the applicable register of Shares as the holder of such Shares upon production of the proper evidence thereof to the Trustees or a transfer agent of the Trust, but until such record is made, the Shareholder of record shall be deemed to be the holder of such for all purposes hereof, and neither the Trustees nor any transfer agent or registrar nor any officer or agent of the Trust shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law.

 

6.10          Notices. Any and all notices to which any Shareholder hereunder may be entitled and any and all communications shall be deemed duly served or given if mailed, postage prepaid, addressed to any Shareholder of record at his last known address as recorded on the applicable register of the Trust.

 

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ARTICLE VII

 

DETERMINATION OF NET ASSET VALUE

 

7.1              Net Asset Value. The net asset value of each outstanding Share of each Class of the Trust shall be determined at such time or times on such days as the Trustees may determine, in accordance with the 1940 Act. The method of determination of net asset value shall be determined by the Trustees and shall be as set forth in the Prospectus or as may otherwise be determined by the Trustees. The power and duty to make the net asset value calculations may be delegated by the Trustees and shall be as generally set forth in the Prospectus or as may otherwise be determined by the Trustees.

 

7.2              Power to Modify Foregoing Procedures. Notwithstanding any of the foregoing provisions of this Article VII, the Trustees may prescribe, in their absolute discretion except as may be required by the 1940 Act, such other bases and times for determining the net asset value of each Class of the Trust’s Shares or net income, or the declaration and payment of dividends and distributions as they may deem necessary or desirable for any reason, including to enable the Trust to comply with any provision of the Code, the 1940 Act, any securities exchange or association registered under the Securities Exchange Act of 1934, or any order of exemption issued by the Commission, all as in effect now or hereafter amended or modified.

 

ARTICLE VIII

 

CUSTODIANS

 

8.1              Appointment and Duties. The Trustees shall at all times employ a custodian or custodians, meeting the qualifications for custodians for portfolio securities of investment companies contained in the 1940 Act, as custodian with respect to the assets of the Trust. Any custodian shall have authority as agent of the Trust as determined by the custodian agreement or agreements, but subject to such restrictions, limitations and other requirements, if any, as may be contained in the By-Laws of the Trust and the 1940 Act, including without limitation authority:

 

(1)               to hold the securities owned by the Trust and deliver the same upon written order;

 

(2)               to receive any receipt for any moneys due to the Trust and deposit the same in its own banking department (if a bank) or elsewhere as the Trustees may direct;

 

(3)               to disburse such funds upon orders or vouchers;

 

(4)               if authorized by the Trustees, to keep the books and accounts of the Trust and furnish clerical and accounting services; and

 

(5)               if authorized to do so by the Trustees, to compute the net income or net asset value of the Trust;

 

all upon such basis of compensation as may be agreed upon between the Trustees and the custodian.

 

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The Trustees may also authorize each custodian to employ one or more sub-custodians from time to time to perform such of the acts and services of the custodian and upon such terms and conditions, as may be agreed upon between the custodian and such sub-custodian and approved by the Trustees, provided that in every case such sub-custodian shall meet the qualifications for custodians contained in the 1940 Act.

 

8.2              Central Certificate System. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the custodian to deposit all or any part of the securities owned by the Trust in a system for the central handling of securities established by a national securities exchange or a national securities association registered with the Commission under the Securities Exchange Act of 1934, or such other Person as may be permitted by the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system all securities of any particular class of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Trust.

 

ARTICLE IX

 

REPURCHASES OF Shares

 

9.1              Repurchase of Shares. Except to the extent included as part of the Trust’s Fundamental Policies and subject to any restrictions or limitations contained therein, holders of Shares of the Trust shall not be entitled to require the Trust to repurchase or redeem Shares of the Trust.

 

9.2              Disclosure of Holding. The holders of Shares or other securities of the Trust shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares or other securities of the Trust as the Trustees deem necessary to comply with the provisions of the Code, the 1940 Act or other applicable laws or regulations, or to comply with the requirements of any other taxing or regulatory authority.

 

ARTICLE X

 

SHAREHOLDERS

 

10.1          Meetings of Shareholders. The Trust will not hold Shareholder meetings unless required by the 1940 Act, the provisions of this Declaration, the By-Laws or any other applicable law. A special meeting of Shareholders may be called at any time by a majority of the Trustees or the President and shall be called by any Trustee for any proper purpose upon written request of Shareholders of the Trust holding in the aggregate at least a majority of the outstanding Shares of the Trust, such request specifying the purpose or purposes for which such meeting is to be called. Any shareholder meeting, including a special meeting, shall be held within or without the State of Delaware on such day and at such time as the Trustees shall designate.

 

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10.2          Voting.               (a) Shareholders shall have no power to vote on any matter except matters on which a vote of Shareholders is required by applicable law, this Declaration or resolution of the Trustees. There shall be no cumulative voting in the election or removal of Trustees.

 

(b)               Notwithstanding any other provision of this Declaration, on any matters submitted to a vote of the Shareholders, all Shares of the Trust then-entitled to vote shall be voted in aggregate, except: (i) when required by the 1940 Act and/or other applicable law, Shares shall be voted by individual Class; (ii) when the matter involves any action that the Trustees have determined will affect only the interests of one or more Classes, then only the Shareholders of such Class or Classes shall be entitled to vote thereon.

 

10.3          Notice of Meeting and Record Date. Notice of all meetings of Shareholders, stating the time, place and purposes of the meeting, shall be given by the Trustees by mail to each Shareholder of record entitled to vote thereat at its registered address, mailed at least 10 days and not more than 90 days before the meeting or otherwise in compliance with applicable law. Only the business stated in the notice of the meeting shall be considered at such meeting; provided, however, that the foregoing shall in no way limit the ability of one or more adjournments to be considered at a meeting. Any adjourned meeting may be held as adjourned one or more times without further notice not later than 120 days after the record date. For the purposes of determining the Shareholders who are entitled to notice of and to vote at any meeting the Trustees may, without closing the transfer books, fix a date not more than 90 nor less than 10 days prior to the date of such meeting of Shareholders as a record date for the determination of the Persons to be treated as Shareholders of record for such purposes.

 

10.4          Quorum and Required Vote. (a) The holders of one-third of the Shares entitled to vote on any matter at a meeting present in person or by proxy shall constitute a quorum at such meeting of the Shareholders for purposes of conducting business on such matter. When any one or more Classes is to vote separately from any other Classes of Shares, holders of one-third of the Shares entitled to vote of each such Class shall constitute a quorum at a Shareholders’ meeting of that Class. The absence from any meeting, in person or by proxy, of a quorum of Shareholders for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, a quorum of Shareholders in respect of such other matters.

 

(b)               Subject to any provision of applicable law, this Declaration or a resolution of the Trustees specifying a greater or a lesser vote requirement for the transaction of any item of business at any meeting of Shareholders, (i) the affirmative vote of a majority of the Shares present in person or represented by proxy and entitled to vote on the subject matter shall be the act of the Shareholders with respect to such matter, except that Trustees shall be elected by plurality of the Shares voted at such a meeting to the extent Shareholders are entitled to vote to elect Trustees, and (ii) where a separate vote of more or more Classes of Shares is required on any matter, the affirmative vote of a majority of the Shares of such Class present in person or represented by proxy and entitled to vote on the subject matter shall decide that matter insofar as that Class is concerned.

 

10.5          Proxies, etc. At any meeting of Shareholders, any holder of Shares entitled to vote thereat may vote by properly executed proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Secretary, or with such other officer or agent of the Trust as the Secretary may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more of the officers or employees of the Trust. No proxy shall be valid after the expiration of 11 months from the date thereof, unless otherwise provided in the proxy. Only Shareholders of record shall be entitled to vote. Each full Share shall be entitled to one vote and fractional Shares shall be entitled to a vote of such fraction. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy.

 

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10.6          Reports. The Trustees shall cause to be prepared at least annually and more frequently to the extent and in the form required by law, regulation or any exchange on which Trust Shares are listed a report of operations containing a balance sheet and statement of income and undistributed income of the Trust prepared in conformity with generally accepted accounting principles and an opinion of an independent public accountant on such financial statements. Copies of such reports shall be mailed to all Shareholders of record within the time required by the 1940 Act. The Trustees shall, in addition, furnish to the Shareholders at least semi-annually to the extent required by law, interim reports containing an unaudited balance sheet of the Trust as of the end of such period and an unaudited statement of income and surplus for the period from the beginning of the current fiscal year to the end of such period.

 

10.7          Inspection of Records. The records of the Trust shall be open to inspection by Shareholders to the extent permitted by Section 3819 of the Delaware Statutory Trust Act but subject to such reasonable regulation as the Trustees may determine.

 

10.8          Shareholder Action by Written Consent. Any action which may be taken by Shareholders by vote may be taken without a meeting if the holders, entitled to vote thereon, of the proportion of Shares required for approval of such action at a meeting of Shareholders pursuant to Section 10.4 consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders.

 

ARTICLE XI

 

DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC.

 

11.1          Duration. Subject to possible termination in accordance with the provisions of Section 11.2 hereof, the Trust created hereby shall have perpetual existence.

 

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11.2          Termination. (a) The Trust may be dissolved, only upon approval of not less than 80% of the Trustees or, to the extent provided under those circumstances described in the registration statement, by the vote of the majority of the Shareholders. Upon the dissolution of the Trust:

 

(i)                 The Trust shall carry on no business except for the purpose of winding up its affairs.

 

(ii)              The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, merge where the Trust is not the survivor, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more Persons at public or private sale for consideration which may consist in whole or in part in cash, securities or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business; provided that any sale, conveyance, assignment, exchange, merger in which the Trust is not the survivor, transfer or other disposition of all or substantially all the Trust Property of the Trust shall require approval of the principal terms of the transaction and the nature and amount of the consideration by Shareholders.

 

(iii)            After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements, as they deem necessary for their protection, the Trustees may distribute the remaining Trust Property, in cash or in kind or partly each, among the Shareholders according to their respective rights.

 

(b)               After the winding up and termination of the Trust and distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination and shall execute and file a certificate of cancellation with the Secretary of State of the State of Delaware. Upon termination of the Trust, the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the rights and interests of all Shareholders shall thereupon cease.

 

11.3          Amendment Procedure. (a) Except as provided in subsection (b) of this Section 11.3, this Declaration may be amended, after a majority of the Trustees (including a majority of the independent Trustees if such a vote is required under the 1940 Act) have approved a resolution therefor, by the affirmative vote required by Section 10.4 of this Declaration. The Trustees also may amend this Declaration without any vote of Shareholders to change the name of the Trust, to change the U.S. federal income tax classification of the Trust from an association taxable as a corporation to a partnership if the Trust elects to cease qualifying as a regulated investment company under Subchapter M of the Code, to make any other change that does not adversely affect the relative rights or preferences of any Shareholder, as they may deem necessary, or to conform this Declaration to the requirements of the 1940 Act or any other applicable federal or state laws or regulations including pursuant to Section 6.2 or, if applicable, the requirements of the regulated investment company provisions of the Code, but the Trustees shall not be liable for failing to do so.

 

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(b)               No amendment may be made to Section 2.1, Section 2.2, Section 2.3, Section 3.8, Section 5.1, Section 5.2, Section 11.2(a), this Section 11.3, Section 11.4 or Section 11.6 of this Declaration and no amendment may be made to this Declaration which would change any rights with respect to any Shares of the Trust by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto (except that this provision shall not limit the ability of the Trustees to authorize, and to cause the Trust to issue, other securities pursuant to Section 6.2), except after a majority of the Trustees have approved a resolution therefor, and such amendment has been approved by the affirmative vote of the holders of not less than seventy-five percent (75%) of the Shares, unless such amendment has been approved by 80% of the Trustees, in which case approval by a Majority Shareholder Vote shall be required. Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the exemption from personal liability of the Shareholders, Trustees, officers, employees and agents of the Trust or to permit assessments upon Shareholders.

 

(c)               An amendment duly adopted by the requisite vote of the Board of Trustees and, if required under the 1940 Act or otherwise under this Declaration, the Shareholders as aforesaid, shall become effective at the time of such adoption or at such other time as may be designated by the Board of Trustees or Shareholders, as the case may be. A certification in recordable form signed by a majority of the Trustees setting forth an amendment and reciting that it was duly adopted by the Trustees and, if required, the Shareholders as aforesaid, or a copy of the Declaration, as amended, in recordable form, and executed by a majority of the Trustees, shall be conclusive evidence of such amendment when lodged among the records of the Trust or at such other time designated by the Board.

 

Notwithstanding any other provision hereof, until such time as a Registration Statement under the Securities Act of 1933, as amended, covering the first public offering of Shares of the Trust shall have become effective, this Declaration may be terminated or amended in any respect by the affirmative vote of a majority of the Trustees or by an instrument signed by a majority of the Trustees.

 

11.4          Merger, Consolidation and Sale of Assets. Except as provided in Section 11.6, the Trust may merge or consolidate with any other corporation, association, trust or other organization or may sell, lease or exchange all or substantially all of the Trust Property or the property, including its goodwill, upon such terms and conditions and for such consideration when and as authorized by two-thirds of the Trustees and approved by a Majority Shareholder Vote to the extent required by the 1940 Act and any such merger, consolidation, sale, lease or exchange shall be determined for all purposes to have been accomplished under and pursuant to the statutes of the State of Delaware.

 

11.5          Subsidiaries. Without approval by Shareholders, the Trustees may cause to be organized or assist in organizing one or more corporations, trusts, limited liability companies, partnerships, associations or other organizations to take over all of the Trust Property or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, convey and transfer all or a portion of the Trust Property to any such corporation, trust, limited liability company, association or organization in exchange for the shares or securities thereof, or otherwise, and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, limited liability company, partnership, association or organization, or any corporation, partnership, trust, limited liability company, association or organization in which the Trust holds or is about to acquire shares or any other interests.

 

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11.6          Certain Transactions. (a) Notwithstanding any other provision of this Declaration and subject to the exceptions provided in paragraph (d) of this Section, the types of transactions described in paragraph (c) of this Section shall require the affirmative vote or consent of a majority of the Trustees then in office followed by the affirmative vote of the holders of not less than seventy-five percent (75%) of the Shares outstanding, excluding the Shares of a Principal Shareholder (as defined in paragraph (b) of this Section) when any such Principal Shareholder is a party to the transaction. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of Shares otherwise required by 1aw.

 

(b)               The term “Principal Shareholder” shall mean any corporation, Person or other entity which is the beneficial owner, directly or indirectly, of five percent (5%) or more of the outstanding Shares of any outstanding Class and shall include any affiliate or associate, as such terms are defined in clause (ii) below, of a Principal Shareholder. For the purposes of this Section, in addition to the Shares which a corporation, Person or other entity beneficially owns directly, (a) any corporation, Person or other entity shall be deemed to be the beneficial owner of any Shares (i) which it has the right to acquire pursuant to any agreement or upon exercise of conversion rights or warrants, or otherwise (but excluding share options granted by the Trust) or (ii) which are beneficially owned, directly or indirectly (including Shares deemed owned through application of clause (i) above), by any other corporation, Person or entity with which its “affiliate” or “associate” (as defined below) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Shares, or which is its “affiliate” or “associate” as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, and (b) the outstanding Shares shall include Shares deemed owned through application of clauses (i) and (ii) above but shall not include any other Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights or warrants, or otherwise.

 

(c)               This Section shall apply to the following transactions:

 

(i)                 The merger or consolidation of the Trust or any subsidiary of the Trust with or into any Principal Shareholder.

 

(ii)              The issuance of any securities of the Trust to any Principal Shareholder for cash (other than pursuant to any automatic dividend reinvestment plan) not in the ordinary course of business.

 

(iii)            The sale, lease or exchange of all or any substantial part of the assets of the Trust to any Principal Shareholder (except assets having an aggregate fair market value of less than 2% of the total assets of the Trust, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period.)

 

(iv)             The sale, lease or exchange to the Trust or any subsidiary thereof, in exchange for securities of the Trust, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of less than 2% of the total assets of the Trust, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period).

 

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(d)               The provisions of this Section shall not be applicable to (i) any of the transactions described in paragraph (c) of this Section if 80% of the Trustees shall by resolution have approved a memorandum of understanding with such Principal Shareholder with respect to and substantially consistent with such transaction, in which case approval by a Majority Shareholder Vote shall be the only vote of Shareholders required by this Section, or (ii) any such transaction with any entity of which a majority of the outstanding shares of all classes and series of a stock normally entitled to vote in elections of directors is owned of record or beneficially by the Trust and its subsidiaries.

 

(e)               The Board of Trustees shall have the power and duty to determine for the purposes of this Section on the basis of information known to the Trust whether (i) a corporation, Person or entity beneficially owns five percent (5%) or more of the outstanding Shares of any class or series, (ii) a corporation, Person or entity is an “affiliate” or “associate” (as defined above) of another, (iii) the assets being acquired or leased to or by the Trust or any subsidiary thereof constitute a substantial part of the assets of the Trust and have an aggregate fair market value of less than 2% of the total assets of the Trust, and (iv) the memorandum of understanding referred to in paragraph (d) hereof is substantially consistent with the transaction covered thereby. Any such determination shall be conclusive and binding for all purposes of this Section.

 

ARTICLE XII

 

MISCELLANEOUS

 

12.1          Filing. (a) This Declaration and any amendment or supplement hereto shall be filed in such places as may be required or as the Trustees deem appropriate. Each amendment or supplement shall be accompanied by a certificate signed and acknowledged by a Trustee stating that such action was duly taken in a manner provided herein and shall, upon insertion in the Trust’s minute book, be conclusive evidence of all amendments contained therein. A restated Declaration, containing the original Declaration and all amendments and supplements theretofore made, may be executed from time to time by a majority of the Trustees and shall, upon insertion in the Trust’s minute book, be conclusive evidence of all amendments and supplements contained therein and may thereafter be referred to in lieu of the original Declaration and the various amendments and supplements thereto.

 

12.2          Resident Agent. The Trust shall maintain a resident agent in the State of Delaware, which agent shall initially be The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The Trustees may designate a successor resident agent, provided, however, that such appointment shall not become effective until written notice thereof and any required filing is delivered to the office of the Secretary of the State.

 

12.3          Governing Law. This Declaration is executed by the Trustees and delivered in the State of Delaware and with reference to the laws thereof (except for conflict-of-laws provisions or doctrines thereof), and the rights of all parties and the validity and construction of every provision hereof shall be subject to and construed according to laws of said State, and reference shall be specifically made to the Delaware General Corporation Law as to the construction of matters not specifically covered herein or as to which an ambiguity exists, although such law shall not be viewed as limiting the powers otherwise granted to the Trustees hereunder and any ambiguity shall be viewed in favor of such powers.

 

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12.4          Counterparts. This Declaration may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts, together, shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart.

 

12.5          Reliance by Third Parties. Any certificate executed by an individual who, according to the records of the Trust, or of any recording office in which this Declaration may be recorded, appears to be a Trustee hereunder, certifying to: (a) the number or identity of Trustees or Shareholders, (b) the name of the Trust, (c) the due authorization of the execution of any instrument or writing, (d) the form of any vote passed at a meeting of Trustees or Shareholders, (e) the fact that the number of Trustees or Shareholders present at any meeting or executing any written instrument satisfies the requirements of this Declaration, (f) the form of any By-Laws adopted by or the identity of any officers elected by the Trustees, or (g) the existence of any fact or facts which in any manner relate to the affairs of the Trust, shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trustees and their successors.

 

12.6          Provisions in Conflict with Law or Regulation. (a) The provisions of this Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, if applicable, with the regulated investment company provisions of the Code (if applicable) or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Declaration; provided, however, that such determination shall not affect any of the remaining provisions of this Declaration or render invalid or improper any action taken or omitted prior to such determination.

 

(b)               If any provision of this Declaration shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration in any jurisdiction.

 

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IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written.

 

  By: /s/ Richard J. Byrne
    Richard J. Byrne
     
  By: /s/ Lee Hillman
    Lee Hillman
     
  By: /s/ Ronald J. Kramer
    Ronald J. Kramer
     
  By: /s/ Leslie D. Michelson
    Leslie D. Michelson
     
  By: /s/ Edward G. Rendell
    Edward G. Rendell
     
  By: /s/ Dennis Schaney
    Dennis Schaney
     

 

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Schedule A

 

Class A

Class I

 

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Exhibit 99.(e)

 

FRANKLIN BSP PRIVATE CREDIT fund

 

DIVIDEND REINVESTMENT PLAN

 

Franklin BSP Private Credit Fund, a Delaware statutory trust (the “Fund”), hereby adopts the following Dividend Reinvestment Plan (the “Plan”) with respect to distributions declared by its board of trustees (the “Board”) on its shares of beneficial interest (the “Shares”):

 

1.         Participation; Agent. The Fund’s Plan is available to shareholders of record of the Shares. DST Systems, Inc. (“DST”) acting as agent for each participant in the Plan, will apply income dividends or capital gains or other distributions (each, a “Distribution” and collectively, “Distributions”), net of any applicable U.S. withholding tax, that become payable to such participant on Shares (including shares held in the participant’s name and shares accumulated under the Plan), to the purchase of additional whole and fractional Shares for such participant.

 

2.         Eligibility and Election to Participate. Participation in the Plan is limited to registered owners of Shares. The Fund’s Board reserves the right to amend or terminate the Plan. Shareholders automatically participate in the Plan, unless and until an election is made to withdraw from the Plan on behalf of such participating shareholder. If participating in the Plan, a shareholder is required to include all of the Shares owned by such shareholder in the Plan.

 

3.         Share Purchases. When the Fund declares a Distribution, DST, on the shareholder’s behalf, will receive additional authorized shares from the Fund either newly issued or repurchased from shareholders by the Fund and held as treasury stock. The number of shares to be received when Distributions are reinvested will be determined by dividing the amount of the Distribution by the Fund’s net asset value per share. There will be no sales load charged on Shares issued to a shareholder under the Plan. In making purchases for the accounts of participants, DST may commingle the funds of one participant with those of other participants in the Plan. All shares purchased under the Plan will be held in the name of each participant. In the case of shareholders, such as banks, brokers or nominees, that hold shares for others who are beneficial owners participating under the Plan, DST will administer the Plan on the basis of the number of shares certified from time to time by the record shareholder as representing the total amount of shares registered in the shareholder’s name and held for the account of beneficial owners participating under the Plan.

 

4.         Timing of Purchases. The Fund expects to issue Shares pursuant to the Plan, immediately following each Distribution payment date and DST will make every reasonable effort to reinvest all Distributions on the day the Distribution is paid (except where necessary to comply with applicable securities laws) by the Fund. If, for any reason beyond the control of DST, reinvestment of the Distributions cannot be completed within 30 days after the applicable Distribution payment date, funds held by DST on behalf of a participant will be distributed to that participant.

 

5.         Account Statements. DST will maintain all shareholder accounts and furnish or cause to be furnished written confirmations of all transactions in the accounts, including information needed by shareholders for personal and tax records. DST will hold shares in the account of the shareholders in non-certificated form in the name of the participant, and each shareholder’s proxy, if any, will include those shares purchased pursuant to the Plan. DST will confirm to each participant each acquisition made pursuant to the Plan as soon as practicable but not later than 10 business days after the date thereof. No less frequently than quarterly, DST will provide to each participant an account statement showing the Distribution, the number of shares purchased with the Distribution, and the year-to-date and cumulative Distributions paid. DST will distribute or cause to be distributed all proxy solicitation materials, if any, to participating shareholders.

 

 

 

 

 

6.       Expenses. There will be no direct expenses to participants for the administration of the Plan. There is no direct service charge to participants with regard to purchases under the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Administrative fees associated with the Plan will be paid by the Fund.

 

7.        Taxation of Distributions. The reinvestment of Distributions does not relieve the participant of any taxes which may be payable on such Distributions.

 

8.        Share Certificates. DST will hold shares in the account of the shareholders in non-certificated form in the name of the participant. Each participant, nevertheless, has the right to request certificates for whole and fractional shares owned. The Fund will issue certificates in its sole discretion.

 

9.        Voting of Shares. Shares issued pursuant to the Plan will have the same voting rights as the Shares issued pursuant to the Fund’s public offering.

 

10.       Absence of Liability. Neither the Fund nor DST shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or omitted pursuant to the Plan, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth herein. Neither the Fund nor DST shall be liable for any act done in good faith or for any good faith omission to act, including, without limitation, any claims of liability: (a) arising out of the failure to terminate a participant’s account prior to receipt of written notice of such participant’s death, or (b) with respect to prices at which shares are purchased or sold for the participant’s account and the terms on which such purchases and sales are made. NOTWITHSTANDING THE FOREGOING, LIABILITY UNDER THE U.S. FEDERAL SECURITIES LAWS CANNOT BE WAIVED.

 

11.       Termination of Participation. A shareholder who does not wish to have Distributions automatically reinvested may terminate participation in the Plan at any time by written instructions to that effect to DST. Such written instructions must be received by DST at least one business (1) day prior to the record date of the Distribution (or the date the Distribution is declared, if different from the record date) or the shareholder will receive such Distribution in Shares through the Plan.

 

12.       Amendment, Supplement, Termination, and Suspension of Plan. This Plan may be amended, supplemented, or terminated by the Fund at any time upon 30 days’ notice to shareholders. The amendment or supplement shall be filed with the Securities and Exchange Commission as an exhibit to a subsequent appropriate filing made by the Fund and shall be deemed to be accepted by each participant unless, prior to its effective date thereof, DST receives written notice of termination of the participant’s account. Amendment may include an appointment by the Fund or DST with the approval of the Fund of a successor agent, in which event such successor shall have all of the rights and obligations of DST under this Plan. The Fund may suspend the Plan at any time without notice to the participants.

 

13.       Governing Law. This Plan and the authorization form signed by the participant (which is deemed a part of this Plan) and the participant’s account shall be governed by and construed in accordance with the laws of the State of New York.

 

 

 

 

 

 

 

Exhibit 99.(g)(i)

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

INVESTMENT ADVISORY AGREEMENT

 

 

AGREEMENT made as of the [●] day of [●], [●], by and between Franklin BSP PRIVATE CREDIT FUND (the “Fund”), and BENEFIT STREET PARTNERS L.L.C. (the “Advisor”).

 

WHEREAS, the Fund is a closed-end, management investment company registered as such with the Securities and Exchange Commission (the “Commission”) pursuant to the Investment Company Act of 1940, as amended (the “1940 Act”), operating as an interval fund under the 1940 Act;

 

WHEREAS, the Advisor is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”); and

 

WHEREAS, the Fund desires to retain the Advisor to serve as investment adviser and the Advisor is willing to do so;

 

NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, it is agreed by and between the parties, as follows:

 

1.       General Provision.

 

The Fund hereby employs the Advisor and the Advisor hereby undertakes to act as the investment adviser of the Fund and to perform for the Fund such other duties and functions as are hereinafter set forth. The Advisor shall, in all matters, give to the Fund and its Board of Trustees (the “Board” and each trustee of the Fund, a “Trustee” and collectively, the “Trustees”) the benefit of its judgment, effort, advice and recommendations and shall, at all times conform to, and use its best efforts to enable the Fund to conform to: (a) the provisions of the 1940 Act and any rules or regulations thereunder; (b) any other applicable provisions of state or federal law; (c) the provisions of the declaration of Trust (“Declaration of Trust”) and by-laws (“By-Laws”) of the Fund as amended from time to time; (d) policies and determinations of the Board; (e) the fundamental policies and investment restrictions of the Fund as reflected in its registration statement under the 1940 Act or as such policies may, from time to time, be amended by the Fund's shareholders; and (f) the prospectus (“Prospectus”) and statement of additional information (“Statement of Additional Information”) of the Fund in effect from time to time. The appropriate officers and employees of the Advisor shall be available upon reasonable notice for consultation with any of the Trustees and officers of the Fund with respect to any matters dealing with the business and affairs of the Fund.

 

2.       Investment Management.

 

(a) The Advisor shall, subject to the oversight of the Board,

 

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(i) determine the composition and allocation of the portfolio of the Fund, the nature and timing of the changes therein and the manner of implementing such changes;

 

(ii) identify, evaluate and negotiate the structure of the investments made by the Fund;

 

(iii) execute, monitor and service the Fund investments;

 

(iv) determine the securities and other assets that the Fund shall purchase, retain, or sell;

 

(v) perform due diligence on prospective portfolio companies; and

 

(vi) provide the Fund with such other investment advisory, research and related services as the Fund may, from time to time, reasonably require for the investment of its funds.

 

(b) Provided that the Fund shall not be required to pay any compensation other than as provided by the terms of this Agreement and subject to the provisions of Section 7(c) hereof, the Advisor may obtain investment information, research or assistance from any other person, firm or corporation to supplement, update or otherwise improve its investment management services.

 

(c) To the extent permitted by applicable law, the Advisor may, from time to time with Board approval, appoint one or more sub-advisers, including, without limitation, affiliates of the Advisor, to perform investment advisory services with respect to the Fund (including, without limitation, those set forth Section 2(a) hereof), and may, in its sole discretion, terminate any or all such sub-advisers at any time to the extent permitted by applicable law.

 

(d) The Advisor shall have the authority to (i) enter into, on behalf of the Fund and as its adviser and/or agent in fact, (A) any agreement, and any supporting documentation, with any futures commission merchant registered with the U.S. Commodity Futures Trading Commission to provide execution and clearing services for exchange-traded commodity futures contracts, options on futures contracts and cleared swaps for the Fund and (B) futures (including security futures) contracts, forward foreign currency exchange contracts, options on securities (listed and over-the-counter), options on indices (listed and over-the-counter), options on foreign currency and other foreign currency transactions, swap transactions (cleared or un-cleared) (including, without limitation, interest rate, credit default, total return, and related types of swap and notional rate agreements), options on swap transactions, forward rate agreements, TBA transactions and other transactions involving the forward purchase or sale of securities, repurchase and reverse repurchase transactions, buy/sell back transactions and other similar types of investment contracts or transactions, and any agreements, instruments or documentation governing any of the foregoing (including, without limitation, brokerage agreements, execution agreements, ISDA master agreements, master securities forward transactions agreements, master repurchase agreements, master securities lending agreements, security or collateral agreements, control agreements and any other agreements, instruments or documents similar or incidental to the foregoing that currently are, or in the future become, customary or necessary with respect to the documentation of any of the foregoing, and any schedules and annexes to the aforementioned agreements, instruments and documents, and any releases, consents, waivers, amendments, elections or confirmations to any of the aforementioned agreements, instruments and documents (collectively, “Investment Instruments”), (ii) pledge and deliver cash, securities, commodities or other assets of the Fund as collateral security in connection with any Investment Instrument, (iii) arrange financings and borrowing facilities for the Fund and (iv) otherwise act on behalf of the Fund in connection with the exercise of any rights or the satisfaction of any obligations and liabilities of the Fund under any Investment Instruments or other agreement or documentation.

 

2

 

  

(e) Provided that nothing herein shall be deemed to protect the Advisor from its willful misfeasance, lack of good faith or gross negligence in the performance of its duties, or reckless disregard of its obligations and duties under the Agreement, the Advisor, each of its affiliates and all respective partners, members, directors, officers, trustees and employees and each person, if any, who within the meaning of Section 15 of the Securities Act of 1933, as amended (the “1933 Act”), controls, is controlled by or is under common control with the Advisor (“Control Persons”) shall not be liable for any error of judgment or mistake of law and shall not be subject to any expenses or liability to the Fund or any of the Fund’s shareholders, in connection with the matters to which this Agreement relates.

 

(f)       The Fund shall indemnify and hold harmless the Advisor and each of its Control Persons (collectively, the “Indemnified Parties”) against any and all losses, claims, damages, liabilities or litigation (including, without limitation, reasonable attorneys’ fees and other expenses), to which such persons may become subject under the 1940 Act, the 1933 Act, the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Advisers Act, the Commodity Exchange Act, as amended, or any other statute, law, rule or regulation, arising out of or otherwise based upon the performance of any of the Advisor’s duties or obligations under this Agreement or otherwise as an investment adviser of the Fund. Notwithstanding the foregoing provisions of this Section 2(f), nothing contained herein shall protect or be deemed to protect the Indemnified Parties against or entitle or be deemed to entitle the Indemnified Parties to indemnification in respect of, any liability to the Fund or its security holders to which the Indemnified Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of any Indemnified Party’s duties or by reason of the reckless disregard of the Advisor’s duties and obligations under this Agreement (as the same shall be determined in accordance with the 1940 Act and any interpretations or guidance by the SEC or its staff thereunder). The parties agree that each Indemnified Party shall be a third-party beneficiary of the terms of this subparagraph (f).

  

(g) Nothing in this Agreement shall prevent the Advisor or any officer thereof from acting as investment adviser for any other person, firm or corporation and, subject to applicable law, shall not in any way limit or restrict the Advisor or any of its directors, officers or employees from buying, selling or trading any securities or other instruments for its own account or for the account of others for whom it or they may be acting, provided that such activities will not adversely affect or otherwise impair the performance by the Advisor of its duties and obligations under this Agreement and under the Advisers Act.

  

3.       Other Duties of the Advisor.

 

(a) The Advisor shall, at its own expense, maintain such staff and employ or retain such personnel and consult with such other persons as it shall from time to time determine to be necessary or useful to the performance of its obligations under this Agreement. Without limiting the generality of the foregoing, the staff and personnel of the Advisor shall be deemed to include persons employed or otherwise retained by the Advisor to furnish statistical and other factual data, advice regarding economic factors and trends, information with respect to technical and scientific developments, and such other information, advice and assistance as the Advisor may desire.

 

3

 

 

(b) The Advisor shall also furnish such reports, evaluations, information or analyses to the Fund as the Board may request from time to time or as the Advisor may deem to be desirable. The Advisor shall make recommendations to the Board with respect to Fund policies, and shall carry out such policies as are adopted by the Trustees. The Advisor shall, subject to review by the Board, furnish such other services as the Advisor shall from time to time determine to be necessary or useful to perform its obligations under this Agreement.

 

(c) The Fund will, from time to time, furnish or otherwise make available to the Advisor such financial reports, proxy statements and other information relating to the business and affairs of the Fund as the Advisor may reasonably require in order to discharge its duties and obligations hereunder. The Advisor shall, as agent, for the Fund, maintain the Fund’s records required in connection with the performance of its obligations under this Agreement and required to be maintained under the 1940 Act. All such records so maintained shall be the property of the Fund and, upon request therefore, the Advisor shall surrender to the Fund such of the records so requested; provided that the Advisor may, at its own expense, make and retain copies of any such records.

 

(d) The Advisor shall bear the cost of rendering the investment advisory and supervisory services to be performed by it under this Agreement, and shall, at its own expense, pay the compensation of the officers and employees, if any, of the Fund who are also directors, officers or employees of the Advisor.

 

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4.       Fund Expenses.

 

Except as otherwise provided in this Agreement or by law, the Advisor shall not be responsible for the Fund’s expenses and the Fund assumes and shall pay or cause to be paid all of its expenses, including, without limitation: organizational and offering expenses (including, without limitation, out-of-pocket expenses, but not overhead or cost of employee compensation of the Advisor); expenses for legal, compliance, tax, accounting and auditing services (including expenses of legal counsel or other advisors to the Trustees who are not interested persons (as defined in the 1940 Act) of the Fund or the Advisor); taxes (including, without limitation, securities and commodities issuance and transfer taxes) and governmental fees (including, without limitation, fees payable by the Fund to Federal, State or other governmental agencies and associated filing costs); cost of technology directly incurred in connection with fund operations; dues and expenses incurred in connection with membership in investment company organizations (including, without limitation, membership dues of the Investment Company Institute); expenses incurred by the Advisor and payable to third parties, including agents, consultants and other advisors, in monitoring the financial and legal affairs of the Company, news and quotation subscriptions, and market and industry research; costs of printing and distributing shareholder reports, proxy materials, prospectuses, stock certificates and distribution of dividends; expenses incurred in arranging financings and borrowing facilities for the Fund; charges of the Fund’s custodians and sub-custodians, administrators and sub-administrators, registrars, depositories, transfer agents, dividend disbursing agents and dividend reinvestment plan agents (including under the custody, administration and other agreements); costs of valuation service providers retained by the Fund or the Investment Advisor; payment for portfolio pricing services to a pricing agent, if any; registration and filing fees of the Securities and Exchange Commission and various states and other jurisdictions (including filing fees and legal fees and disbursements of counsel); postage, freight and other charges in connection with the shipment of the Fund’s portfolio securities; fees and expenses of Trustees who are not interested persons (as defined in the 1940 Act) of the Fund or the Investment Advisor and of any other trustees or members of any advisory board or committee who are not employees of the Investment Advisor or any corporate affiliate of the Investment Advisor; salaries of shareholder relations personnel; costs of shareholders meetings; insurance (including, without limitation, insurance premiums on property or personnel (including, without limitation, officers and Trustees) of the Fund which inure to its benefit); interest; brokerage costs (including, without limitation, brokers’ commissions or transactions costs chargeable to the Fund in connection with portfolio securities transactions to which the Fund is a party); the Fund’s proportionate share of expenses related to co-investments; broken deal expenses (including, without limitation, research costs, fees and expenses of legal, financial, accounting, consulting or other advisors (including the Investment Advisor or its affiliates) in connection with conducting due diligence or otherwise pursuing a particular non-consummated transaction, fees and expenses in connection with arranging financing for a particular non-consummated transaction, travel costs, deposits or down payments that are forfeited in connection with, or amounts paid as a penalty for, a particular non-consummated transaction and other expenses incurred in connection with activities related to a particular non-consummated transaction); all expenses incident to the payment of any dividend, distribution (including any dividend or distribution program), withdrawal or redemption, whether in shares or in cash; the costs associated with the Fund’s share repurchase program; the cost of making investments (including third-party fees and expenses with respect to or associated with negotiating any such investments) purchased or sold for the Fund; litigation and other extraordinary or non-recurring expenses (including, without limitation, legal claims and liabilities and litigation costs and any indemnification related thereto); and all other charges and costs of the Fund’s operations.

 

The Fund shall reimburse the Advisor or its affiliates for any expenses of the Fund as may be reasonably incurred as specifically provided for in this Agreement (including, for the avoidance of doubt, any of the above expenses incurred by the Advisor or its affiliates on the Fund’s behalf) or as specifically agreed to by the Board. The Advisor shall keep and supply to the Fund reasonable records of all such expenses.

 

5.       Compensation of the Advisor.

 

The Fund agrees to pay the Advisor and the Advisor agrees to accept as full compensation for the performance of all functions and duties on its part to be performed pursuant to the provisions hereof, a fee as set forth on Exhibit A. If this Agreement expires or is terminated, the Advisor shall be entitled to receive all amounts (including any accrued by unreimbursed expenses) payable to it and not yet paid pursuant to this Section.

 

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6.       Use of Names.

 

The Fund agrees and consents that: (i) the names “Franklin” and “BSP” are proprietary to the Advisor (or one or more of its affiliates); (ii) it will only use the names “Franklin” and “BSP” as a component of its name and for no other purpose; (iii) it will not purport to grant to any third party the right to use the name for any other purpose; (iv) the Advisor, or one or more of its affiliates may use or grant to others the right to use the name “Franklin” or “BSP” as all or a portion of a corporate or business name or for any commercial purpose, including, without limitation, a grant of such right to any other investment company or other pooled vehicle; (v) upon termination of this Agreement, the Fund shall promptly take whatever action may be necessary to change its name and discontinue any further use of the names “Franklin” and “BSP” in the name of the Fund or otherwise.

  

7.       Portfolio Transactions and Brokerage.

 

(a) The Advisor is authorized, subject to the supervision and oversight of the Board, to establish and maintain accounts on behalf of the Fund with, and place orders for the purchase and sale of the Fund’s portfolio securities or other investments with or through, such persons, brokers or dealers, futures commission merchants or other counterparties (“brokers”) as the Advisor may elect and negotiate commissions to be paid on such transactions; provided, however, that a broker affiliated with the Advisor shall be used only in transactions permissible under applicable laws, rules and regulations, including, without limitation, the 1940 Act and the Advisers Act and the rules and regulations promulgated thereunder, as well as permitted by the policies adopted by the Fund. The Advisor, upon reasonable request of the Board, shall promptly provide the Board with copies of all agreements regarding brokerage arrangements related to the Fund.

 

(b) The Advisor shall enter into transactions and place orders for the purchase and sale of portfolio investments for the Fund’s account with brokers, dealers and/or other counterparties selected by the Advisor. In the selection of such brokers, dealers and/or other counterparties and the entering into of such transactions and placing of such orders, the Advisor shall seek to obtain for the Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions for brokerage and research services, as provided below. In using its reasonable efforts to obtain for the Fund the most favorable price and execution available, the Advisor, bearing in mind the best interests of the Fund at all times, shall consider all factors it deems relevant, including, without limitation, price, the size of the transaction, the breadth and nature of the market for the security, the difficulty of the execution, the amount of the commission, if any, the timing of the transaction, market prices and trends, the reputation, experience and financial stability of the broker, dealer or counterparty involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such policies as the Board may determine, or as may be mutually agreed to by the Advisor and the Board, the Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Fund to pay a broker or dealer that provides brokerage and research services (within the meaning of Section 28(e) of the 1934 Act, and any Commission guidance issued thereunder) to the Advisor an amount of commission for effecting an investment transaction in the Fund that is in excess of the amount of commission or spread that another broker or dealer would have charged for effecting that transaction if, but only if, the Advisor determines in good faith that such commission or spread was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of either that particular transaction or the overall responsibility of the Advisor with respect to the accounts for which it exercises investment discretion (as such term is defined in Section 3(a)(35) of the 1934 Act). It is recognized that the services provided by such brokers and dealers may be useful to the Advisor in connection with the Advisor’s services to other clients. The Advisor is responsible for obtaining a completed Form W-9 from any broker it selects to place orders for the Fund, and responsible for providing such to the Fund.

 

6

 

 

(c) On an ongoing basis, but not less often than annually, the Advisor shall review a written report prepared by the Fund’s Chief Compliance Officer, summarizing the considerations used for selecting brokers, dealers and other counterparties, if any, in the Advisor’s purchases and sales of portfolio investments and analysis regarding “best execution,” taking into account the Advisor’s best execution policy (provided that the Advisor shall not be required to weigh any particular factor on an equal basis), as well as any “soft dollar” or similar arrangements that the Advisor maintains with brokers or dealers that execute transactions for the Fund, and of all research and other services provided to the Advisor by a broker or dealer (whether prepared by such broker or dealer or by a third party) as a result, in whole or in part, of the direction of transactions for the Fund by the Advisor to the broker or dealer.

 

(d) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Fund as well as other clients of the Advisor, the Advisor, to the extent permitted by applicable laws and regulations (including, without limitation, any applicable exemptive orders or Commission guidance) and subject to the trade allocation procedures approved by the Board, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions or spreads and efficient execution. In such event, allocation of securities so sold or purchased, as well as the expenses incurred in the transaction, will be made by the Advisor in accordance with the approved procedures.

 

(e) The Advisor shall render reports to the Board as requested regarding commissions generated as a result of trades executed by the Advisor for the Fund, as well as information regarding third-party services, if any, received by the Advisor as a result of trading activity relating to the Fund with brokers and dealers.

 

8.       Duration.

 

This Agreement will take effect on the date first set forth above. Unless earlier terminated pursuant to Section 9 hereof, this Agreement shall remain in effect until two years from the date of execution hereof, and thereafter will continue in effect from year to year, so long as such continuance shall be approved at least annually by the Board, including, without limitation, the vote of the majority of the Trustees who are not parties to this Agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval, or by the holders of a “majority” (as defined in the 1940 Act) of the outstanding voting securities of the Fund and by such a vote of the Board.

 

7

 

 

9.       Termination.

 

This Agreement may be terminated: (a) by the Advisor at any time without penalty upon giving the Fund at least sixty days’ written notice (which notice may be waived by the Fund); (b) by the Fund at any time without penalty upon at least sixty days’ written notice to the Advisor (which notice may be waived by the Advisor); or (c) by the Fund upon delivery of written notice from Fund to the Advisor in the event of a material breach of any provision of this Agreement by the Advisor, provided that, to the extent such material breach is capable of being cured, the Fund shall have first provided the Advisor written notice of the material breach and the Advisor shall have failed to cure such breach to the reasonable satisfaction of the Fund within 10 days after the delivery of such notice; provided that termination by the Fund under (b) or (c) above shall be directed or approved by the vote of a majority of all of the Trustees then in office or by the vote of the holders of a “majority” (as defined in the 1940 Act) of the outstanding voting securities of the Fund.

 

10.       Assignment or Amendment.

 

This Agreement may not be amended without the affirmative vote of the Board, including a majority of the Trustees who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purposes of voting on such approval and, where required by the 1940 Act, by a vote or written consent of a “majority” of the outstanding voting securities of the Fund, and shall automatically and immediately terminate in the event of its “assignment,” as defined in the 1940 Act.

 

11.       Disclaimer of Shareholder Liability.

 

The Advisor understands that the obligations of the Fund under this Agreement are not binding upon any Trustee or shareholder of the Fund personally, but bind only the Fund and the Fund’s property. The Advisor represents that it has notice of the provisions of the Declaration of Trust of the Fund disclaiming shareholder liability for acts or obligations of the Fund.

  

12.       Definitions.

 

The terms and provisions of this Agreement shall be interpreted and defined in a manner consistent with the provisions and definitions of the 1940 Act.

 

13.       Counterparts

 

This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken altogether shall constitute one and the same Agreement. Counterparts may be executed in either original or electronically transmitted form (e.g., faxes or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

 

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14.       Governing Law, Jurisdiction, etc.

 

This Agreement shall be governed by and construed in accordance with substantive laws of the State of New York without reference to choice of law principles thereof and in accordance with the 1940 Act. In the case of any conflict, the 1940 Act shall control. The state and federal courts sitting within the State and County of New York shall be the sole and exclusive forums for any action or proceeding hereunder and the parties hereto consent to the jurisdiction thereof. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

15.       Severability

 

If any provision of this Agreement shall be held or made invalid by a court decision or applicable law, the remainder of the Agreement shall not be affected adversely and shall remain in full force and effect.

 

16.       Entire Agreement

 

This Agreement contains the entire understanding and agreement of the parties with respect to the subject matter hereof. Each party shall perform such further actions and execute such further documents as are necessary to effectuate the purpose of this Agreement.

 

17.       Survival

 

The provisions of Sections 2(e), 2(f), 5, 6, 11, 14 and 17 shall survive termination of this Agreement.

  

[Remainder of page left intentionally blank.]

 

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  FRANKLIN BSP PRIVATE CREDIT FUND
   
  By:
   
  Name: Richard Byrne
   
  Title: President and Principal Executive Officer
   
  BENEFIT STREET PARTNERS, L.L.C.
   
  By:  
   
  Name: Bryan Martoken
   
  Title: Chief Financial Officer

 

[Signature Page to Advisory Agreement]

   

10

 

 

 EXHIBIT A TO

ADVISORY AGREEMENT

 

A management fee calculated and payable monthly in arrears on the average daily value of the Fund’s net assets at an annual rate of:

 

1.25% of the Fund’s average daily value of the Fund’s net assets

 

In addition to the asset based fee above, the Fund shall pay to the Advisor an Incentive Fee calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on the Fund’s net assets, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a “catch-up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income, income generated from original issue discounts, payment-in-kind income, and any other income earned or accrued during the calendar quarter, minus the Fund’s operating expenses (which, for this purpose shall not include any distribution and/or shareholder servicing fees, litigation, any extraordinary expenses or Incentive Fee) for the quarter. For purposes of computing the Fund’s pre-incentive fee net investment income, the calculation methodology will look through total return swaps as if the Fund owned the referenced assets directly. As a result, the Fund’s pre-incentive fee net investment income includes net interest, if any, associated with a derivative or swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Fund to the derivative or swap counterparty. Net assets means the total assets of the Fund minus the Fund’s liabilities. For purposes of the Incentive Fee, net assets are calculated for the relevant quarter as the weighted average of the net asset value of the Fund as of the first business day of each month therein. The weighted average net asset value shall be calculated for each month by multiplying the net asset value as of the beginning of the first business day of the month times the number of days in that month, divided by the number of days in the applicable calendar quarter.

 

The calculation of the Incentive Fee for each calendar quarter is as follows:

 

No Incentive Fee is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, does not exceed the quarterly hurdle rate of 1.50%;

 

100% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the hurdle rate but is less than or equal to 1.71425% (the “catch-up”) is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, exceeds the hurdle rate but is less than or equal to 1.71425% (6.857% annualized). The “catch-up” provision is intended to provide the Advisor with an incentive fee of 12.5% on all of the Fund’s pre-incentive fee net investment income when the Fund’s pre-incentive fee net investment income reaches 1.71425% of net assets; and

 

12.5% of the portion of the Fund’s pre-incentive fee net investment income that exceeds the “catch-up” is payable to the Advisor if the Fund’s pre-incentive fee net investment income, expressed as a percentage of the Fund’s net assets in respect of the relevant calendar quarter, exceeds 1.71425% (6.857% annualized).

 

As a result, once the hurdle rate is reached and the catch-up is achieved, 12.5% of all the Fund’s pre-incentive fee net investment income thereafter is allocated to the Advisor.

 

11

 

Exhibit 99.(j) 

 

 

 

CUSTODY AGREEMENT

 

 

  

dated as of June 16, 2022
by and between

  

FRANKLIN BSP PRIVATE CREDIT FUND
(“Company”)

 

and

 

U.S. BANK NATIONAL ASSOCIATION
(“Custodian”)

 

 

 

  

TABLE OF CONTENTS

 

Page

 

1. DEFINITIONS 1
     
2. APPOINTMENT OF CUSTODIAN 5
     
3. DUTIES OF CUSTODIAN 5
     
4. REPORTING 12
     
5. DEPOSIT IN U.S. SECURITIES SYSTEMS 12
     
6. RESERVED. 13
     
7. CERTAIN GENERAL TERMS 13
     
8. COMPENSATION OF CUSTODIAN 15
     
9. RESPONSIBILITY OF CUSTODIAN 15
     
10. SECURITY CODES 18
     
11. TAX LAW 18
     
12. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT 19
     
13. REPRESENTATIONS AND WARRANTIES 20
     
14. PARTIES IN INTEREST; NO THIRD PARTY BENEFIT 21
     
15. NOTICES 21
     
16. CHOICE OF LAW AND JURISDICTION 22
     
17. ENTIRE AGREEMENT; COUNTERPARTS 22
     
18. AMENDMENT; WAIVER 23
     
19. SUCCESSOR AND ASSIGNS 23
     
20. SEVERABILITY 23
     
21. REQUEST FOR INSTRUCTIONS 23
     
22. OTHER BUSINESS 24
     
23. REPRODUCTION OF DOCUMENTS 24
     
24. MISCELLANEOUS 24

  

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THIS CUSTODY AGREEMENT (this “Agreement”) is dated as of June 16, 2022 and is by and between FRANKLIN BSP PRIVATE CREDIT FUND (and any successor or permitted assign), a Delaware statutory trust, having its principal place of business at 9 West 57th Street, Suite 4700, New York, NY 10019, and U.S. BANK NATIONAL ASSOCIATION (or any successor or permitted assign acting as custodian hereunder, the “Custodian”), a national banking association having a place of business at One Federal Street, Boston, MA 02110.

 

RECITALS

 

WHEREAS, the Company (as defined below) desires to retain U.S. Bank National Association to act as custodian for the Company;

 

WHEREAS, the Company desires that the Company’s Securities (as defined below) and cash be held and administered by the custodian pursuant to this Agreement; and

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

 

1.DEFINITIONS

 

1.1          Defined Terms. In addition to terms expressly defined elsewhere herein, the following words shall have the following meanings as used in this Agreement:

 

Account” or “Accounts” means the Cash Account, the Securities Account, any Subsidiary Cash Account and any Subsidiary Securities Account, collectively.

 

Agreement” means this Custody Agreement (as the same may be amended from time to time in accordance with the terms hereof).

 

Authorized Person” has the meaning set forth in Section 7.4.

 

Business Day” means a day on which the Custodian is open for business in the market or country in which a transaction is to take place.

 

Cash Account” means the accounts to be established at the Custodian to which the Custodian shall deposit and hold any cash Proceeds received by it from time to time from or with respect to the Securities or the sale of the common stock of the Company, as applicable, which accounts shall be designated the “Franklin BSP Private Credit Fund Cash Interest Proceeds Account” and the “Franklin BSP Private Credit Fund Cash Principal Proceeds Account”.

 

Company” means Franklin BSP Private Credit Fund, its successors or permitted assigns.

 

Confidential Information” means any databases, computer programs, screen formats, screen designs, report formats, interactive design techniques, and other similar or related information that may be furnished to the Company by the Custodian from time to time pursuant to this Agreement.

 

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Custodian” has the meaning set forth in the first paragraph of this Agreement.

 

Eligible Investment” means any investment that at the time of its acquisition is one or more of the following:

 

(a)            United States government and agency obligations;

 

(b)           commercial paper having a rating assigned to such commercial paper by Standard & Poor’s Rating Services or Moody’s Investor Service, Inc. (or, if neither such organization shall rate such commercial paper at such time, by any nationally recognized rating organization in the United States of America) equal to one of the two highest ratings assigned by such organization, it being understood that as of the date hereof such ratings by Standard & Poor’s Rating Services are “A1+” and “A1” and such ratings by Moody’s Investor Service, Inc. are “P1” and “P2”;

 

(c)           interest bearing deposits in United States dollars in United States or Canadian banks with an unrestricted surplus of at least U.S. $250,000,000, maturing within one year; and

 

(d)           money market funds (including funds of the bank serving as Custodian or its affiliates) or United States government securities funds designed to maintain a fixed share price and high liquidity.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

Federal Reserve Bank Book-Entry System” means a depository and securities transfer system operated by the Federal Reserve Bank of the United States on which are eligible to be held all United States Government direct obligation bills, notes and bonds.

 

Loan” means any U.S. dollar denominated commercial loan, or Participation therein, made by a bank or other financial institution that by its terms provides for payments of principal and/or interest, including discount obligations and payment- in-kind obligations, acquired by the Company from time to time.

 

Non-Public Information” shall have the meaning set forth in Section 3.14.

 

Participation” means an interest in a Loan that is acquired indirectly by way of a participation from a selling institution.

 

“Participating Plan” means an employee benefit plan that the Fund has accepted for participation in the Fund.

 

Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary thereof) unincorporated organization, or any government or agency or political subdivision thereof.

 

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“Plan-assets Vehicle” means an investment contract, product, or entity that holds plan assets (as determined pursuant to ERISA §§3(42) and 401 and 29 CFR §2510.3-101).

 

Proceeds” means, collectively, (i) all cash distributions, earnings, dividends, fees and other cash payments paid on the Securities (or, as applicable, Subsidiary Securities) by or on behalf of the issuer or obligor thereof, or applicable paying agent, (ii) the net cash proceeds of the sale or other disposition of the Securities (or, as applicable, Subsidiary Securities) pursuant to the terms of this Agreement (and any Reinvestment Earnings from investment of the foregoing, as defined in Section 3.6(b) hereof) and (iii) the net cash proceeds to the Company of any borrowing or other financing by the Company.

 

Proper Instructions” means instructions (including Trade Confirmations) received by the Custodian in form acceptable to it, from the Company, or any Person duly authorized by the Company in any of the following forms acceptable to the Custodian:

 

(a)           in writing signed by an Authorized Person (and delivered by hand, by mail, by overnight courier or by PDF);

 

(b)by electronic mail from an Authorized Person;

 

(c)in tested communication;

 

(d)           in a communication utilizing access codes effected between electro mechanical or electronic devices; or

 

(e)           such other means as may be agreed upon from time to time by the Custodian and the party giving such instructions, including oral instructions.

 

Securities” means, collectively, the (i) investments, including Loans, acquired by the Company and delivered to the Custodian by the Company from time to time during the term of, and pursuant to the terms of, this Agreement and (ii) all dividends in kind (e.g., non-cash dividends) from the investments described in clause (i), all of which shall be in U.S. denomination.

 

Securities Account” means the segregated account to be established at the Custodian to which the Custodian shall deposit or credit and hold the Securities (other than Loans) received by it pursuant to this Agreement, which account shall be designated the “Franklin BSP Private Credit Fund Securities Custody Account”.

 

Securities Depository” means The Depository Trust Company and any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which acts as a system for the central handling of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities.

 

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Securities System” means the Federal Reserve Book-Entry System, a clearing agency which acts as a Securities Depository, or another book entry system for the central handling of securities.

 

Street Delivery Custom” means a custom of the United States securities market to deliver securities which are being sold to the buying broker for examination to determine that the securities are in proper form.

 

Street Name” means the form of registration in which the securities are held by a broker who is delivering the securities to another broker for the purposes of sale, it being an accepted custom in the United States securities industry that a security in Street Name is in proper form for delivery to a buyer and that a security may be re-registered by a buyer in the ordinary course.

 

Subsidiary Cash Account” shall have the meaning set forth in Section 3.13(b).

 

Subsidiary Securities” collectively, the (i) investments, including Loans, acquired by a Subsidiary and delivered to the Custodian from time to time during the term of, and pursuant to the terms of, this Agreement and (ii) all dividends in kind (e.g., non-cash dividends) from the investments described in clause (i).

 

Subsidiary Securities Account” shall have the meaning set forth in Section 3.13(a).

 

Subsidiary” means, collectively, any wholly owned subsidiary of the Company identified to the Custodian by the Company.

 

Trade Confirmation” means a confirmation to the Custodian from the Company of the Company’s acquisition of a Loan, and setting forth applicable information with respect to such Loan, which confirmation may be in a form agreed to between the parties from time to time.

 

1.2Construction. In this Agreement unless the contrary intention appears:

 

(a)any reference to this Agreement or another agreement or instrument refers to such agreement or instrument as the same may be amended, modified or otherwise rewritten from time to time;

 

(b)a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them;

 

(c)any term defined in the singular form may be used in, and shall include, the plural with the same meaning, and vice versa;

 

(d)a reference to a Person includes a reference to the Person’s executors, successors and permitted assigns;

 

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(e)an agreement, representation or warranty in favor of two or more Persons is for the benefit of them jointly and severally;

 

(f)an agreement, representation or warranty on the part of two or more Persons binds them jointly and severally;

 

(g)a reference to the term “including” means “including, without limitation,” and

 

(h)a reference to any accounting term is to be interpreted in accordance with generally accepted principles and practices in the United States, consistently applied, unless otherwise instructed by the Company.

 

1.3Headings. Headings are inserted for convenience and do not affect the interpretation of this Agreement.

 

2.APPOINTMENT OF CUSTODIAN

 

2.1          Appointment and Acceptance. The Company hereby appoints the Custodian as custodian of all Securities and cash owned by the Company and the Subsidiaries (as applicable) at any time during the period of this Agreement, on the terms and conditions set forth in this Agreement (which shall include any addendum hereto which is hereby incorporated herein and made a part of this Agreement), and the Custodian hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement with respect to it subject to and in accordance with the provisions hereof.

 

2.2         Instructions. The Company agrees that it shall from time to time provide, or cause to be provided, to the Custodian all necessary instructions and information, and shall respond promptly to all inquiries and requests of the Custodian, as may reasonably be necessary to enable the Custodian to perform its duties hereunder.

 

2.3         Company Responsible For Directions. The Company is solely responsible for directing the Custodian with respect to deposits to, withdrawals from and transfers to or from the Account. Without limiting the generality of the foregoing, the Custodian has no responsibility for compliance with any restrictions, covenants, limitations or obligations to which the Company may be subject or for which it may have obligations to third-parties in respect of the Account, and the Custodian shall have no liability for the application of any funds made at the direction of the Company. The Company shall be solely responsible for properly instructing all applicable payors to make all appropriate payments to the Custodian for deposit to the Account, and for properly instructing the Custodian with respect to the allocation or application of all such deposits.

 

3.DUTIES OF CUSTODIAN

 

3.1         Segregation. All Securities and non-cash property held by the Custodian, as applicable, for the account of the Company (other than Securities maintained in a Securities Depository or Securities System) shall be physically segregated from other Securities and non-cash property in the possession of the Custodian (including the Securities and non-cash property of the other series of the Company, if applicable) and shall be identified as subject to this Agreement.

 

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3.2          Securities Custody Account. The Custodian shall open and maintain in its corporate trust department a segregated account in the name of the Company, subject only to order of the Custodian, in which the Custodian shall enter and carry, subject to Section 3.3 (b), all Securities (other than Loans), cash and other assets of the Company which are delivered to it in accordance with this Agreement. For avoidance of doubt, the Custodian shall not be required to credit or deposit Loans in the Securities Account but shall instead maintain a register (in book-entry form or in such other form as it shall deem necessary or desirable) of such Loans, containing such information as the Company and the Custodian may reasonably agree.

 

3.3Delivery of Securities to Custodian.

 

(a)The Company may deliver, or cause to be delivered, to the Custodian any of the Company’s Securities, cash and other investment assets, including any payments of income, payments of principal and capital distributions received by the Company with respect to such Securities, cash or other assets owned by the Company at any time during the period of this Agreement. For the avoidance of doubt, the Company may not deliver, or cause to be delivered, all of its assets to the Custodian. Except to the extent otherwise expressly provided herein, delivery of Securities to the Custodian shall be in Street Name or other good delivery form. The Custodian shall not be responsible for such Securities, cash or other assets until actually delivered to, and received by, it. With respect to Securities (other than Loans) held by the Custodian in its capacity as a “securities intermediary” (as defined in Section 8-102 of the Uniform Commercial Code as in effect in the State of New York), the Custodian shall be obligated to exercise due care in accordance with reasonable commercial standards in discharging its duties as a securities intermediary to obtain and maintain such Securities.

 

(b)Notwithstanding any term hereof or elsewhere to the contrary, (a) it is hereby expressly acknowledged that (i) interests in Loans may be acquired by the Company from time to time which are not evidenced by, or accompanied by delivery of, a “Security” or an instrument, as that term is defined in Section 9-102(a)(4a) of the UCC, and may be evidenced solely by delivery to the Custodian of a facsimile copy of an assignment agreement (“Assignment”) in favor of the Company as assignee, (ii) any such Assignment (and the registration of the related Loan on the books and records of the applicable obligor or bank agent) shall be registered in the name of the Company (or its nominee), and (iii) the Custodian shall have no duty with respect to the physical custody of any Loan. In connection with its acquisition of a Loan or other delivery of a Security constituting a Loan, the Company shall deliver or cause to be delivered to the Custodian a properly completed Trade Confirmation containing such information in respect of such Loan as the Custodian may reasonably require in order to enable the Custodian to perform its duties hereunder in respect of such Loan on which the Custodian may conclusively rely without further inquiry or investigation and an Assignment. Nothing herein shall require the Custodian to credit to the Securities Account or to treat as a financial asset (within the meaning of Section 8-102(a)(9) of the UCC) any such Loan or other asset in the nature of a general intangible (as defined in Section 9-102(a)(42) of the UCC) or to “maintain” a sufficient quantity thereof. The Custodian shall have no obligation at any time to determine whether any such original security or instrument has been or is required to be issued or made available in respect of any Loan or to compel or cause delivery thereof to the Custodian. In addition, the Custodian shall have no obligation to accept delivery or hold any original notes, instruments or other documentation evidencing such Loan.

 

(c)Contemporaneously with the acquisition of any Loan, the Company shall (A) if requested by the Custodian, provide to the Custodian an amortization schedule of principal payments and a schedule of the interest payable date(s) identifying the amount and due dates of all scheduled principal and interest payments for such Loan; (B) take all actions necessary for the Company to acquire good title to such Loan; and (C) take all actions as may be necessary (including appropriate payment notices and instructions to bank agents or other applicable paying agents) to cause (x) all payments in respect of the Loan to be made to the Custodian and (y) all notices, solicitations and other communications in respect of such Loan to be directed to the Company. The Custodian shall have no liability for any delay or failure on the part of the Company to provide necessary information to the Custodian, or for any inaccuracy therein or incompleteness thereof, or for any delay or failure on the part of the Company to give such effective payment instruction to bank agents and other paying agents, in respect of the Loans. With respect to each such Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, obligor or similar party with respect to the related Loan, or from the Company, and shall be entitled to update its records (as it may deem necessary or appropriate) on the basis of such information or notices received, without any obligation on its part independently to verify, investigate or recalculate such information.

 

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3.4Release of Securities.

 

(a)The Custodian shall release and ship for delivery, or direct its agents or sub-custodian to release and ship for delivery, as the case may be, Securities of the Company held by the Custodian, its agents or its sub-custodian from time to time upon receipt of Proper Instructions (which shall, among other things, specify the Securities to be released, with such delivery and other information as may be necessary to enable the Custodian to perform), which may be standing instructions (in form acceptable to the Custodian) in the following cases:

 

(i)upon sale of such Securities by or on behalf of the Company and, unless otherwise directed by Proper Instructions:

  

(A)in accordance with the customary or established practices and procedures in the jurisdiction or market where the transactions occur, including delivery to the purchaser thereof or to a dealer therefor (or an agent of such purchaser or dealer) against expectation of receiving later payment; or

 

(B)in the case of a sale effected through a Securities System, in accordance with Section 5 hereof;

 

(ii)upon the receipt of payment in connection with any repurchase agreement related to such securities;

 

(iii)to a depositary agent in connection with tender or other similar offers for securities;

 

(iv)to the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable;

 

(v)to an issuer thereof, or its agent, for transfer into the name of the Custodian or of any nominee of the Custodian or into the name of any of its agents or sub-custodian or their nominees or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units (unless otherwise directed by Proper Instructions, the new Securities and cash, if any, is to be delivered to the Custodian its agent or its sub-custodian);

 

(vi)to brokers clearing banks or other clearing agents for examination in accordance with the Street Delivery Custom;

 

(vii)for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to any deposit agreement (unless otherwise directed by Proper Instructions, the new securities and cash, if any, are to be delivered to the Custodian, its agents or its sub-custodian);

 

(viii)in the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities (unless otherwise directed by Proper Instructions, the new securities and cash, if any, are to be delivered to the Custodian, its agents or its sub-custodian); and/or

 

(ix)for any other purpose, but only upon receipt of Proper Instructions and an officer’s certificate signed by an officer of the Company (which officer shall not have been the Authorized Person providing the Proper Instructions) stating (i) the specified securities to be delivered, (ii) the purpose for such delivery, (iii) that such purpose is a proper corporate purpose and (iv) naming the person or persons to whom delivery of such securities shall be made.

 

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  3.5        Registration of Securities. All Securities held for the Company that are issued or issuable only in bearer form shall be held by the Custodian in that form, provided that any such Securities shall be held in a Securities System if eligible therefor. Securities held by the Custodian, its sub-custodian (other than bearer securities or Securities that are Loans) shall be registered in the name of the Company or its nominee; or, at the option of the Custodian, in the name of the Custodian or in the name of any nominee of the Custodian, or in the name of its sub-custodian or their nominees; or in the name of a Securities System or Securities Depository or nominee thereof; or if directed by the Company by Proper Instruction, may be maintained in Street Name. The Custodian and its sub-custodian shall not be obligated to accept Securities on behalf of the Company under the terms of this Agreement unless such Securities are in Street Name or other good deliverable form.

  3.6 Bank Accounts and Management of Cash

  (a)  Proceeds from the Securities received by the Custodian from time to time shall be credited to the Cash Account. All amounts credited to the Cash Account shall be subject to clearance and receipt of final payment by the Custodian.

  (b) Amounts held in the Cash Account from time to time may be invested in Eligible Investments pursuant to specific written Proper Instructions (which may be standing instructions) received by the Custodian from an Authorized Person acting on behalf of the Company. Such investments shall be subject to availability and the Custodian’s then applicable transaction charges (which shall be at the Company’s expense). The Custodian shall have no liability for any loss incurred on any such investment. Absent receipt of such written instruction from the Company, the Custodian shall have no obligation to invest (or otherwise pay interest on) amounts on deposit in the Cash Account. In no instance will the Custodian have any obligation to provide investment advice to the Company. Any earnings from such investment of amounts held in the Cash Account from time to time (collectively, “Reinvestment Earnings”) shall be redeposited in the Cash Account (and may be reinvested at the written direction of the Company).

  (c) In the event that the Company shall at any time request a withdrawal of amounts from the Cash Account, the Custodian shall be entitled to liquidate, and shall have no liability for any loss incurred as a result of the liquidation of, any investment of the funds credited to such account as needed to provide necessary liquidity. Investment instructions may be in the form of standing instructions (in the form of Proper Instructions acceptable to Custodian).

  (d) The Company acknowledges that cash deposited or invested with any bank (including the bank acting as Custodian) may make a margin or generate banking income for which such bank shall not be required to account to the Company.

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 (e)The Custodian shall be authorized to open such additional accounts as may be necessary or convenient for administration of its duties hereunder.

3.7[Reserved.]

3.8           Collection of Income. The Custodian, its agents or its sub-custodian shall use reasonable efforts to collect on a timely basis all income and other payments with respect to the Securities held hereunder to which the Company shall be entitled, to the extent consistent with usual custom in the securities custodian business in the United States. Such efforts shall include collection of interest income, dividends and other payments with respect to registered domestic securities if on the record date with respect to the date of payment by the issuer the Security is registered in the name of the Custodian or its nominee (or in the name of its agent or sub-custodian, or their nominee); and interest income, dividends and other payments with respect to bearer domestic securities if, on the date of payment by the issuer such securities are held by the Custodian or its sub-custodian or agent; provided, however, that in the case of Securities held in Street Name, the Custodian shall use commercially reasonable efforts only to timely collect income. In no event shall the Custodian’s agreement herein to collect income be construed to obligate the Custodian to commence, undertake or prosecute any legal proceedings.

3.9Payment of Moneys.

(a)           Upon receipt of Proper Instructions, which may be standing instructions, the Custodian shall pay out from the Cash Account (or remit to its agents or its sub-custodian, and direct them to pay out) moneys of the Company on deposit therein in the following cases:

(i)upon the purchase of Securities for the Company pursuant to such Proper Instruction; and such purchase may, unless and except to the extent otherwise directed by Proper Instructions, be carried out by the Custodian:

(A)in accordance with the customary or established practices and procedures in the jurisdiction or market where the transactions occur, including delivering money to the seller thereof or to a dealer therefor (or any agent for such seller or dealer) against expectation of receiving later delivery of such securities; or

(B)in the case of a purchase effected through a Securities System, in accordance with the rules governing the operation of such Securities System;

(ii)[reserved]; and

(iii)          for any other purpose directed by the Company, but only upon receipt of Proper Instructions specifying the amount of such payment, and naming the Person or Persons to whom such payment is to be made.

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(b)            At any time or times, the Custodian shall be entitled to pay (i) itself from the Cash Account, whether or not in receipt of express direction or instruction from the Company, any amounts due and payable to it pursuant to Section 8 hereof, and (ii) as otherwise permitted by Section 7.5, 9.4 or Section 12.5 below, provided, however, that in each case all such payments shall be accounted for to the Company.

3.10         Proxies. The Custodian will, with respect to the Securities held hereunder, use reasonable efforts to cause to be promptly executed by the registered holder of such Securities proxies received by the Custodian from its agents or its sub-custodian or from issuers of the Securities being held for the Company, without indication of the manner in which such proxies are to be voted, and upon receipt of Proper Instructions shall promptly deliver such proxies, proxy soliciting materials and notices relating to such Securities. In the absence of such Proper Instructions, or in the event that such Proper Instructions are not received in a timely fashion, the Custodian shall be under no duty to act with regard to such proxies.

3.11        Communications Relating to Securities. The Custodian shall transmit promptly to the Company all written information (including pendency of calls and maturities of Securities and expirations of rights in connection therewith) received by the Custodian, from its agents or its sub-custodian or from issuers of the Securities being held for the Company. The Custodian shall have no obligation or duty to exercise any right or power, or otherwise to preserve rights, in or under any Securities unless and except to the extent it has received timely Proper Instruction from the Company in accordance with the next sentence. The Custodian will not be liable for any untimely exercise of any right or power in connection with Securities at any time held by the Custodian, its agents or sub-custodian unless:

(i)the Custodian has received Proper Instructions with regard to the exercise of any such right or power; and

(ii)the Custodian, or its agents or sub-custodian are in actual possession of such Securities,

in each case, at least three (3) Business Days prior to the date on which such right or power is to be exercised. It will be the responsibility of the Company to notify the Custodian of the Person to whom such communications must be forwarded under this Section.

3.12 Records. (a) The Custodian shall create and maintain complete and accurate records including ledgers (or other records), if any, relating to its activities under this Agreement with respect to the Securities, cash or other property held for the Company under this Agreement.

(b) All such records shall be the property of the Company and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Company and employees and agents of the Securities and Exchange Commission, upon reasonable request and prior notice and at the Company’s expense.

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3.13          Access to Information.

(a)            Each party shall keep confidential any non-public information relating to the other party’s business (“Non-Public Information”). Non-Public Information may include: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Company or the Custodian, their respective subsidiaries and affiliated companies; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Company or the Custodian a competitive advantage of its competitors; (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, and trade secrets, whether or not patentable or copyrightable; and (iv) anything designated as confidential. Non-Public Information shall not include information which (i) is disclosed in a publication available to the public, is otherwise in the public domain at the time of disclosure, or becomes publicly known through no wrongful act on the part of the recipient, (ii) is obtained by the recipient in good faith from a third party source having the right to disclose such information, or (iii) was known by the receiving party, without any obligation of confidentiality, prior to the disclosure of such information.

(b)           Notwithstanding the foregoing, the recipient may disclose Non-Public Information (i) to regulatory authorities having jurisdiction over the Custodian, as required by law or regulation, and (ii) to the Custodian’s directors, officers, employees, attorneys, accountants, agents or advisors who have a need to know such information in the course of the performance of its duties hereunder.

(c)           The recipient may disclose Non-Public Information to the extent and as required by applicable law or regulation in connection with oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any governmental entity, or pursuant to a judicial, administrative or legal proceeding in which either party is involved; provided that the recipient will, to the extent permitted to do so, provide prompt notice to the other party of such request and give the other party the opportunity to contest such request or seek a protective order, as necessary, prior to disclosing such Non-Public Information under this Section 3.14(c). In the event that no such protective order or other remedy is obtained, or in the absence of such protective order, other remedy or the waiver by the other party and where the receiving party has been advised by counsel that it is legally compelled to disclose the Non-Public Information, the receiving party and/or its counsel will furnish only that portion of the Non-Public Information that the receiving party is advised by its counsel is legally required.

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4.REPORTING

(a) If requested by the Company, the Custodian shall render to the Company a monthly report of (i) all deposits to and withdrawals from the Cash Account during the month, and the outstanding balance (as of the last day of the preceding monthly report and as of the last day of the subject month) and (ii) an itemized statement of the Securities held pursuant to this Agreement as of the end of each month, as well as a list of all Securities transactions that remain unsettled at that time, and (iii) such other matters as the parties may agree from time to time.

(b) For each Business Day, the Custodian shall render to the Company a daily report of (i) all deposits to and withdrawals from the Cash Account for such Business Day and the outstanding balance as of the end of such Business Day, and (ii) a report of settled trades of Securities for such Business Day.

(c) The Custodian shall have no duty or obligation to undertake any market valuation of the Securities under any circumstance.

5.DEPOSIT IN U.S. SECURITIES SYSTEMS

The Custodian may deposit and/or maintain Securities in a Securities System within the United States in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations and subject to the following provisions:

(a)    The Custodian may keep domestic Securities in a U.S. Securities System provided that such Securities are represented in an account of the Custodian in the U.S. Securities System which shall not include any assets of the Custodian other than assets held by it as a fiduciary, custodian or otherwise for customers;

(b) The records of the Custodian with respect to Securities which are maintained in a U.S. Securities System shall identify by book-entry those Securities belonging to the Company;

 

(c) If requested by the Company, the Custodian shall provide to the Company copies of all notices received from the U.S. Securities System of transfers of Securities for the account of the Company; and

(e) Anything to the contrary in this Agreement notwithstanding, the Custodian shall not be liable to the Company for any direct loss, damage, cost, expense, liability or claim to the Company resulting from use of any Securities System.

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6.RESERVED.

7.             CERTAIN GENERAL TERMS

7.1          No Duty to Examine Underlying Instruments. Nothing herein shall obligate the Custodian to review or examine the terms of any underlying instrument, certificate, credit agreement, indenture, loan agreement, promissory note, or other financing document evidencing or governing any Security to determine the validity, sufficiency, marketability or enforceability of any Security (and shall have no responsibility for the genuineness or completeness thereof), or otherwise.

7.2          Resolution of Discrepancies. In the event of any discrepancy between the information set forth in any report provided by the Custodian to the Company and any information contained in the books or records of the Company, the Company shall promptly notify the Custodian thereof and the parties shall cooperate to diligently resolve the discrepancy.

7.3           Improper Instructions. Notwithstanding anything herein to the contrary, the Custodian shall not be obligated to take any action (or forebear from taking any action), which it reasonably determines (at its sole option) to be contrary to the terms of this Agreement or applicable law. In no instance shall the Custodian be obligated to provide services on any day that is not a Business Day.

7.4           Proper Instructions

(a)           The Company will give a notice to the Custodian, in form acceptable to the Custodian, specifying the names and specimen signatures of persons authorized to give Proper Instructions (collectively, “Authorized Persons” and each is an “Authorized Person”) which notice shall be signed by an Authorized Person previously certified to the Custodian. The Custodian shall be entitled to rely upon the identity and authority of such persons until it receives written notice from an Authorized Person of the Company to the contrary. The initial Authorized Persons are set forth on the “Authorized Persons – BSP Public Funds” that has been provided separately and may be modified from time to time by written notice from the Company to the Custodian; and the Company hereby represents and warrants that the true and accurate specimen signatures of such initial Authorized Persons are set forth on the “funds transfer authorization” documentation that has been provided separately to the Custodian by the Company. If such person elects to give the Custodian email instructions and the Custodian in its discretion elects to act upon such instructions, the Custodian’s reasonable understanding of such instructions shall be deemed controlling. The Custodian shall not be liable for any losses, costs or expenses arising directly or indirectly from the Custodian’s reliance upon and compliance with such instructions notwithstanding such instructions conflicting with or being inconsistent with a subsequent written instruction. Any person providing such instructions or directions agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Custodian, including without limitation the risk of the Custodian acting on unauthorized instructions, and the risk of interception and misuse by third parties.

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(b)           The Custodian shall have no responsibility or liability to the Company (or any other person or entity), and shall be indemnified and held harmless by the Company, in the event that a subsequent written confirmation of an oral instruction fails to conform to the oral instructions received by the Custodian. The Custodian shall not have an obligation to act in accordance with purported instructions to the extent that they conflict with applicable law or regulations, local market practice or the Custodian’s operating policies and practices. The Custodian shall not be liable for any loss resulting from a delay while it obtains clarification of any Proper Instructions.

7.5          Actions Permitted Without Express Authority. The Custodian may, at its discretion, without express authority from the Company:

(a)           make payments to itself as described in or pursuant to Section 3.9(b), or to make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this agreement, provided that all such payments shall be accounted for to the Company;

(b)surrender Securities in temporary form for Securities in definitive form;

(c)endorse for collection cheques, drafts and other negotiable instruments; and

(d)in general attend to all nondiscretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Company.

7.6         Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate instrument or paper reasonably believed by it to be genuine and to have been properly executed or otherwise given by or on behalf of the Company by an Authorized Person. The Custodian may receive and accept a certificate signed by any Authorized Person as conclusive evidence of:

(a)the authority of any person to act in accordance with such certificate; or

(b)any determination or of any action by the Company as described in such certificate,

and such certificate may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary from an Authorized Person of the Company.

7.7          Receipt of Communications . Any communication received by the Custodian on a day which is not a Business Day or after 3:30 p.m., Eastern time (or such other time as is agreed by the Company and the Custodian from time to time), on a Business Day will be deemed to have been received on the next Business Day (but in the case of communications so received after 3:30 p.m., Eastern time, on a Business Day the Custodian will use its best efforts to process such communications as soon as possible after receipt).

14

 

8.COMPENSATION OF CUSTODIAN

8.1          Fees. The Custodian shall be entitled to compensation for its services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time).

8.2           Expenses. The Company agrees to pay or reimburse to the Custodian upon its request from time to time all costs, disbursements, advances, expenses and indemnification amounts (including reasonable fees and expenses of counsel, agents and experts) incurred, and any disbursements and advances made (including any account overdraft resulting from any settlement or assumed settlement, provisional credit, chargeback, returned deposit item, reclaimed payment or claw-back, or the like), in connection with the preparation or execution of this Agreement, or in connection with the transactions contemplated hereby or the administration of this Agreement or performance by the Custodian of its duties and services under this Agreement, from time to time (including costs and expenses of any action deemed necessary by the Custodian to collect any amounts owing to it under this Agreement) or to enforce its rights hereunder.

9. RESPONSIBILITY OF CUSTODIAN

9.1          General Duties. The Custodian shall have no duties, obligations or responsibilities under this Agreement or with respect to the Securities or Proceeds except for such duties as are expressly and specifically set forth in this Agreement, and the duties and obligations of the Custodian shall be determined solely by the express provisions of this Agreement. No implied duties, obligations or responsibilities shall be read into this Agreement against, or on the part of, the Custodian.

9.2           Instructions

(a)           The Custodian shall be entitled to refrain from taking any action unless it has such instruction (in the form of Proper Instructions) from the Company as it reasonably deems necessary, and shall be entitled to require, upon notice to the Company, that Proper Instructions to it be in writing. The Custodian shall have no liability for any action (or forbearance from action) taken pursuant to the Proper Instruction of the Company.

(b)           Whenever the Custodian is entitled or required to receive or obtain any communications or information pursuant to or as contemplated by this Agreement, it shall be entitled to receive the same in writing, in form, content and medium reasonably acceptable to it and otherwise in accordance with any applicable terms of this Agreement; and whenever any report or other information is required to be produced or distributed by the Custodian it shall be in form, content and medium reasonably acceptable to it and the Company, and otherwise in accordance with any applicable terms of this Agreement.

15

 

9.3           General Standards of Care. Notwithstanding any terms herein contained to the contrary, the acceptance by the Custodian of its appointment hereunder is expressly subject to the following terms, which shall govern and apply to each of the terms and provisions of this Agreement (whether or not so stated therein):

(a)           The Custodian may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, statement, certificate, request, waiver, consent, opinion, report, receipt or other paper or document furnished to it (including any of the foregoing provided to it by telecopier or electronic means), not only as to its due execution and validity, but also as to the truth and accuracy of any information therein contained, which it in good faith believes to be genuine and signed or presented by the proper person (which in the case of any instruction from or on behalf of the Company shall be an Authorized Person); and the Custodian shall be entitled to presume the genuineness and due authority of any signature appearing thereon. The Custodian shall not be bound to make any independent investigation into the facts or matters stated in any such notice, instruction, statement, certificate, request, waiver, consent, opinion, report, receipt or other paper or document, provided, however, that if the form thereof is specifically prescribed by the terms of this Agreement, the Custodian shall examine the same to determine whether it substantially conforms on its face to such requirements hereof.

Neither the Custodian nor any of its directors, officers or employees shall be liable to anyone for any error of judgment, or for any act done or step taken or omitted to be taken by it (or any of its directors, officers of employees), or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, unless such action constitutes gross negligence, willful misconduct or bad faith on its part and in breach of the terms of this Agreement. The Custodian shall not be liable for any action taken by it in good faith and reasonably believed by it to be within powers conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed hereunder, or omitted to be taken by it by reason of the lack of direction or instruction required hereby for such action.

(b)            In no event shall the Custodian be liable for any indirect, punitive, special or consequential damages (including lost profits) whether or not it has been advised of the likelihood of such damages.

(c)           The Custodian may consult with, and obtain advice from, legal counsel selected in good faith with respect to any question as to any of the provisions hereof or its duties hereunder, or any matter relating hereto, and the written opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Custodian in good faith in accordance with the opinion and directions of such counsel; the reasonable cost of such services shall be reimbursed pursuant to Section 8.2 above.

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(d)           The Custodian shall not be deemed to have notice of any fact, claim or demand with respect hereto unless actually known by an officer working in its Corporate Trust Services group and charged with responsibility for administering this Agreement or unless (and then only to the extent received) in writing by the Custodian at the applicable address(es) as set forth in Section 15 and specifically referencing this Agreement.

(e)           No provision of this Agreement shall require the Custodian to expend or risk its own funds, or to take any action (or forbear from action) hereunder which might in its judgment involve any expense or any financial or other liability unless it shall be furnished with acceptable indemnification. Nothing herein shall obligate the Custodian to commence, prosecute or defend legal proceedings in any instance, whether on behalf of the Company or on its own behalf or otherwise, with respect to any matter arising hereunder, or relating to this Agreement or the services contemplated hereby.

(f)            The permissive right of the Custodian to take any action hereunder shall not be construed as duty.

(g)           The Custodian may act or exercise its duties or powers hereunder through agents or attorneys, and the Custodian shall not be liable or responsible for the actions or omissions of any such agent or attorney appointed with reasonable due care.

(h)           All indemnifications contained in this Agreement in favor of the Custodian shall survive the termination of this Agreement.

9.4           Indemnification; Custodian’s Lien.

The Company shall and does hereby indemnify and hold harmless each of the Custodian and each of its officers, directors, employees, attorneys, agents, advisors, successors and assigns (collectively, the “Indemnified Persons” and each an “Indemnified Person”) for and from any and all costs and expenses (including reasonable fees and expenses of attorneys, agents and experts), and any and all losses, damages, claims and liabilities, that may arise, be brought against or incurred by an Indemnified Person whether brought by or involving any third party or the Company, and any advances or disbursements made by an Indemnified Person (including in respect of any Account overdraft, returned deposit item, chargeback, provisional credit, settlement or assumed settlement, reclaimed payment, claw-back or the like), as a result of, relating to, or arising out of this Agreement, or the administration or performance of the Custodian’s duties hereunder, the enforcement of any provision of this Agreement, or the relationship between the Company (including, for the avoidance of doubt, any Subsidiary) and the Custodian created hereby, other than such liabilities, losses, damages, claims, costs and expenses as are directly caused by the Custodian’s own actions constituting gross negligence or willful misconduct.

17

 

 

(a)           The Custodian shall have and is hereby granted a continuing lien upon and security interest in, and right of set-off against, the Account, and any funds (and investments in which such funds may be invested) held therein or credited thereto from time to time, whether now held or hereafter required, and all proceeds thereof, to secure the payment of any amounts that may be owing to the Custodian under or pursuant to the terms of this Agreement, whether now existing or hereafter arising.

 

9.5           Force Majeure. Without prejudice to the generality of the foregoing, the Custodian shall be without liability to the Company for any damage or loss resulting from or caused by events or circumstances beyond the Custodian’s reasonable control including nationalization, expropriation, currency restrictions, the interruption, disruption or suspension of the normal procedures and practices of any securities market, power, mechanical, communications or other technological failures or interruptions, computer viruses or the like, fires, floods, earthquakes or other natural disasters, civil and military disturbance, acts of war or terrorism, riots, revolution, acts of God, work stoppages, strikes, national disasters of any kind, or other similar events or acts; errors by the Company (including any Authorized Person) in its instructions to the Custodian; or changes in applicable law, regulation or orders.

 

10.SECURITY CODES

 

If the Custodian issues to the Company, security codes, passwords or test keys in order that it may verify that certain transmissions of information, including Proper Instructions, have been originated by the Company, the Company shall safeguard any security codes, passwords, test keys or other security devices which the Custodian shall make available.

 

11.TAX LAW

 

11.1          Domestic Tax Law. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Company or the Custodian as custodian of the Securities or the Proceeds, by the tax law of the United States or any state or political subdivision thereof. The Custodian shall be kept indemnified by and be without liability to the Company for such obligations including taxes, (but excluding any income taxes assessable in respect of compensation paid to the Custodian pursuant to this agreement) withholding, certification and reporting requirements, claims for exemption or refund, additions for late payment interest, penalties and other expenses (including legal expenses) that may be assessed against the Company, or the Custodian as custodian of the Securities or Proceeds.

 

11.2[Reserved.]

 

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12.EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

 

12.1          Effective Date. This Agreement shall become effective as of its due execution and delivery by each of the parties. This Agreement shall continue in full force and effect until terminated as hereinafter provided. This Agreement may only be amended by mutual written agreement of the parties hereto. This Agreement may be terminated by the Custodian or the Company pursuant to Section 12.2.

 

12.2          Termination. This Agreement shall terminate upon the earliest of (a) occurrence of the effective date of termination specified in any written notice of termination given by either party to the other not later than sixty (60) days prior to the effective date of termination specified therein, (b) such other date of termination as may be mutually agreed upon by the parties in writing, (c) by either party upon giving written notice to the other party upon the breach by such other party of any material term of this Agreement if such breach is not cured within 15 days of notice of such breach to the breaching party or

(d) by the Company immediately, at any time in the event the Company believes the Custodian is or may become insolvent or that the financial condition of the Custodian is deteriorating in any material respect, or following the appointment of a conservator or receiver for the Custodian by regulatory authorities or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.

 

12.3          Resignation. The Custodian may at any time resign under this Agreement by giving not less than ninety (90) days advance written notice thereof to the Company.

 

12.4          Successor. Prior to the effective date of termination of this Agreement, or the effective date of the resignation of the Custodian, as the case may be, the Company shall give Proper Instruction to the Custodian designating a successor Custodian, if applicable. The Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on such specified date of termination (i) deliver directly to the successor custodian all assets of the Company (other than Securities held in a Securities System or Securities Depository) held by the Custodian and (ii) transfer any Securities held in a Securities System or Securities Depository to an account of or for the benefit of the Company at the successor custodian. In addition, the Custodian shall transfer to such successor custodian all relevant books, records, correspondence, and other data established or maintained by the Custodian under this Agreement in a form reasonably acceptable to the Company (if such form differs from the form in which the Custodian has maintained the same, the Company shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities. Upon such specified date of termination, the Custodian shall be relieved of all obligations under this Agreement, except as otherwise specified herein.

 

12.5          Payment of Fees, etc. Upon termination of this Agreement or resignation of the Custodian, the Company shall pay to the Custodian such compensation, and shall likewise reimburse the Custodian for its costs, expenses and disbursements, as may be due as of the date of such termination or resignation (or removal, as the case may be).

 

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All indemnifications in favor of the Custodian under this Agreement shall survive the termination of this Agreement, or any resignation or removal of the Custodian.

 

13.6          Final Report. In the event of any resignation or removal of the Custodian, the Custodian shall provide to the Company a complete final report or data file transfer of any Confidential Information as of the date of such resignation or removal.

 

13.REPRESENTATIONS AND WARRANTIES

 

13.1          Representations of the Company. The Company represents and warrants to the Custodian that:

 

(a)it has the power and authority to enter into and perform its obligations under this Agreement, and it has duly authorized and executed this Agreement so as to constitute its valid and binding obligation; and

 

(b)in giving any instructions which purport to be “Proper Instructions” under this Agreement, the Company will act in accordance with the provisions of its certificate of trust and trust agreement and any applicable laws and regulations.

 

(c)ERISA Status. The Fund hereby represents and warrants as follows:

 

(i)                 ERISA. The Fund is currently a Plan-assets Vehicle and may continue to be a Plan-assets Vehicle from time to time.

 

(ii)              Fiduciary. To the extent that the Fund is or remains a Plan-assets Vehicle, the Fund is a “fiduciary” with respect to the participating plan(s) within the meaning of ERISA §3(21)(a) (a “Fiduciary”).

 

(iii)            Directions; Prohibited Transactions. Any direction provided under this Agreement by the Fund is made according to the terms of the governing document and the subscription document and is not contrary to ERISA. Without limiting the generality of the foregoing, the Fund is subject to ERISA §406 (Prohibited Transactions), and the Fund maintains and follows procedures for identifying potential prohibited transactions under ERISA and, if prohibited, for identifying the statutory, individual or class exemption applicable to the directed transaction. Upon the Bank’s request, the Fund will (i) cite the exemption and (ii) represent and warrant that the transaction satisfies the requirements of, and is entitled to full exemptive relief under, that exemption.

 

(iv)             Fidelity Bond. To the extent required by ERISA, the Fund maintains a fidelity bond that complies with ERISA §412.

 

(v)               Manager. At any time that the Fund remains a Plan-assets vehicle, the Manager (i) is an “investment manager” within the meaning of ERISA §3(38) with respect to Participating Plans to the extent of their investment in the Fund; (ii) has been delegated the authority to manage, acquire, and dispose of the Fund’s assets pursuant to ERISA §402(c)(3); and (iii) has acknowledged in writing that it is a fiduciary to the extent it exercises discretion with respect to the Fund in that regard.

 

20

 

 

(d)The Fund hereby acknowledges that:

 

(i)                 The Custodian is not a “named fiduciary” with respect to the Fund within the meaning of ERISA Section 402(a).The Custodian does not provide any services under this Agreement as a “fiduciary” with respect to any Participating Plan within the meaning of ERISA §3(21).

 

(ii)              The Custodian has no duty to (i) provide a Participating Plan’s “administrator” within the meaning of ERISA §3(16)(A), or its participants, or beneficiaries with any plan-related, investment-related, fee-and-expense, or other information in connection with the Account, this Agreement, or the Fund, including, but not limited to, any information required for compliance with the reporting and disclosure requirements of ERISA or any description of the services to be provided or of the compensation to be received therefor; (ii) establish, maintain, or reconcile to any individual accounts; or (iii) receive investment, distribution, or other directions from participants or beneficiaries.

 

13.2Representations of the Custodian. The Custodian hereby represents and warrants to the Company that:

 

(a)it has the power and authority to enter into and perform its obligations under this Agreement;

 

(b)it has duly authorized and executed this Agreement so as to constitute its valid and binding obligations;

 

(c)it maintains business continuity policies and standards that include data file backup and recovery procedures that comply with all applicable regulatory requirements; and

 

(d)it is a “qualified custodian” as defined in Rule 206(4)(2) under the Investment Advisers Act of 1940, as amended.

 

14.PARTIES IN INTEREST; NO THIRD PARTY BENEFIT

 

This Agreement is not intended for, and shall not be construed to be intended for, the benefit of any third parties and may not be relied upon or enforced by any third parties (other than successors and permitted assigns pursuant to Section 19).

 

15.NOTICES

 

Any Proper Instructions shall be given to the following address (or such other address as either party may designate by written notice to the other party), and otherwise any notices, approvals and other communications hereunder shall be sufficient if made in writing and given to the parties at the following address (or such other address as either of them may subsequently designate by notice to the other), given by (i) certified or registered mail, postage prepaid, (ii) recognized courier or delivery service, (iii) electronic mail or (iv) confirmed facsimile, with a duplicate sent on the same day by first class mail, postage prepaid:

 

21

 

 

(a)       if to the Company, to

 

Franklin BSP Private Credit Fund

399 Boylston Street, 9th Floor

Boston, MA 02116

Attention: [Todd Marsh]

Email: [email protected]

 

(b)       if to the Custodian, to

 

U.S. Bank N.A.

U.S. Bank Tower

425 Walnut Street, Cincinnati,

OH 45202 | CN-OH-W6TC

Attn: Global Fund Custody Support Services

Phone: 513.632.2443

Fax: 844.206.1025

 

16.CHOICE OF LAW AND JURISDICTION

 

This Agreement shall be construed, and the provisions thereof interpreted under and in accordance with and governed by the laws of the State of New York for all purposes (without regard to its choice of law provisions).

 

17.ENTIRE AGREEMENT; COUNTERPARTS

 

17.1          Complete Agreement. This Agreement constitutes the complete and exclusive agreement of the parties with regard to the matters addressed herein and supersedes and terminates as of the date hereof, all prior agreements, agreements or understandings, oral or written between the parties to this Agreement relating to such matters.

 

17.2          Counterparts. This Agreement may be executed in any number of counterparts and all counterparts taken together shall constitute one and the same instrument.

 

17.3          Electronic Signatures. The exchange of copies of this Agreement and of signature pages by facsimile or e-mail transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by e-mail or facsimile shall be deemed to be their original signatures for all purposes.

 

22

 

 

18.AMENDMENT; WAIVER

 

18.1          Amendment. This Agreement may not be amended except by an express written instrument duly executed by each of the Company and the Custodian.

 

18.2          Waiver. In no instance shall any delay or failure to act be deemed to be or effective as a waiver of any right, power or term hereunder, unless and except to the extent such waiver is set forth in an expressly written instrument signed by the party against whom it is to be charged.

 

19.SUCCESSOR AND ASSIGNS

 

19.1          Successors Bound. The covenants and agreements set forth herein shall be binding upon and inure to the benefit of each of the parties and their respective successors and permitted assigns. Neither party shall be permitted to assign their rights under this Agreement without the written consent of the other party; provided, however, that the foregoing shall not limit the ability of the Custodian to delegate certain duties or services to or perform them through agents or attorneys appointed with due care as expressly provided in this Agreement.

 

19.2          Merger and Consolidation. Any corporation or association into which the Custodian may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Custodian shall be a party, or any corporation or association to which the Custodian transfers all or substantially all of its corporate trust business, shall be the successor of the Custodian hereunder, and shall succeed to all of the rights, powers and duties of the Custodian hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto.

 

20.SEVERABILITY

 

The terms of this Agreement are hereby declared to be severable, such that if any term hereof is determined to be invalid or unenforceable, such determination shall not affect the remaining terms.

 

21.REQUEST FOR INSTRUCTIONS

 

If, in performing its duties under this Agreement, the Custodian is required to decide between alternative courses of action, the Custodian may (but shall not be obliged to) request written instructions from the Company as to the course of action desired by it. If the Custodian does not receive such instructions within two (2) Business Days after it has requested them, the Custodian may, but shall be under no duty to, take or refrain from taking any such courses of action. The Custodian shall act in accordance with instructions received from the Company in response to such request after such two (2) Business Day period except to the extent it has already taken, or committed itself to take, action inconsistent with such instructions.

 

23

 

 

22.OTHER BUSINESS

 

Nothing herein shall prevent the Custodian or any of its affiliates from engaging in other business, or from entering into any other transaction or financial or other relationship with, or receiving fees from or from rendering services of any kind to the Company or any other Person. Nothing contained in this Agreement shall constitute the Company and/or the Custodian (and/or any other Person) as members of any partnership, joint venture, association, syndicate, unincorporated business or similar assignment as a result of or by virtue of the engagement or relationship established by this Agreement.

 

23.REPRODUCTION OF DOCUMENTS

 

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further production shall likewise be admissible in evidence.

 

24.MISCELLANEOUS

 

The Company acknowledges receipt of the following notice:

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.

 

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. For a non-individual person such as a business entity, a charity, a trust or other legal entity the Custodian will ask for documentation to verify its formation and existence as a legal entity. The Custodian may also ask to see financial statements, licenses, identification and authorization documents from individuals claiming authority to represent the entity or other relevant documentation."

 

[PAGE INTENTIONALLY ENDS HERE. SIGNATURES APPEAR ON NEXT PAGE.]

 

24

 

 

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed and delivered by a duly authorized officer as of the date written above.

 

  FRANKLIN BSP PRIVATE CREDIT FUND
   
  By:  /s/ Nina Baryski                          
  Name: Nina Baryski 
  Title:   Chief Financial Officer 
   
  U.S. BANK NATIONAL ASSOCIATION, as 
  Custodian
 
  By: /s/ Gregory Farley 
  Name: Gregory Farley 
  Title:   Senior Vice President

 

 

 

 

EXHIBIT A

 

 to the Custody Agreement - Fee Schedule for Domestic and Global Services

 

 

 

 

 

 

EXHIBIT B

 

SHAREHOLDER COMMUNICATIONS ACT AUTHORIZATION

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

The Shareholder Communications Act of 1985 requires banks and trust companies to make an effort to permit direct communication between a company which issues securities and the shareholder who votes those securities.

 

Unless you specifically require us to NOT release your name and address to requesting companies, we are required by law to disclose your name and address.

 

Your “yes” or “no” to disclosure will apply to all U.S. securities Custodian holds for you now and in the future, unless you change your mind and notify us in writing. A “no” election may prevent Custodian from obtaining, on your behalf, the most favorable tax rate for American Depository Receipts (ADRs) held in your account.

 

xYES U.S. Bank is authorized to provide the Fund’s name, address and security position to requesting companies whose stock is owned by the Fund.

 

¨NO U.S. Bank is NOT authorized to provide the Fund’s name, address and security position to requesting companies whose stock is owned by the Fund.

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

By: Nina Baryski  

 

Title: Chief Financial Officer  

 

Date: 06/16/2022 

 

 

 

 

Exhibit 99.(k)(1)

 

2022 Amendment 

To The

Agency Agreement

between

Benefit Street Partners L.L.C.

and

DST Systems, Inc.

 

This amendment (the “2022 Amendment”), effective as of April 1, 2022 (the “Amendment Effective Date”), is by and between DST Systems, Inc. (“DST”), Benefit Street Partners L.L.C. (“Benefit Street”), Realty Finance Trust, Inc., Business Development Corporation of America, and Franklin BSP Private Credit Fund (the “Interval Fund”).

 

WHEREAS, DST, Benefit Street, Realty Finance Trust, Inc., and the Business Development Corporation of America are parties to the Agency Agreement dated January 19, 2017 (the “Agency Agreement”); and

 

WHEREAS, the parties to the Agency Agreement entered into an Amendment dated March 16, 2020 to add the Interval Fund as a party to the Agency Agreement; and

 

WHEREAS, the launch of the Interval Fund was delayed; and

 

WHEREAS, the parties intend update the Agreement;

 

NOW, THEREFORE, for good and valuable consideration the parties agree as follows:

 

1.The Interval Fund is expected to launch on April 1, 2022.

 

2.Exhibits A, A.1, A.2, A.3 and A.4 of the Agency Agreement (the “Fee Schedules”) are replaced in their entirety with Exhibits A, A.1, A.2, A.3 and A.4 attached hereto and are hereby effective as of the Amendment Effective Date.

 

3.The 5-year term of the Fee Schedules will commence on April 1, 2022 and continue through March 31, 2027.

 

4.In the event of a conflict between the provisions of the Agency Agreement and this 2022 Amendment, the terms of this 2022 Amendment shall prevail.

 

5.Subject to the specific modifications made herein, all terms and conditions of the Agency Agreement shall remain in full force and effect.

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written.

 

DST SYSTEMS, INC.   BENEFIT STREET PARTNERS L.L.C.

 

By: /s/ Kenneth Fullerton   By: /s/ Bryan Martoken

 

Name: Kenneth Fullerton   Name: Bryan Martoken

 

Title: Authorized Signatory   Title: Chief Financial Officer

 

Date: June 28, 2022   Date:  

 

FRANKLIN BSP REALTY TRUST   FRANKLIN BSP LENDING CORP.

 

By:     By:  

 

Name:     Name:  

 

Title:     Title:  

 

Date:     Date:  

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

By:        

 

Name:        

 

Title:        

 

Date:        

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written.

 

DST SYSTEMS, INC.   BENEFIT STREET PARTNERS L.L.C.

 

By:     By:  

 

Name:     Name:  

 

Title:     Title:  

 

Date:     Date:  

 

FRANKLIN BSP REALTY TRUST   FRANKLIN BSP LENDING CORP.

 

By: /s/ Jerome Baglien   By:  

 

Name: Jerome Baglien   Name:  

 

Title: Chief Financial Officer   Title:  

 

Date: 6/17/2022   Date:  

 

FRANKLIN BSP PRIVATE CREDIT FUND    

 

By:        

 

Name:        

 

Title:        

 

Date:        

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written.

 

DST SYSTEMS, INC.   BENEFIT STREET PARTNERS L.L.C.

 

By:     By:  

 

Name:     Name:  

 

Title:     Title:  

 

Date:     Date:  

 

FRANKLIN BSP REALTY TRUST   FRANKLIN BSP LENDING CORP.

 

By:     By: /s/ Nina Baryski

 

Name:     Name: Nina Baryski

 

Title:     Title: Authorized Signor

 

Date:     Date: 06/17/2022

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

By: /s/ Nina Baryski      

 

Name: Nina Baryski      

 

Title: Authorized Signor      

 

Date: 06/17/2022      

 

 

 

 

EXHIBIT A

BENEFITS STREET PARTNERS LLC

FEE SCHEDULE

TERM: 5 YEARS (April 1, 2022 – March 31, 2027)

 

I.Complex Minimum Fee $150,000 per year

 

(Note: Minimum applies unless aggregate charges included in Sections II, III, and IV exceed one-twelfth of the annual minimum.)

 

II.REIT / BDC/ Periodic Value and Admittance Funds:

 

Open Account Fee

0 - 100,000 $15.00 per acct per year
> 100,001 $13.50 per acct per year

 

III.Interval / Daily Valued/ Daily Admittance / DTCC Fundserv Eligible Funds:

 

Product Minimum Fee: $35,000 per year

 

(Note: Includes 3 CUSIPs. Additional CUSIPs will add $5,000 to the Product Minimum. Product Minimum applies unless aggregate charges for each individual product in the affected month included in Sections III and IV exceed one-twelfth of the annual minimum.)

 

Open Account Fee

0 – 25,000 $9.50 per acct per year
> 25,001 $7.00 per acct per year

Asset Based Fees 1

$0 to $250,000,000 3.00 Basis Points
$250,000,001 - $1,000,000,000 1.75 Basis Points
> $1,000,000,001 1.50 Basis Points

 

IV.Platform Fees 2:

 

Base Fee (Call Center & Transaction Processing) $25,000 per product per year
New Account Setup Fee - Manual $25.18 per NASU
New Account Setup Fee – Fully Automated $2.00 per NASU
Closed Account Fee $1.99 per acct per year
Phone Calls $7.50 per call
Correspondence $10.00 per item
Purchase $10.00 per purchase
Adjustments $10.00 per adjustment
Redemptions $10.00 per item
Ad Hoc Reporting Requests 3 $151 per hour

 

 

1 Each financial product, inclusive of all share classes for that product, is measured individually for purposes of the asset based fees described above as of the end of the billing period.

 

2 Applies to all products.  

 

3 Applies to requested reports that do not generate automatically out of the TA2000 system.

 

 

 

 

V.Other Services 4:

 

Automated Work Distributor ™ (AWD) 5 $5,237 per user per year

(Does not include hardware or third-party software, products will be priced separately as requested)

 

CUSIP Setup Fee $11,105 per CUSIP
CUSIP Deconversion Fee TBD

 

*Self-Directed Custodial Services $35.00 per SSN-paid by shareowner

 

TA2000 Data Transmission to third party print vendors $0.021 per record
Composition Services4 $0.01 per image

Electronic Presentment – Loading Fee 4 $0.0721 per document

 

*Aged History Retention Fee – Online $5.00 per 1,000 lines
*Aged History Retention Fee – Offline $3.50 per 1,000 lines

 

K-1 Tax Reporting Fees $10.07 per Acct

 

Escheatment – RPO

          CUSIP Fee $136 per CUSIP per filing
          Per Item $1.09 per item plus expenses as incurred

 

Additional Training Fees $101 per hour per trainer plus all travel expenses

 

*Internet Dealer Commissions5 $200 per month

 

VI.Listed Product Account Fees:

 

Open Accounts $2.27 per position in first class

 

Open Accounts $1.59 per position in additional classes 2, 3, & 4

 

Account Fee Minimum $25,178 per year per traded REIT (with account and transaction fees counted against the minimum)

 

Closed Account Fee $1.01 per account per year

 

 

4 DST requires 120 days’ notice to begin providing Optional Services, which time period may be reduced upon mutual agreement. DST requires 120 days’ notice to cease supporting and billing for Optional Services. The Fund will be billed for Optional Services ended prior to the 120 days at the average monthly amount for that function from the prior six months invoices multiplied by the number of months or partial months to the full 120 day period.

 

5 Requires separate agreement.

 

 

 

 

VII.Listed Product Transaction Based Fees (apply during post listed periods):

 

Direct Reinvestment Plan 

Administration Fee (per DRP program) $24,170 per year
DRP per Account Participation Fee $1.21 per year

 

Activity Based Fees 

Incoming / Outgoing Telephone Calls $5.04 per call

 

Account Processing Fees 

Share Purchase Program $10.00 per item
Manual Transfers $10.00 per item
Cancels $10.00 per item
Correspondence $4.03 per item
Automated DRS Transfers $1.01 per item
DWAC Transfers $101 per request

 

Shareholder Paid Fees 

Annual IRA Custodial Fee As Negotiated per year
Direct Redemption $20.00 per item

 

Reporting 

Ad-Hoc Report Generation $60.43 per report

 

Tax Form Production 

Open & Closed accounts requiring form production $1.01 per year

 

Note: DTCC related expenses will be incurred for some of the services described above. Those charges will be billed to the Fund/Fund Sponsor in the regular out of pocket billing cycle.

 

VIII. Distribution Interface Support

 

AIP $2,500 per month
   

Wirehouse Support Fee

 

$1,000 per wirehouse per month
Distribution Fee
 
(Deferred Compensation Payment Support) $2,000 per fund per month
   
Distribution Partner Interface Implementation Fee Standard Programming Rates

 

 

 

 

IX.Programming/Implementation Fees*:

 

*Computer/Technical Personnel (2020 Standard Rates):

*Business Analyst / Tester / Other: $150.00 per hour
*COBOL / Workstation Programmer: $200.00 per hour
*Web Developer: $250.00 per hour
   

*Full Service Staff Support: $100.00 per hour

 

Systems Implementation Fee TBD

(Applies to the initial implementation of the business only. Due at signing of Letter of Intent) 

 

Data Conversion Fee TBD

(Applicable only if historic data converted from previous system)

 

Services Provided Exhibit A.1
*Vision 6 Exhibit A.2
*SalesConnect 6 Exhibit A.3

*FAN Mail 6 Exhibit A.4

 

 

6 Requires separate agreement.

 

 

 

 

Notes to Above Fees:

 

1)The initial term is five (5) years. A Cost of Living increase will occur annually upon each anniversary of the Service Agreement in an amount not less than the annual percentage of change in the Consumer Price Index for all Urban Consumers (CPI-U) in the Midwest Statistical Area, All Items, Base 1982-1984=100, as last reported by the U.S. Bureau of Labor Statistics. Items marked by an “*” are subject to change with 60 day notice.

 

2)Reimbursable and other expenses are billed as incurred. Reimbursable and other expenses include but are not limited to: confirmation statements, AML/CIP, regulatory compliance, Compliance+ Program ($32,000/yr.) 7*, escheatment, freight, outside mailing services, Proxy Processing, TIN Certification, NSCC Communications Charge (Fund/Serv and Networking), quarterly statements, postage, long distance telephone calls, records retention, customized programming/enhancements, federal wire fees, bank fees, transcripts, microfilm, microfiche, disaster recovery 8*, hardware at customer’s facility, telecommunications/network configuration, and lost shareholder search/tracking.

 

3)Any fees, reimbursable, or other expenses not paid within 30 days of receipt of invoice will be charged a late payment fee of 1.5% per month until payment is received.

 

 

7 10% of annual fees, not to exceed $32,000 per year.

 

8The annual charge of $0.206 per account, paid monthly in increments of one-twelfth of the annual charge, and will increase proportionate to any increase in DST’s costs to provide the recovery service or in the event that the current recovery goal is shortened. The current recovery goal is to have the TA2000 System as provided for in the Business Contingency Plan operational 4 hours after DST’s declaration of a disaster. Data communications expenses for connectivity to the backup sites (DST owned or recovery vendor provided) are part of the DST network charges and are billed monthly as an out-of-pocket expense unless network is Fund-provided, in which case connectivity is the responsibility of Fund.

 

 

 

 

 

EXHIBIT A.1

Services Provided

 

·Distribution Center

§Receipt and sort of incoming mail

§Creation of electronic images for all paper received

§Automated distribution of work based on assigned priority

§Issuance of redemption and replacement checks
·Transaction Processing

§New Account Establishment

§Account Maintenance

§Purchases

§Redemptions

§Transfers

§Exchanges

§Systematic withdrawal plans

§Automatic investment plans
·Control

§Input of daily prices and dividend rates

§Processing of dividend and capital gain distributions

§Reconciliation of daily bank accounts

§Blue Sky Transmissions/Support

 §12 (b) 1 Processing and Reconciliation

§Commission Processing and Reconciliation

§Cash and Share Reconciliation
·Year-End

§Basis tracking by investor

§IRS Reporting

§1099

§5498

§K-1
·Broker Servicing (phones)

§Inquiry

§Correspondence

§Commission Inquiries
·Shareholder Servicing (phones)

§Inquiry

§Telephone Transactions

§Fulfillment

§Correspondence

§Internet Support

 

 

 

 

EXHIBIT A.2, p.1

 

VISION

FEE SCHEDULE

 

Unless specifically indicated otherwise, all fees, charges and discounts will be applied separately to each individual affiliate of Customer that has been assigned a unique management code.

 

ID Charges  
Number of ID Breakpoints ID Charge Breakpoints
1 - 500 $3.25 per month/per ID for each of the first 500 IDs
501 - 1,000 $3.00 per month/per ID for each of the next 500 IDs
1,001 - 2,000 $2.75 per month/per ID for each of the next 1,000 IDs
2,001 - 3,450 $2.50 per month/per ID for each of the next 1,450 IDs
3,451 - + No charge for each additional ID over 3,450

 

In accordance with the schedule above, ID Charges for each affiliate of Customer cannot exceed a monthly maximum of $9,500.

 

Inquiry Charges

Initial Set-up Fee None

Per View Charge 5

            Standard $0.05
            Reduced $0.025

 

Statement Charges (optional)

Individual Statement Retrieval Charge $0.05 per statement
Batch Statement Load Charge 6 $0.03 per image 
Monthly Statement Interface Support Charge 7 $1,300

 

The Statement Retrieval Charges do not cover any charges or expenses Customer may incur from its statement vendor.

 

Data Extract Charges6

Advisor Requests $0.12 per file
Non-Advisor Requests $6.00 per file

 

Email Alert Charges

Per email charge $0.05

 

 

5 The Standard Per View Charge is currently assessed when an information request retrieves data from individual system-level tables to return a response. DST may, from time to time, determine that certain information requests that retrieve data from a consolidated table to return a response are eligible for the Reduced Per View Charge. Although the foregoing represents the approach DST has historically taken with respect to Per View Charges, DST reserves the right at any time to change the components and/or structure of the Per View Charge. If applicable, Vision Charges do not include any charges or expenses Customer may incur separately from DST for AWD transactions or images offered through Vision.

 

6 The Batch Statement Load charge and the Data Extract charge will only be assessed at the time the statements are provided to Vision by the statement vendor or at the time data files are retrieved by Vision, as applicable, not at the time of viewing or downloading.

 

7 If Customer uses DST Systems, Inc. as its electronic print vendor, the Monthly Statement Interface Support Charge will be waived.

 

 

 

 

Transaction Processing Charges (optional) EXHIBIT A.2, p.2
 
Initial Set-up Fee None
Purchase, Redemption, Exchange, Maintenance $0.10 per transaction
NSCC Reject Processing $0.10 per reject
Workflow Response $0.10 per transaction
New Account Establishment (each new account transaction 8 may contain one or more new accounts)8 $0.35 per transaction
New Account Web Service Image Delivery $0.65 per image
Monthly Minimum 9 greater of $500 or actual usage
   
Dealer/Branch/Rep Updates (optional)  
Flat Fee 10  
SalesConnect Customers (Rep level) Waived
SalesConnect Customers (Branch level)  
and Non-SalesConnect Customers  
Number of Accounts Flat Fee Charge
0 – 25,000 $0 per month
25,001 – 100,000 $250.00 per month
100,001 – 500,000 $500.00 per month
500,001 – 1,000,000 $1,000.00 per month
1,000,001 - + $2,000.00 per month
   
Per Update  
SalesConnect Customers (Rep level) Waived
SalesConnect Customers (Branch level)  
and Non-SalesConnect Customers $0.10 per transaction

 

DST will combine accounts for all affiliates of Customer for purposes of determining the applicable Flat Fee for Customer’s affiliated corporate complex. It is Customer’s responsibility to notify DST in writing of qualifying company affiliations. Customer’s number of accounts will be reviewed every January 1 for purposes of determining the monthly Flat Fee charges for that year.

 

Vision - Out-of-Band Multi-Factor Authentication (“MFA”) Services

 

Description  Monthly Schedule   Annualized 
Below 1000 IDs  $125   $1,500 
1000-3450 IDs  $208   $2,500 
3451 IDs and above  $583   $7,000 
High tier  $958   $11,500 

 

 

8 For clarity, regardless of whether Customer has elected to allow the Financial Products to participate in DST Prime for New Account Establishment and New Account Web Service Image Delivery (DST Prime is a service offered through DST Brokerage Solutions, LLC (“DST BS”) to brokers and other intermediaries and requires an agreement between the broker and DST BS and payment by the broker to DST BS), the Vision charges specified above will apply to all New Account Establishment and New Account Web Service Image Delivery transactions.

 

9 NSCC Reject Processing and Workflow Response shall not be considered when calculating the Monthly Minimum charge for Transaction Processing.

 

10 ID Charges, Monthly Statement Interface Support Charges and Dealer/Branch/Rep Updates Flat Fee are not included in Volume Discount calculations.

 

 

 

 

Note: Fees for MFA Services are subject to change on an annual basis, and are excluded from Fees subject to the Platinum/Gold Discount described below. Customers with no IDs at the beginning of the Initial Exhibit Term shall

 

Volume Discounts  
Discount Schedule (monthly) 10  
$7,500 - $15,000 20%
$15,001 - $30,000 25%
$30,001 - $45,000 30%
$45,001 - + 35%

The percentage discount is applied incrementally to the dollars associated with each breakpoint.

 

 

 

 

EXHIBIT A.2, p.3

 

Platinum/Gold Discount

 

An additional discount shall be applied to the net Fees (i.e., after Volume Discounts) paid by Customer for DST's Vision Services if Customer is utilizing DST’s Basic FAN Mail Services pursuant to the applicable Master Agreement for DST FAN Mail Services, as follows:

 

At the beginning of the next calendar year following the first calendar year in which Customer has received Basic FAN Mail Services pursuant to the Service Exhibit to the Master Agreement for DST FAN Mail Services, and at the beginning of each calendar year thereafter, DST shall review the average combined annual usage fees actually paid by Customer for Basic FAN Mail Services and Vision Services for the previous calendar year. Customer shall receive the following discounts on Vision Services fees for the then current calendar year, in the event the total annual combined usage fees paid by Customer for Basic FAN Mail Services and Vision Services equal or exceed at least:

 

Gold Level

 

Qualification: $180,000.00 annually, but less than $300,000.00.

 

Discount: The discount for each billing cycle equals 2½% of Vision usage fees billed for such cycle.

 

Platinum Level

 

Qualification: $300,000.00 annually, but less than $2,000,000.00.

 

Discount: The discount for each billing cycle equals 5% of Vision usage fees billed for such cycle.

 

Platinum Plus Level

 

Qualification: $2,000,000.00 annually.

 

Discount: The discount for each billing cycle equals 10% of Vision usage fees billed for such cycle.

 

DST will combine qualified usage fees for all affiliates of Customer for purposes of determining the applicable discount for Customer’s affiliated corporate complex. It is Customer’s responsibility to notify DST in writing of qualifying company affiliations. DST will not combine an affiliate’s usage fees with Customer’s unless and until Customer has so notified DST. No retroactive adjustments to the Gold and Platinum discounts will be made based on previously undisclosed company affiliations. If Customer qualifies, the discount will be shown on each invoice issued to Customer.

 

 

 

 

 

 

      EXHIBIT A.3, p.1
       
  DST SALESCONNECT
Monthly Service Fees 11    
     
Data Management    
Producing rep entities 12 $0.50 (each)
Non-producing rep entities No additional charge
Monthly Minimum $6,000  
     
Discount Applied to Fees in the Specified Range 13    
       
    $0 to $20,000 0%  
  Breakpoint 1 $20,001 to $40,000 33%  
  Breakpoint 2 Over $40,000 50%  

 

NOTE: Fees charged by a source record-keeper and/or the DTCC (i.e.; Omni/SERV) to receive trade and asset position files are the sole responsibility of the client and are not included in this fee schedule.

 

Monthly Support Fee $1,000

 

NOTE: The support fee is waived in each month that Customer has an associate with an active “SalesConnect Certified Administrator” certificate and that associate serves as level I support for all client questions (with DST serving as level II support). After the initial implementation, DST will periodically re-certify an associate at no additional fee or provide training for an initial certification for an additional fee of $1,500 (plus travel costs, if required).

 

Optional Monthly Fees

Operator IDs 14 

First five No additional charge
Six through twenty $130 (each)
Twenty-one through forty $120 (each)
Over forty $110 (each)
Outbound Data Files (standard format)15 No additional charge
Direct Database Access 16 $1,000 
Integration with Salesforce.com (One-time Fee) 17 $5,000

  

 

11 Monthly service fees commence in the month transaction scrubbing begins.

 

12 Producing rep entities are defined as all rep level entities that either have a current asset balance or have been linked to at least one purchase transaction during the previous two years. Each rep entity is separately counted including individual reps, partnership entities, and house/default reps.

 

13 Discounts only apply to the fees within the specific ranges and not to the aggregate monthly fee.

 

14 Operator IDs provide access to the SalesConnect Application for searches, reports/queries and general administration.

 

15 Requires a method to receive secure file transmissions from the Winchester Data Center. Additional charges may apply if a method is not currently in place.

 

16 Customer must provide DST with a Salesforce login and must have a sufficient number of API calls to load the requested data.

 

17 Provides direct access to a copy of the SalesConnect production database for developing custom queries and reports utilizing a client’s own reporting tool. Requires network connectivity to the Winchester Data Center (connectivity fees not included).

 

 

 

 

EXHIBIT A.3, p.2

 

Professional Services (upon request)18

 

1.Perform outsourced administrative functions including territory management, spreadsheet processing, operator ID access, Financial Product/transaction code maintenance, and trade/asset resolution outside of the procedures established by the SalesConnect Team.

 

2.Modify an existing interface or develop new transaction/asset interfaces (either direct file transmissions or spreadsheets) into the SalesConnect Application.

 

3.Modify an existing outbound file or develop a new outbound file for scrubbed transactions, assets, and firm/office/rep maintenance.

 

4.Convert data from an existing Customer system into SalesConnect (e.g., historical transactions, notes, activities, unique identifiers for firms/offices/reps, etc.).

 

5.Provide consulting services related to processing the SalesConnect outbound files into a downstream sales system (two hours are provided at no charge, thereafter minimum charge is $15,000 for 100 hours).

 

6.Modify an existing interface or develop a new literature order and tracking interface to/from client’s fulfillment vendor and SalesConnect.

 

7.Modify an existing report or develop new reports accessible through the SalesConnect web site.

 

The foregoing fees are billable monthly at the rates stated above and shall be paid within thirty (30) days of Customer’s receipt of the invoice to the address specified in the invoice (“Due Date”) subject to and in accordance with the terms and conditions set forth in Paragraph 6 of the Agreement.

 

Automatic Annual Increase Provision(s):

 

The foregoing fees are subject to an annual increase at the same time and manner as set forth in the TA2000 Agreement.

  

 

18 Fees for Professional Services will be determined based on specific client requirements and DST’s prevailing hourly rates.

 

 

 

 

 

EXHIBIT A.4

 

 

FILE AND USAGE FEE SCHEDULE – TA2000

TO

BASIC FAN MAIL SERVICES EXHIBIT

 

1.       Files.

 

The following Files may be made available to Recipients:

 

“Account Position” - This file reports the current Financial Product Unit balance and net asset value for every account, regardless of whether the account had activity. This file is generally provided on a monthly basis and consists of two (2) records per account.

 

“Direct Financial Activity” - This file is generated as a result of activity being posted to the Financial Product Unit owner account. The information in this file reports all activity involving the movement of money and/or Financial Product Units (with the exception of distributions) and consists of two (2) records per account.

 

“Account Master Position/New Account Activity/Non-Financial Activity” - This file provides registration information on each Financial Product Unit holder account for the Recipient. The Account Master Position is used to initialize the Recipient’s database. The New Account Activity provides any new accounts established for the Recipient. The Non-Financial Activity is generated from maintenance activity to the Financial Product Unit owner registration. These files consist of three (3) records per account.

 

“Distribution Activity” - This file is used to confirm all activity resulting from the distribution of a dividend, and long or short term capital gain. The file will be generated after the distribution has been applied to the Financial Product Unit holder account. This file consists of two records (2) per account.

 

“Daily Price” - This file contains the daily offering price and Net Asset Value of every CUSIP (separate security). This file consists of one (1) record per CUSIP.

 

"Security" - This file is systematically generated by DST and appended to the end of each associated Account Master Position/New Account Activity/Non-Financial Activity file being delivered. This file may also be generated upon request based on the month-end Account Position file. Unique security investment details such as Ticker/Quotron, CUSIP, Fund and Product Names are reported within this file. This file consists of one (1) record per unique CUSIP delivered in the associated file. Because this file is used to supplement the Account Master Position/New Account Activity/Non-Financial Activity files, DST does not charge any fees for the records provided in this file.

 

"Average Cost Position/Activity" - This file reports cost basis details including initial cost basis, the source of reporting, the last calculation date, the current net investment figure and current shares. The Average Cost Position file is used to initialize a Recipient's database. The Average Cost Activity file is generated as a result of a change to the cost basis of an account. These files consist of one (1) record per account.

 

 

 

 

 

2.       Usage Fees.

 

DST will charge Customer fees per record made available, including all “header” records and “trailer” records, in accordance with the following fee schedule. Typically, a single header record is used to designate the beginning of data for a Recipient within a given File and a single trailer record is used to designate the end of data for a Recipient within a given File. One to many records may be included between the “header” and “trailer” records. Most Files consist of two (2) to three (3) records per account, each 160 bytes of information being a separate record.1

 

Accordingly, by way of example, if Customer sends an Account Position File for two Recipients, one with 25 accounts and one with 50 accounts, the following records would be billable to Customer.

 

  File Type Records
     
Recipient A Header 1
  25 Accounts (2 records per 50
  account)
  Trailer 1
Recipient B Header 1
  50 Accounts (2 records per 100
  account)
  Trailer 1
  Total Records 154

 

DST will not bill Recipients for the Files made available to them.

  

Level Per Record Fees
   
Branch/Rep $.018
Dealer $.012
  $.002 or $1.75
Daily Price File per Recipient per month,
  whichever is less

 

3. Volume Discounts.

 

DST will offer Customer discounts based on the amount of each total per record charge per method of delivery incurred by Customer in a month. The following discount schedule will apply:

 

Total Per Record Fees % Discount on
Amount Over Threshold
$0.00 - $2,500.00 0%
$2,501.00 - $5,000.00 10%
$5,001.00 - $7,500.00 15%
$7501.00 - $10,000.00 20%

 

 

 

 

 

 

$10,001 - $30,000.00 25%
$30,001.00 - + 50%
   
Monthly FAN Mail Access and Support Charge $500.00    

 

The Monthly FAN Mail Access and Support Charge paid by Customer shall not be included in the eligible fees for purposes of determining any discount.

 

4. Gold and Platinum Discounts.

 

An additional discount shall be applied to the usage fees paid by Customer for (i) Basic FAN Mail Services and (ii) if Customer is utilizing DST's Vision Services pursuant to the applicable DST agreement for such services, Vision Services as follows:

 

At the beginning of the next calendar year following the first calendar year in which Customer has received Basic FAN Mail Services pursuant to this Service Exhibit, and at the beginning of each calendar year thereafter, DST shall review the average combined monthly usage fees actually paid by Customer for Basic FAN Mail Services and Vision Services for the previous calendar year. In the event the average monthly usage fees paid equal or exceed at least $15,000.00, Customer shall receive the following discounts on all usage fees for Basic FAN Mail Services and, if applicable, Vision Services for the then current calendar year:

 

Gold Level

 

Qualification: Average combined monthly usage fees paid by Customer for Basic FAN Mail Services and Vision Services equal or exceed $15,000.00 ($180,000.00 annually) but are less than $25,000.00.

 

Discount:      If Customer receives only Basic FAN Mail Services, the discount for each billing cycle equals 10% of the usage fees billed for such billing cycle.

 

If Customer receives both Basic FAN Mail Services and Vision Services, the discount for each billing cycle equals 2½% of Vision usage fees and an additional 2½% (i.e., 12½% total) of Basic FAN Mail usage fees billed for such cycle.

 

Platinum Level

 

Qualification: Average combined monthly usage fees paid by Customer for Basic FAN Mail Services and Vision Services equal or exceed $25,000.00 ($300,000.00 annually).

 

Discount:        If Customer receives only Basic FAN Mail Services, the discount for each billing cycle equals 15% of the usage fees billed for such billing cycle.

 

 If Customer receives both Basic FAN Mail Services and Vision Services, the discount for each billing cycle equals 5% of Vision usage fees and an additional 2½% (i.e., 17½% of total) of Basic FAN Mail usage fees billed for such cycle.

 

 

 

 

  

Platinum Plus Level

 

Qualification: Average combined monthly usage fees paid by Customer for Basic FAN Mail Services and Vision Services equal or exceed $166,666.67 ($2,000,000.00 annually).

  

Discount:          If Customer receives only Basic FAN Mail Services, the discount for each billing cycle equals 25% of the usage fees billed for such billing cycle.

 

                             If Customer receives both Basic FAN Mail Services and Vision Services, the discount for each billing cycle equals 10% of Vision usage fees billed for such cycle.

 

DST will combine qualified usage fees for all affiliates of Customer for purposes of determining the applicable discount for Customer’s affiliated corporate complex. In order to qualify, an affiliate of Customer must be an entity which directly or indirectly controls19, is controlled by or under common control with, Customer. It is Customer’s responsibility to notify DST in writing of qualifying company affiliations. DST will not combine an affiliate’s usage fees with Customer’s unless and until Customer has so notified DST. No retroactive adjustments to the Gold and Platinum discounts will be made based on previously undisclosed company affiliations. If Customer qualifies, the discount shall be shown on each invoice issued to Customer.

 

 

19 Control” over an entity shall mean (i) the possession, directly or indirectly, of 100% of the voting power to elect directors, in the case of an entity that is a corporation, or members of a comparable governing body, in the case of a limited liability company, firm, joint-venture, association or other entity, in each case whether through the ownership of voting securities or interests, by contract or otherwise and (ii) with respect to a partnership, a general partner thereof or an entity having management rights comparable to those of a general partner shall be deemed to control such entity. The terms “controlling” and “controlled” shall have corollary meanings.

 

 

 

Exhibit 99.(k)(3)

 

FUND ADMINISTRATION SERVICING AGREEMENT

 

THIS AGREEMENT is made and entered into as of the last day written on the signature page by and between FRANKLIN BSP PRIVATE CREDIT FUND, a Delaware statutory trust (the “Fund”) and U.S. BANCORP FUND SERVICES, LLC d/b/a U.S. BANK GLOBAL FUND SERVICES, a Wisconsin limited liability company (“USBGFS””).

 

WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, non-diversified management investment company; and

 

WHEREAS, USBGFS is, among other things, in the business of providing fund administration services for the benefit of its customers; and

 

WHEREAS, the Fund desires to retain USBGFS to provide fund administration services.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

1.Appointment of USBGFS as Administrator

 

The Fund hereby appoints USBGFS as administrator of the Fund on the terms and conditions set forth in this Agreement, and USBGFS hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of USBGFS shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against USBGFS hereunder.

 

2.Services and Duties of USBGFS

 

USBGFS shall provide the following administration services to each Fund:

 

A.General Fund Management:

(1)Act as liaison among Fund service providers.

 

(2)Supply:
a.Office facilities (which may be in USBGFS’, or an affiliate’s, or Fund’s own offices).
b.Non-investment-related statistical and research data as requested.

 

(3)Coordinate the Fund’s board of trustees (the “Board of Trustees” or the “Trustees”) communications, such as:
a.Prepare meeting agendas and resolutions, with the assistance of Fund counsel.

  

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b.Prepare reports for the Board of Trustees based on financial and administrative data.
c.Assist with the selection of the independent auditor.
d.Secure and monitor fidelity bond and director and officer liability coverage, and make the necessary Securities and Exchange Commission (the “SEC”) filings relating thereto.
e.Prepare minutes of meetings of the Board of Trustees and Fund shareholders.
f.Recommend dividend declarations to the Board of Trustees and prepare and distribute to appropriate parties notices announcing declaration of dividends and other distributions to shareholders.
g.Attend Board of Trustees meetings and present materials for the Trustees’ review at such meetings.
h.Assist with daily net asset value determination and transmission to external parties as needed.

 

(4)Audits:
a.For the annual Fund audit, prepare appropriate schedules and materials. Provide requested information to the independent auditors, and facilitate the audit process.
b.For SEC or other regulatory audits, provide requested information to the SEC or other regulatory agencies and or the Fund to assist the audit process.
c.For all audits, provide office facilities, as needed.

 

(5)Assist with overall operations of the Fund.
(6)Pay Fund expenses upon written authorization from the Fund.
(7)Keep the Fund’s governing documents, including its declaration of trust, bylaws and minute books, but only to the extent such documents are provided to USBGFS by the Fund or its representatives for safe keeping.

 

B.Compliance:
(1)Regulatory Compliance:
a.Monitor compliance with the 1940 Act requirements, including:
(i)Calculation of asset and diversification tests on a quarterly basis. (ii) Calculation of total return and SEC yields.
(iii)Maintenance of books and records under Rule 31a-3.
(iv)Code of ethics requirements under Rule 17j-1 for the disinterested Trustees, if requested to provide such service by the Fund.

 

b.After each quarter-end and on a post-trade basis, monitor Fund's compliance with the policies and investment limitations as set forth in its prospectus (the “Prospectus”) and statement of additional information (the “SAI”) (or similar disclosure documents) included in its registration statement on Form N-2 filed with the SEC (“Registration Statement”).

 

 

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c.Perform its duties hereunder in compliance with all applicable laws and regulations and provide any sub-certifications reasonably requested by the Fund in connection with (i) any certification required of the Fund pursuant to the Sarbanes-Oxley Act of 2002 (the “SOX Act”) or any rules or regulations promulgated by the SEC thereunder, and (ii) the operation of USBGFS’ compliance program as it relates to the Fund, provided the same shall not be deemed to change USBGFS’ standard of care as set forth herein.

 

In order to assist the Fund in satisfying the requirements of Rule 38a-1 under the 1940 Act (the “Rule”), USBGFS will provide the Fund’s Chief Compliance Officer with reasonable access to USBGFS’ fund records relating to the services provided by it under this Agreement, and will provide quarterly compliance reports and related certifications regarding any Material Compliance Matter (as defined in the Rule) involving USBGFS that affect or could affect the Fund. USBGFS will also provide the Fund with certain copies of third party audit reports (e.g., SSAE 16 or SOC 1) through access to the CCO Portal to the extent such reports are available and related to services performed or made available by USBGFS under this Agreement. The Fund acknowledges and agrees that such reports are confidential and that it will not disclose such reports except to its employees and service providers who have a need to know and have agreed to obligations of confidentiality applicable to such reports.

 

d.Monitor applicable regulatory and operational service issues, and update Board of Trustees periodically.

 

(2)Private Offering and Blue Sky Compliance:
a.File with the SEC prepared Form D filings, and arrange filings with appropriate state securities authorities (e.g., Form D and “blue sky” filings) relating to the qualification of the securities of the Fund so as to enable the Fund to make a continuous offering of its shares in all states and applicable U.S. territories.
b.Monitor status and maintain registrations in each state and applicable U.S. territories.
c.Provide updates regarding material developments in state securities regulation.

 

(3)SEC Registration and Reporting:
a.Assist Fund counsel in annual update of the Registration Statement.
b.Prepare and file annual and semiannual shareholder reports, Form N-CEN, Form N-CSR, Form N-PORT, Form N-23C3Afilings and Rule 24f-2 notices. As requested by the Fund, prepare and file Form N-PX filings.

 

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c.Coordinate the printing, filing and mailing of Prospectuses and shareholder reports, and amendments and supplements thereto.
d.File fidelity bond under Rule 17g-1.
e.Monitor sales of Fund shares and ensure that such shares are properly registered or qualified, as applicable, with the SEC and the appropriate state authorities.
f.Assist Fund counsel in preparation of proxy statements, repurchase offers, tender offers and information statements, as requested by the Fund.

 

(4)IRS Compliance:
a.Monitor the Fund’s status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), including without limitation, review of the following:
(i)Diversification requirements on a quarterly basis.
(ii)Qualifying income requirements.
(iii)Distribution requirements.

 

b.Calculate required annual excise distribution amounts for the review and approval of Fund management and/or its independent accountant.

 

C.Financial Reporting:
(1)Provide financial data required by the Registration Statement.
(2)Prepare financial reports for officers, shareholders, tax authorities, performance reporting companies, the Board of Trustees, the SEC, and the independent auditor.
(3)Supervise the Fund’s custodian and fund accountants in the maintenance of the Fund’s general ledger and in the preparation of the Fund’s financial statements, including oversight of expense accruals and payments, and the declaration and payment of dividends and other distributions to shareholders.
(4)Compute the yield, total return, expense ratio and portfolio turnover rate of the Fund.
(5)Monitor expense accruals and make adjustments as necessary; notify the Fund’s management of adjustments expected to materially affect the Fund’s expense ratio.
(6)Prepare financial statements, which include, without limitation, the following items:
a.Schedule of Investments.
b.Statement of Assets and Liabilities.
c.Statement of Operations.
d.Statement of Changes in Net Assets.
e.Statement of Cash Flows (if applicable).
f.Financial Highlights.
(7)Pursuant to Rule 31a-1(b)(9) of the 1940 Act, prepare quarterly broker security transaction summaries.

 

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D.Tax Reporting:

 

1)Prepare for the review of the independent accountants and/or Fund management the federal and state tax returns including without limitation, Form 1120 RIC and applicable state returns including any necessary schedules. USBGFS will prepare annual Fund federal and state income tax return filings as authorized by and based on the instructions received by Fund management and/or its independent accountant. File on a timely basis appropriate federal and state tax returns including, without limitation, Forms 1120/8613, with any necessary schedules.
2)Provide the Fund’s management and Fund’s independent accountant with tax reporting information pertaining to the Fund and available to USBGFS as required in a timely manner.
3)Prepare Fund financial statement tax footnote disclosures for the review and approval of Fund management and/or the Fund’s independent accountant.
4)Prepare and file on behalf of Fund management Form 1099 MISC for payments to disinterested directors and other qualifying service providers.
5)Monitor wash sale losses.
6)Calculate Qualified Dividend Income (“QDI”) for qualifying Fund shareholders.
7)Prepare tax schedules, which include without limitation the following items:
a)Fiscal Distribution Schedule (including recorded ROSCOP journal entry to general ledger).
b)Excise Distribution Schedule

 

3.License of Data; Warranty; Termination of Rights

 

A.USBGFS has entered into agreements with various data service providers (each, a “Data Provider”), including, without limitation, MSCI index data services (“MSCI”), Standard & Poor Financial Services LLC (“S&P”), Morningstar, Broadridge, FTSE, and ICE to provide data services that may include, without limitation, index returns and pricing information (collectively, the “Data”) to facilitate the services provided by USBGFS to the Fund. These Data Providers have required USBGFS to include certain provisions regarding the use of the Data in this Agreement attached hereto as Exhibit A. The Data is being licensed, not sold, to the Fund. The Fund acknowledges and agrees that certain Data Providers may also require the Fund to enter into an agreement directly with the Data Provider for the use of that Data Provider’s Data.

 

B.The Fund agrees to indemnify and hold harmless USBGFS, its information providers, and any other third party involved in or related to the making or compiling of the Data, their affiliates and subsidiaries and their respective directors, officers, employees and agents from and against any claims, losses, damages, liabilities, costs and expenses, including reasonable attorneys’ fees and costs (“Losses”), as incurred, arising in and any manner out of the Fund’s use of, or inability to use, the Data or any breach by the Fund of any provision contained in this Agreement regarding the Data. The immediately preceding sentence shall not have any effect upon the standard of care and liability of USBGFS as set forth in Section 6 of this Agreement and the Fund shall not provide indemnity under this paragraph with respect to any Losses that arise out of the negligence, bad faith or willful misconduct of USBGFS, its information providers, and any other third party involved in or related to the making or compiling of the Data.

  

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C.USBGFS has entered into agreements with Bloomberg Finance L.P. (“Bloomberg”) to provide data (the “N-PORT Data”) for use in or in connection with the reporting requirements under the Rule, including preparation and filing of Form N-PORT. In connection with the provision of the N-PORT Data, Bloomberg requires certain provisions to be included in the Agreement.

 

The Fund agrees that it shall (a) materially comply with all laws, rules and regulations applicable to accessing and using the N-PORT Data, (b) not extract the N-PORT Data from the view-only portal, (c) not use the N-PORT Data for any purpose independent of complying with the requirements of Rule 30b1-9 (which prohibition shall include, for the avoidance of doubt, use in risk reporting or other systems or processes (e.g., systems or processes made available enterprise-wide for the Fund’s internal use)), (d) permit audits of its use of the N-PORT Data by Bloomberg, its affiliates or, at the Fund’s request, a mutually agreed upon third-party auditor (provided that the costs of an audit by a third party shall be borne by the Fund). The Fund further agrees that Bloomberg shall be a third-party beneficiary of the Agreement solely with respect to the foregoing provisions (a) – (d).

 

4.Compensation

 

USBGFS shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit B hereto (as amended from time to time). USBGFS shall also be reimbursed for such miscellaneous expenses as set forth on Exhibit B hereto as are reasonably incurred by USBGFS in performing its duties hereunder. The Fund shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Fund shall notify USBGFS in writing within 30 calendar days following receipt of each invoice if the Fund is disputing any amounts in good faith. The Fund shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Fund is disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of 1½% per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Fund to USBGFS shall only be paid out of the assets and property of the particular Fund involved.

 

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5.Representations and Warranties

 

A.The Fund hereby represents and warrants to USBGFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:

 

(1)It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;

 

(2)This Agreement has been duly authorized, executed and delivered by the Fund in accordance with all requisite action and constitutes a valid and legally binding obligation of the Fund, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and

 

(3)There is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.

 

(5)All records of the Fund provided to USBGFS by the Fund or by a prior service provider of the Fund are accurate and complete and USBGFS is entitled to rely on all such records in the form provided.

 

B.USBGFS hereby represents and warrants to the Fund, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:

 

(1)It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;

 

(2)This Agreement has been duly authorized, executed and delivered by USBGFS in accordance with all requisite action and constitutes a valid and legally binding obligation of USBGFS, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and

 

(3)It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.

 

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6.Standard of Care; Indemnification; Limitation of Liability

 

A.USBGFS shall exercise reasonable care in the performance of its duties under this Agreement. Neither USBGFS nor any of its affiliates or suppliers shall be liable for any error of judgment; mistake of law; fraud or misconduct by the Fund, the adviser or any other service provider to the Fund, or any employee of the foregoing; or for any loss suffered by the Fund, or any third party in connection with USBGFS’ duties under this Agreement, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond USBGFS’ reasonable control, except a loss arising out of or relating to USBGFS’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if USBGFS has exercised reasonable care in the performance of its duties under this Agreement, the Fund shall indemnify and hold harmless USBGFS and its affiliates and suppliers from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that USBGFS or its affiliates and suppliers may sustain or incur or that may be asserted against USBGFS or its affiliates and suppliers by any person arising out of or related to (X) any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to USBGFS by any duly authorized officer of the Fund, as approved by the Board of Trustees of the Fund, or (Y) the Data, or any information, service, report, analysis or publication derived therefrom, except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to USBGFS’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Fund, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “USBGFS” shall include USBGFS’ directors, officers and employees.

 

B.USBGFS shall indemnify and hold the Fund harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Fund may sustain or incur or that may be asserted against the Fund by any person arising out of any action taken or omitted to be taken by USBGFS as a result of USBGFS’ refusal or failure to comply with the terms of this Agreement, or from USBGFS’ bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of USBGFS, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Fund” shall include the Fund’s directors, officers and employees. In no case shall either party be liable to the other for (i) any special, indirect or consequential damages, loss of profits or goodwill (even if advised of the possibility of such); or (ii) any delay by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots, or failure beyond its control of transportation or power supply.

 

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In the event of a mechanical breakdown or failure of communication or power supplies beyond its reasonable control, USBGFS shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. USBGFS will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of USBGFS. USBGFS agrees that it shall, at all times, have reasonable business continuity and contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Fund shall be entitled to inspect USBGFS’ premises and operating capabilities at any time during regular business hours of USBGFS, upon reasonable notice to USBGFS. Moreover, USBGFS shall provide the Fund, at such times as the Fund may reasonably require, copies of reports rendered by independent accountants on the internal controls and procedures of USBGFS relating to the services provided by USBGFS under this Agreement.

 

Notwithstanding the above, USBGFS reserves the right to reprocess and correct administrative errors at its own expense.

 

C.In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent.

 

D.The indemnity and defense provisions set forth in this Section 6 shall indefinitely survive the termination and/or assignment of this Agreement.

 

 

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E.If USBGFS is acting in another capacity for the Fund pursuant to a separate agreement, nothing herein shall be deemed to relieve USBGFS of any of its obligations in such other capacity.

 

F.In conjunction with the tax services provided to the Fund by USBGFS hereunder, USBGFS shall not be deemed to act as an income tax return preparer for any purpose including as such term is defined under Section 7701(a)(36) of the IRC, or any successor thereof. Any information provided by USBGFS to a Fund for income tax reporting purposes with respect to any item of income, gain, loss, or credit will be performed solely in USBGFS’ administrative capacity. USBGFS shall not be required to determine, and shall not take any position with respect to whether, the reasonable belief standard described in Section 6694 of the IRC has been satisfied with respect to any income tax item. Each Fund, and any appointees thereof, shall have the right to inspect the transaction summaries produced and aggregated by USBGFS, and any supporting documents thereto, in connection with the tax reporting services provided to each Fund by USBGFS. USBGFS shall not be liable for the provision or omission of any tax advice with respect to any information provided by USBGFS to a Fund. The tax information provided by USBGFS shall be pertinent to the data and information made available to USBGFS, and is neither derived from nor construed as tax advice.

 

7.Data Necessary to Perform Services

 

The Fund or its agent shall furnish to USBGFS the data necessary to perform the services described herein at such times and in such form as mutually agreed upon.

 

8.Proprietary and Confidential Information

 

A.USBGFS agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Fund, all records and other information relative to the Fund and prior, present, or potential shareholders of the Fund (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except (i) after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where USBGFS may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Fund. Records and other information which have become known to the public through no wrongful act of USBGFS or any of its employees, agents or representatives, and information that was already in the possession of USBGFS prior to receipt thereof from the Fund or its agents or service providers, shall not be subject to this paragraph.

 

Further, USBGFS will adhere to the privacy policies adopted by the Fund pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, USBGFS shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Fund and its shareholders.

 

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B.     The Fund agrees on behalf of itself and its trustees, officers, and employees to treat confidentially and as proprietary information of USBGFS, all non-public information relative to USBGFS (including, without limitation, the Data and information regarding USBGFS’ pricing, products, services, customers, suppliers, financial statements, processes, know-how, trade secrets, market opportunities, past, present or future research, development or business plans, affairs, operations, systems, computer software in source code and object code form, documentation, techniques, procedures, designs, drawings, specifications, schematics, processes and/or intellectual property), and not to use such information for any purpose other than in connection with the services provided under this Agreement, except (i) after prior notification to and approval in writing by USBGFS, which approval shall not be unreasonably withheld and may not be withheld where the Fund may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the USBGFS. Information which has become known to the public through no wrongful act of the Fund or any of its employees, agents or representatives, and information that was already in the possession of the Fund prior to receipt thereof from USBGFS, shall not be subject to this paragraph.

C.     Notwithstanding anything herein to the contrary, (i) the Fund shall be permitted to disclose the identity of USBGFS as a service provider, redacted copies of this Agreement, and such other information as may be required in the Trust’s registration or offering documents, or as may otherwise be required by applicable law, rule, or regulation, and (ii) USBGFS shall be permitted to include the name of the Fund in lists of representative clients in due diligence questionnaires, RFP responses, presentations, and other marketing and promotional purposes.

9.Records

USBGFS shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Fund, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. USBGFS agrees that all such records prepared or maintained by USBGFS relating to the services to be performed by USBGFS hereunder are the property of the Fund and will be preserved, maintained, and made available in accordance with such applicable sections and rules of the 1940 Act and will be promptly surrendered to the Fund or its designee on and in accordance with its request. Notwithstanding the foregoing, USBGFS may retain such copies of such records in such form as may be required to comply with any applicable law, rule, regulation, or order of any governmental, regulatory, or judicial authority of competent jurisdiction.

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10.Compliance with Laws

A.            The Fund has and retains primary responsibility for all compliance matters relating to the Fund, including but not limited to compliance with the 1940 Act, the Code, the SOX Act, the USA Patriot Act of 2001 and the policies and limitations of the Fund relating to its portfolio investments as set forth in its Registration Statement. USBGFS’ services hereunder shall not relieve the Fund of its responsibilities for assuring such compliance or the Board of Trustee’s oversight responsibility with respect thereto.

B.             The Fund shall immediately notify USBGFS if the investment strategy of the Fund materially changes or deviates from the investment strategy disclosed in the current prospectus, or if it becomes subject to any new law, rule, regulation, or order of a governmental or judicial authority of competent jurisdiction that materially impacts the operations of the Fund or the services provided under this Agreement.

11.Terms of Agreement; Amendment

This Agreement shall become effective as of the date last written on the signature block and will continue in effect for a period of one (1) year. Following the initial term, this Agreement shall automatically renew for successive one (1) year terms unless either party provides written notice at least 60 days prior to the end of the then current term that it will not be renewing the Agreement. Notwithstanding the foregoing, this Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within fifteen (15) days of notice of such breach to the breaching party. This Agreement may not be amended or modified in any manner except by written agreement executed by the parties.

12.Duties in the Event of Termination

In the event that, in connection with termination, a successor to any of USBGFS’ duties or responsibilities hereunder is designated by the Fund by written notice to USBGFS, USBGFS will promptly, upon such termination and at the expense of the Fund, transfer to such successor all relevant books, records, correspondence and other data established or maintained by USBGFS under this Agreement in a form reasonably acceptable to the Fund (if such form differs from the form in which USBGFS has maintained the same, the Fund shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from USBGFS’ personnel in the establishment of books, records and other data by such successor. If no such successor is designated, then such books, records and other data shall be returned to the Fund. The Fund shall also pay any fees associated with record retention and/or tax reporting obligations that USBGFS is obligated under applicable law, regulation, or rule to continue following the termination.

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13.Assignment

This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of USBGFS, or by USBGFS without the written consent of the Fund accompanied by the authorization or approval of the Fund’s Board of Trustees.

14.Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles. To the extent that the applicable laws of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the SEC thereunder.

15.No Agency Relationship

Nothing herein contained shall be deemed to authorize or empower either party to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement.

16.Services Not Exclusive

Nothing in this Agreement shall limit or restrict USBGFS from providing services to other parties that are similar or identical to some or all of the services provided hereunder.

17.Invalidity

Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.

18.Legal-Related Services

Nothing in this Agreement shall be deemed to appoint USBGFS or any of its officers, directors or employees as the Fund’s attorneys, form attorney-client relationships or require the provision of legal advice. No work performed by employees of USBGFS or its affiliates (whether relating to the preparation or filing of regulatory materials, compliance with applicable laws, rules, or regulations, or otherwise) shall constitute legal advice. The Fund acknowledges that employees of USBGFS and its affiliates who are attorneys do not represent the Fund and rely on outside counsel retained by the Fund to review all services provided by USBGFS and to provide independent judgment on the Fund’s behalf. The Fund acknowledges that because no attorney-client relationship exists between the Fund and USBGFS (or any employee of USBGFS or its affiliates), any information provided may not be privileged and may be subject to compulsory disclosure.

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19.Notices

Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:

Notice to USBGFS shall be sent to:

U.S. Bancorp Global Fund Services, LLC

615 East Michigan Street

Milwaukee, WI 53202

Attn: President

and notice to the Fund shall be sent to:

Franklin BSP Private Credit Fund

9 West 57th Street, 49th Floor, Suite 4920

New York, NY 10019

20.No Third Party Rights

Nothing expressed or referred to in this Agreement will be construed to give any third party (including, without limitation, shareholders of the Fund) any legal or equitable right, remedy or claim under or with respect to this Agreement.

21.Multiple Originals

This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.

(SIGNATURES ON THE FOLLOWING PAGE)

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date last written below.

FRANKLIN BSP PRIVATE CREDIT FUND U.S. BANCORP FUND SERVICES, LLC
By: /s/ Nina Baryski By: /s/ Jason Hadler
Name: Nina Baryski Name:   Jason Hadler
Title:   Chief Financial Officer   Title: SVP
Date: 06/16/2022 Date: 6/21/22

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Exhibit A to the Fund Administration Servicing Agreement

REQUIRED PROVISIONS OF DATA SERVICE PROVIDERS

The Fund shall use the Data solely for internal purposes and will not redistribute the Data in any form or manner to any third party, except as may otherwise be expressly agreed to by the Data Provider.

The Fund will not use or permit anyone else to use the Data in connection with creating, managing, advising, writing, trading, marketing or promoting any securities or financial instruments or products, including, but not limited to, funds, synthetic or derivative securities (e.g., options, warrants, swaps, and futures), whether listed on an exchange or traded over the counter or on a private-placement basis or otherwise or to create any indices (custom or otherwise).

The Fund will treat the Data as proprietary to the Data Provider. Further, the Fund shall acknowledge that the Data Provider is the sole and exclusive owners of the Data and all trade secrets, copyrights, trademarks and other intellectual property rights in or to the Data.

The Fund will not (i) copy any component of the Data, (ii) alter, modify or adapt any component of the Data, including, but not limited to, translating, decompiling, disassembling, reverse engineering or creating derivative works, or (iii) make any component of the Data available to any other person or organization (including, without limitation, the Fund’s present and future parents, subsidiaries or affiliates) directly or indirectly, for any of the foregoing or for any other use, including, without limitation, by loan, rental, service bureau, external time sharing or similar arrangement.

The Fund shall reproduce on all permitted copies of the Data all copyright, proprietary rights and restrictive legends appearing on the Data.

The Fund shall assume the entire risk of using the Data and shall agree to hold the Data Providers harmless from any claims that may arise in connection with any use of the Data by the Fund.

The Fund acknowledges that the Data Providers may, in their sole and absolute discretion and at any time, terminate USBGFS’ right to receive and/or use the Data.

The Fund acknowledges and agrees that the Data Providers are third party beneficiaries of the agreements between the Data Providers and USBGFS with respect to the provision of the Data, entitled to enforce all provisions of such agreement relating to the Data.

THE DATA IS PROVIDED TO THE FUND ON AN "AS IS" BASIS. USBGFS, ITS INFORMATION PROVIDERS, AND ANY OTHER THIRD PARTY INVOLVED IN OR RELATED TO THE MAKING OR COMPILING OF THE DATA MAKE NO REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE DATA (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF). USBGFS, ITS INFORMATION PROVIDERS AND ANY OTHER THIRD PARTY INVOLVED IN OR RELATED TO THE MAKING OR COMPILING OF THE DATA EXPRESSLY DISCLAIM ANY AND ALL IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, COMPLETENESS, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

16

Exhibit B to the Fund Administration Servicing Agreement

Fund Administration & Fund Accounting Services Fee Schedule at

Annual Fee Based Upon Average Net Assets Per Fund

8 basis points on the first $200 million

7 basis points on the next $300 million

5 basis points on the next $1 billion 

3 basis points on the balance

Minimum Annual Fee: $125,000

NOTE: Conversion, multiple classes, master/feeder and multiple manager funds, and extraordinary services quoted separately.

All schedules subject to change depending upon use of unique security type requiring special pricing or accounting arrangements.

Chief Compliance Officer Support Fee

§ $3,000 per year per fund complex

Data Services

Pricing Services

§$0.08 – Domestic Equities, Options, ADRs, Foreign Equities, Futures, Forwards, Currency Rates, Mutual Funds, ETFs, Total Return Swaps,
§$0.50 – Domestic Corporates, Domestic Convertibles, Domestic Governments, Domestic Agencies, Mortgage Backed, Municipal Bonds
§$0.80 – CMOs, Money Market Instruments, Foreign Corporates, Foreign Convertibles, Foreign Governments, Foreign Agencies, Asset Backed, High Yield
§$0.90 – Interest Rate Swaps, Foreign Currency Swaps
§$1.00 – Bank Loans
§$1.50 – Swaptions
§$1.50 – Intraday money market funds pricing, up to 3 times per day
§$3.00 – Credit Default Swaps
§$500 per Month Manual Security Pricing (>25per day)

NOTE: Prices above are based on using U.S. Bank primary pricing service which may vary by security type and are subject to change. Use of alternative and/or additional sources may result in additional fees. Pricing vendors may designate certain securities as hard to value or as a non-standard security type, such as CLOs and CDOs, which may result in additional fees.

Corporate Action and Factor Services (security paydown)

§$2.00 per Foreign Equity Security per Month
§$1.00 per Domestic Equity Security per Month
§$2.00 per CMOs, Asset Backed, Mortgage Backed Security per Month

Third Party Administrative Data Charges (descriptive data for each security)

§$1 per security per month for fund administrative data (based upon U.S. Bancorp standard data services and are subject to change)

SEC Modernization Requirements

§Form N-PORT – $12,000 per year, per Fund
§Form N-CEN – $250 per year, per Fund

Miscellaneous Expenses

All other miscellaneous fees and expenses, including but not limited to the following, will be separately billed as incurred:

Fair Value Services, SWIFT processing, customized reporting, third-party data provider costs,(including Bloomberg, S&P, Moody’s, Morningstar, GICS, MSCI, Lipper, etc.), postage, stationery, programming, special reports, proxies, insurance, EDGAR/XBRL filing, tax e-filing, PFIC monitoring, wash sale reporting (Gainskeeper), retention of records, federal and state regulatory filing fees, expenses from Board of directors meetings, third party auditing and legal expenses, and conversion expenses (if necessary).

17

Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).

*Subject to annual CPI increase – All Urban Consumers – U.S. City Average.

Fees are calculated pro rata and billed monthly.

18

Exhibit B (continued) to the Fund Administration Servicing Agreement

Fund Administration & Compliance Portfolio Services Supplemental Fee Schedule at

Section 18 Compliance Testing

§$1,500 set up fee per fund complex
§$500 per fund per month

Section 15(c) Reporting

§ $2,000 per fund per standard reporting package* *Standard reporting packages for annual 15(c) meeting

-Expense reporting package: 2 peer comparison reports (adviser fee) and (net expense ratio w classes on one report) OR Full 15(c) report
-Performance reporting package: Peer Comparison Report

§Additional 15c reporting is subject to additional charges

19

 

Exhibit 99.(k)(4)

 

SECOND AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT

  

[●], 2022

 

Franklin BSP Private Credit Fund

9 West 57th Street, 49th Floor, Suite 4920

New York, New York 10019

 

Dear Ladies and Gentlemen:

 

Benefit Street Partners L.L.C. (“BSP”), as investment adviser to Franklin BSP Private Credit Fund (“Fund”) hereby agrees on a quarterly basis to reimburse the Fund’s initial organizational and offering costs as well as its operating expenses (each such reimbursement, an “Expense Payment”) to the extent that the Fund’s annualized operating expenses (as defined herein) (“Operating Expenses”) in respect of the relevant quarter exceed 2.25% of the Fund’s quarter-end net asset value (the “Expense Limitation”). This agreement (“Agreement”) shall commence on the date first set forth above and shall continue in effect for a period of one year. This Agreement hereby amends and restates that certain Amended and Restated Expense Limitation Agreement dated March 11, 2022 between BSP and the Fund (the “Prior Agreement”), and supersedes the Prior Agreement in all respects. Thereafter, this Agreement may be annually renewed with the written agreement of BSP and the Fund. The Board of the Fund may terminate this Agreement at any time upon notice to BSP, and this Agreement shall automatically terminate upon the termination of the Investment Advisory Agreement between BSP and the Fund.

 

For purposes of this Agreement, the Fund’s annualized Operating Expenses shall include any fees the Fund has agreed to bear pursuant to 4(b) of that certain Administration Agreement between BSP and the Fund, dated as of March 11, 2022 (the “BSP Administration Agreement”), but not include 1) expenses directly related to the interest costs and structuring costs for borrowing and line(s) of credit, taxes, litigation or extraordinary expenses; 2) incentive fees; or 3) any distribution and/or shareholder servicing fees.

 

In consideration of BSP’s agreement to reimburse the Fund’s expenses, the Fund hereby agrees to repay BSP in the amount of any Expense Payment subject to the limitation that a reimbursement (an “Adviser Recoupment”) will be made only if and to the extent that: (i) for Expense Payments made prior to the Fund’s first investment (the “Fund Launch Date”), it is payable not more than three years from the Fund Launch Date; (ii) for Expense Payments made after the Fund Launch Date, it is payable not more than three years from the date on which the applicable Expense Payment was made by BSP; and (iii) the Adviser Recoupment does not cause the Fund’s total annual Operating Expenses (on an annualized basis and net of any Adviser Recoupments received by the Fund during such fiscal year) during the applicable quarter to exceed the Expense Limitation. The Fund’s obligation to make Adviser Recoupment payments shall survive the termination of this Agreement.

 

 

 

  

BSP agrees that it shall look only to the assets of the Fund for performance of this Agreement and for any claims for payment. No trustees, officers, employees, agents or shareholders of the Fund shall be personally liable for performance by the Fund under this Agreement.

 

This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, except insofar as the 1940 Act, or other federal laws and regulations may be controlling. Any amendment to this Agreement shall be in writing signed by the parties hereto. Subject to approval by BSP, this Agreement may be amended by the Fund’s Board of Trustees without the approval of Fund shareholders.

 

  Very truly yours,
   
  Benefit Street Partners L.L.C.
   
  By:          
   
  Name: Bryan Martoken
  Title: Chief Financial Officer

  

Franklin BSP Private Credit Fund  
   
By:              
   
Name: Richard J. Byrne  
Title: President and Principal Executive Officer  

 

 

 

 

 

 

 

 

Exhibit 99.(n)

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the reference to our firm under the caption "Independent Registered Public Accounting Firm" in the Statement of Additional Information, dated August 19, 2022, and included in this Pre-Effective Amendment No. 4 to the Registration Statement (Form N-2, File No. 333-234759) of Franklin BSP Private Credit Fund (the “Registration Statement”).

 

We also consent to the use of our report dated March 11, 2022, with respect to the financial statements of Franklin BSP Private Credit Fund as of February 14, 2022, included in this Registration Statement, filed with the Securities and Exchange Commission.

 

/s/ Ernst & Young LLP

 

New York, NY

August 19, 2022

 

 

 

 

Exhibit 99.(p)

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement is entered into this __th day of ___, 20__ by and between Franklin BSP Private Credit Fund, a Delaware statutory trust (the “Fund”), and BSP Fund Holdco (Debt Strategy) L.P. (the “Subscriber”);

 

WITNESSETH:

 

WHEREAS, the Fund has been formed for the purposes of carrying on business as a closed-end management investment company; and

 

WHEREAS, the Subscriber wishes to subscribe for and purchase, and the Fund wishes to sell to the Subscriber, 90,000 Advisor Class shares of beneficial interest (the “Advisor Class Shares”) for a purchase price of $10.00 per share and 10,000 Class A shares of beneficial interests (the “Class A Shares”) for a purchase price of $10.00 per share.

 

NOW THEREFORE, IT IS AGREED:

 

1.The Subscriber subscribes for and agrees to purchase from the Fund 90,000 Advisor Class Shares for a purchase price of $10.00 per share and 10,000 Class A Shares for a purchase price of $10.00 per share. Subscriber agrees to make payment for the Advisor Class Shares and the Class A Shares at such time as demand for payment may be made by an officer of the Fund.

 

2.The Fund agrees to issue and sell said Advisor Class Shares and Class A Shares to Subscriber promptly upon its receipt of the purchase price.

 

3.To induce the Fund to accept its subscription and issue the Advisor Class Shares and the Class A Shares subscribed for, the Subscriber:

 

a.Represents and warrants that it has no present intention of selling or redeeming the Advisor Class Shares or the Class A Shares subscribed for under this Subscription Agreement.

 

4.This Subscription Agreement and all of its provisions shall be binding upon the legal representatives, heirs, successors and assigns of the parties hereto.

 

5.This Agreement is executed on behalf of the Fund by the Fund’s officers as officers and not individually and the obligations imposed upon the Fund by this Subscription Agreement are not binding upon any of the Fund’s Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund.

 

 

 

 

IN WITNESS WHEREOF, this Subscription Agreement has been executed by the parties hereto as of the day and date first above written.

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

By:    

Name:

Title:

 

BSP FUND HOLDCO (DEBT STRATEGY) L.P.

 

By: Franklin Templeton Institutional GP LLC, its general partner

 

By: Franklin Templeton Institutional LLC, its sole member

 

By:    

Name:

Title:

 

 

 

 

Exhibit 99.(r)(1)

 

FRANKLIN BSP PRIVATE CREDIT FUND

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

March 2020

 

 

 

 

TABLE OF CONTENTS

 

Page

 

INTRODUCTION  1
    
CODE OF ETHICS  2
    
Scope of the Code of Ethics  2
Definitions  2
Standards of Conduct  4
Prohibited Transactions  5
Management of the Restricted List  6
Procedures to Implement the Code of Ethics  7
Reporting Requirements  7
Pre-Clearance Reports  7
Initial Holdings Reports  7
Quarterly Transaction Reports  8
Annual Holdings Reports  8
Annual Certification of Compliance  9
    
STATEMENT ON THE PROHIBITION OF INSIDER TRADING  9
    
Summary of the Fund’s Business Activities  9
Background  10
Policy  11
Who is an Insider?  11
What is Material Information?  11
What is Non-public Information?  12
Bases for Liability  12
Penalties for Insider Trading  13
Controlling the Flow of Sensitive Information  13
    
ADMINISTRATION OF THE CODE  14
    
SANCTIONS FOR CODE VIOLATIONS  15
    
APPLICATION/WAIVERS  15
    
RECORDS  15
    
REVISIONS AND AMENDMENTS  16

 

Appendices

 

Code Acknowledgment Form  A-1
Pre-Clearance Form  B-1
Initial Holdings Form  C-1
Quarterly Pre-Clearance Form  D-1
Annual Holdings Form  E-1
Certification of Rebuttal of Access Presumption  F-1

 

i

 

 

INTRODUCTION

 

Ethics are important to Franklin BSP Private Credit Fund (“the Fund”, “our”, “us”, or we”) and to its management. The Fund is committed to the highest ethical standards and to conducting its business with the highest level of integrity.

 

All officers, trustees and employees of the Fund are responsible for maintaining this level of integrity and for complying with the policies contained in this Code of Business Conduct and Ethics (the “Code”). If you have a question or concern about what is proper conduct for you or anyone else, please raise these concerns with the Fund’s Chief Compliance Officer, or follow the procedures outlined in applicable sections of this Code.

 

This Code has been adopted by the Board of Trustees of the Fund (the “Board”) in accordance with Rule 17j-l(c) under the Investment Company Act of 1940 (the “1940 Act”). Rule 17j-l generally describes fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by business development companies if effected by Access Persons (as defined herein) of such companies.

 

PURPOSE OF THE CODE

 

This Code is intended to:

 

·help you recognize ethical issues and take the appropriate steps to resolve these issues;

 

·deter ethical violations to avoid any abuse of position of trust and responsibility;

 

·maintain confidentiality of our business activities;

 

·assist you in complying with applicable securities laws;

 

·assist you in reporting any unethical or illegal conduct; and

 

·reaffirm and promote our commitment to a corporate culture that values honesty, integrity and accountability.

 

Further, it is the policy of the Fund that no affiliated person of our organization shall, in connection with the purchase or sale, directly or indirectly, by such person of any security held or to be acquired by the Fund:

 

·employ any device, scheme or artifice to defraud us;

 

·make any untrue statement of a material fact or omit to state to us a material fact in order to make the statement made, in light of the circumstances under which it is made, not misleading;

 

·engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon us; or

 

·engage in any manipulative practices with respect to our business activities.

 

All employees, as a condition of employment or continued employment, will acknowledge annually, in writing, that they have received a copy of this Code, read it, and understand that the Code contains our expectations regarding their conduct.

 

 

 

 

CODE OF ETHICS

 

The employees specified in the following discussion will be subject to the provisions of the Code.

 

Scope of the Code of Ethics

 

In order to prevent Access Persons, as defined below, from engaging in any of these prohibited acts, practices or courses of business, the Board of Trustees of the Fund has adopted this Code. This Code covers all persons who are Access Persons of the Fund, as that term is defined in Rule 17j-1 under the 1940 Act. To the extent that any such individuals are subject to compliance with the Code of Ethics of the Fund’s investment adviser whose code has also been established pursuant to Rule 17j-1, compliance by such individuals with the provisions of the code of such investment adviser shall constitute compliance with this Code.

 

Definitions

 

Access Person. “Access Person” means any director/trustee, officer, general partner or Advisory Person of the Fund or Benefit Street Partners L.L.C. (“the Advisor”). An Access Person shall not include any person who the CCO determines to be a Non-Access Covered Person. The CCO maintains records of the status of all relevant persons under the Code, and will inform each such person about that person’s status as necessary.

 

Advisory Person. “Advisory Person” of the Fund means: (i) any director/trustee, officer, general partner or employee of the Fund, the Advisor or of any company in a control relationship to the Fund or the Advisor, who, in connection with his or her regular duties, makes, participates in, or obtains information regarding the purchase or sale of a Covered Security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a Covered Security.

 

Automatic Investment Plan. “Automatic Investment Plan” refers to any program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation, including a dividend reinvestment plan.

 

Beneficial Interest. “Beneficial Interest” includes any entity, person, trust, or account with respect to which an Access Person exercises investment discretion or provides investment advice. A beneficial interest shall be presumed to include all accounts in the name of or for the benefit of the Access Person, his or her spouse, dependent children, or any person living with him or her or to whom he or she contributed economic support.

 

2

 

 

Beneficial Ownership. “Beneficial Ownership” shall be determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except that the determination of direct or indirect Beneficial Ownership shall apply to all securities, and not just equity securities, that an Access Person has or acquires. Rule 16a-1(a)(2) provides that the term “beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares a direct or indirect pecuniary interest in any equity security. Therefore, an Access Person may be deemed to have Beneficial Ownership of securities held by members of his or her immediate family sharing the same household, or by certain partnerships, trusts, corporations, or other arrangements. These provisions are far-reaching and Access Persons should consult internal or external counsel if they have any questions as to whether a particular person or entity is implicated.

 

Blackout Period. “Blackout Period” shall mean that timeframe in which the Fund or an Access Person, or Disinterested Trustee with knowledge of the Fund’s trading activity, may not engage in trading in an issue, or its related securities, appearing on the Fund Restricted List as described below.

 

Control. “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act.

 

Covered Security. “Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act. References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of a Covered Security) shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, and shall also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security. A security that is otherwise a “Covered Security” under this definition is excluded therefrom, however, if it falls into one of the following categories: (i) direct obligations of the government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by unaffiliated registered open-end investment companies (i.e., mutual funds). Otherwise qualifying exchange traded funds structured as unit investment trusts or open-end funds are considered “Covered Securities.”

 

Disinterested Trustee. “Disinterested Trustee” means a trustee of the Fund who is not an “interested person” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.

 

Initial Public Offering. “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933, as amended (the “Securities Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act.

 

Limited Offering. “Limited Offering” means an offering that is exempt from registration under the Securities Act pursuant to Section 4(a)(2) or Section 4(a)(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act.

 

3

 

 

Non-Access Covered Persons. Certain the Fund personnel, including but not limited to those who are also officers or directors/trustees of the Fund affiliates, are presumed to be Access Persons for purposes of the Rules because providing investment advice is the primary business of the Advisor and certain the Advisor affiliates. However, such persons often do not have actual access to investment or portfolio information or participate in the recommendation process. Where the CCO has determined that the relevant director/trustee, officer, or employee: (1) does not meet the definition of “Advisory Person;” (2) does not otherwise have access to nonpublic information with respect to client holdings or transactions or the Advisor securities recommendations; and (3) is not involved in the recommendation process, the CCO may determine to treat such person as a “Non-Access Covered Person” for purposes of this Code. Non-Access Covered Persons must, prior to being so designated and at least once per calendar year thereafter certify to the CCO, in the form attached as Appendix F as to the relevant facts and circumstances that formed the basis of the CCO’s above-described determination.

 

Purchase or Sale of a Covered Security. “Purchase or Sale of a Covered Security” is broad and includes, among other things, the writing of an option to purchase or sell a covered security, or the use of a derivative product to take a position in a Covered Security.

 

Restricted List. The Restricted List identifies those securities which the Fund or its Access Persons may not trade due to some restriction under the securities laws whereby the Fund or its Access Persons may be deemed to possess material non-public information about the issuer of such securities.

 

Supervised Person. A “Supervised Person” means any partner, officer, director/trustee (or other person occupying a similar status or performing similar functions), or employee of the Advisor.

 

Standards of Conduct

 

1.       No Access Person, Supervised Person or Disinterested Trustee shall engage, directly or indirectly, in any business transaction or arrangement for personal profit that is not in the best interests of the Fund or its shareholders; nor shall he or she make use of any confidential information gained by reason of his or her employment by or affiliation with the Fund, the Advisor or any of its affiliates, in order to derive a personal profit for himself or herself or for any Beneficial Interest, in violation of the fiduciary duty owed to the Fund and its shareholders.

 

2.       Any Access Person recommending or authorizing the purchase or sale of a Covered Security by the Fund shall, at the time of such recommendation or authorization, disclose any Beneficial Interest in, or Beneficial Ownership of, such Covered Security or the issuer thereof.

 

3.       No Access Person, Supervised Person or Disinterested Trustee shall dispense any information concerning securities holdings or securities transactions of the Fund to anyone outside the Fund without obtaining prior written approval from our Chief Compliance Officer, or such person or persons as these individuals may designate to act on their behalf. Notwithstanding the preceding sentence, such Access Person may dispense such information without obtaining prior written approval:

 

·when there is a public report containing the same information;

 

4

 

 

·when such information is dispensed in accordance with compliance procedures established to prevent conflicts of interest between the Fund and its affiliates;

 

·when such information is reported to trustees of the Fund; or

 

·in the ordinary course of his or her duties on behalf of the Fund.

 

4.       All personal securities transactions should be conducted consistent with this Code and in such manner as to avoid actual or potential conflicts of interest, the appearance of a conflict of interest, or any abuse of an individual’s position of trust and responsibility within the Fund.

 

Prohibited Transactions

 

·General Prohibition. No Access Person shall purchase or sell, directly or indirectly, any Covered Security (including any security issued by the issuer of such Covered Security) in which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership and which such Access Person knows or should have known at the time of such purchase or sale is being considered or which has been considered within the last 15 calendar days for purchase or sale by the Fund, or is held in the Fund’s portfolio or which has been held within the last 15 calendar days unless such Access Person shall have obtained prior written approval for such purpose from our Chief Compliance Officer. An Access Person who becomes aware that the Fund is considering the purchase or sale of any Covered Security must immediately notify our Chief Compliance Officer of any interest that such Access Person may have in any applicable outstanding Covered Security (including any security issued by the issuer of such Covered Security).

 

·An Access Person shall similarly notify our Chief Compliance Officer of any other interest or connection that such Access Person might have in or with such issuer.

 

·Once an Access Person becomes aware that the Fund is considering the purchase or sale of a Covered Security in its portfolio, such Access Person may not engage in any transaction in such Covered Security (including any security issued by the issuer of such Covered Security) within 15 days of the latest time when such consideration was taking place.

 

·The foregoing notifications or permission may be provided verbally, but should be confirmed in writing as soon and with as much detail as possible.

 

5.       Securities Appearing on the Portfolio and Pipeline Reports and Restricted List. The holdings of the Fund’s portfolio are detailed in the Portfolio Report. Access Persons will also receive, as frequently as necessary, the names of those entities that are being considered for investment by the Fund’s portfolio in the Pipeline Report. Access Persons are required to review these reports and the Restricted List prior to engaging in any securities transactions.

 

5

 

 

6.       Initial Public Offerings and Limited Offerings. Advisory Persons of the Fund must obtain approval from the CCO before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering.

 

7.       Securities under Review. No Access Person shall execute a securities transaction in any security issued by an entity that the Fund owns in its portfolio or is considering for purchase or sale unless such Access Person shall have obtained prior written approval for such purpose from our Chief Compliance Officer.

 

8.       Blackout Period. No Access Person may trade in the securities of any issuer appearing on the Restricted List until notified that the entity name no longer appears on the Restricted List. Access Persons are also prohibited from trading in the names appearing on the Pipeline and Portfolio Reports (as discussed above).

 

9.       Company Acquisition of Shares in Companies that Access Persons Hold Through Limited Offerings. Advisory Persons who have been authorized to acquire securities in a Limited Offering must disclose that investment to our Chief Compliance Officer when they are involved in the Fund’s subsequent consideration of an investment in the issuer, and the Fund’s decision to purchase such securities must be independently reviewed by Investment Personnel with no personal interest in that issuer.

 

Management of the Restricted List

 

The Advisor shall through its Chief Investment Officer (or his or her designee), create and maintain a list of issuers, companies and other entities as to which the Advisor or its service providers have received material, non-public information (the “Restricted List”). Should an Access Person learn of material non-public information concerning the issuer of any security that information must be provided to the Chief Investment Officer (or his or her designee), so that the issuer can be included on the Restricted List. The Chief Investment Officer will note the nature of the information learned, the time the information was learned and the other persons in possession of this information, and will maintain this information in a log. Upon the receipt of such information, the Chief Investment Officer will revise and circulate the Restricted List to all Access Persons.

 

The Advisor is directed to advise the Fund when it has obtained information that causes it to be restricted from trading in the securities of any of the names appearing in the Fund’s portfolio. This information will be provided to our Chief Investment Officer who will add the name(s) to the Restricted List and electronically circulate the revised list to Access Persons.

 

The contents of the Restricted List are highly confidential and must not be disclosed to any person or entity outside of the Advisor absent approval of the Chief Compliance Officer or the Chief Executive Officer.

 

6

 

 

Procedures to Implement the Code of Ethics

 

The following reporting procedures have been established to assist Access Persons in avoiding a violation of this Code, and to assist the Fund and the Advisor in preventing, detecting and imposing sanctions for violations of this Code. Every Access Person must follow these procedures. Questions regarding these procedures should be directed to our Chief Compliance Officer.

 

All Access Persons are subject to the reporting requirements set forth in the next section except:

 

·Transactions effected for, and Covered Security (including any security issued by the issuer of such Covered Security) held in, any account over which the Access Person has no direct or indirect influence or control; or

 

Reporting Requirements

 

Each Supervised Person is required to certify that he or she has received, read and understands all aspects of the Code and recognizes that he or she is subject to the provisions and principles detailed therein. In addition, our Chief Compliance Officer or his designee shall notify each Access Person of his or her obligation to file an initial holdings report, quarterly transaction reports, and annual holdings reports, as described below.

 

Pre-Clearance Reports

 

Advisory Persons of the Advisor must obtain approval from the Advisor’s Chief Compliance Officer or his designee prior to purchasing securities in a Limited Offering or an Initial Public Offering.

 

Pre-clearance of trades in securities issued by companies whose names appear on the Pipeline and Portfolio Reports is required of all Access Persons.

 

The pre-clearance form shall include the name of the reporting Person, the date, the name of the broker who will execute the transaction, the name of the security, quantity, whether the transaction is a purchase or sale, total anticipated dollar value and any pertinent instructions, i.e., GTC, limit, etc. There will also be a line for approval or disapproval along with space for comments and the date.

 

If the Advisor’s Chief Compliance Officer or his designee does not approve the transaction the reason for denial will be provided on the pre-clearance form.

 

Initial Holdings Reports

 

Each Access Person must, no later than 10 days after the person becomes an Access Person, submit to our Chief Compliance Officer or other designated person a report of any securities the Access Person currently has a direct or indirect Beneficial Ownership in. The information provided must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. The report must include the following:

 

·the title and type of the security and, as applicable, the exchange ticker symbol or CUSIP number, the number of shares held for each security, and the principal amount;

 

·the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and

 

·the date the Access Person submits the report.

 

7

 

 

Quarterly Transaction Reports

 

Each Access Person must, no later than 30 days after the end of each calendar quarter, submit to our Chief Compliance Officer or other designated person a report of the Access Person’s transactions involving a Covered Security (including any security issued by the issuer of such Covered Security) in which the Access Person had, or as a result of the transaction acquired, any direct or indirect Beneficial Ownership. The report must cover all transactions occurring during the calendar quarter most recently ending. The report must contain the following information:

 

·the date of the transaction;

 

·the title and, as applicable, the exchange ticker symbol or CUSIP number, of each reportable security in which they hold direct or indirect Beneficial Ownership, the interest rate and maturity date of each reportable security involved, the number of shares of each reportable security involved, and the principal amount of each reportable security involved;

 

·the nature of the transaction (i.e., purchase, sale or other type of acquisition or disposition);

 

·the price of the security at which the transaction was effected;

 

·the name of the broker, dealer or bank with or through which the transaction was effected; and

 

·the date the Access Person submits the report.

 

Annual Holdings Reports

 

Each Access Person must submit, to our Chief Compliance Officer or other designated person, an annual holdings report reflecting holdings as of a date no more than 45 days before the report is submitted. The Annual Holdings Report must be submitted at least once every 12 month period, on a date to be designated by the Fund. Our Chief Compliance Officer or his designee will notify every Access Person of the date. Each report must include:

 

·the title and, as applicable, the exchange ticker symbol or CUSIP number, of each reportable security in which they hold direct or indirect Beneficial Ownership, the interest rate and maturity date of each reportable security involved, the number of shares of each reportable security involved, and the principal amount of each reportable security involved;

 

·the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and

 

·the date the Access Person submits the report.

 

8

 

 

Reporting Exemptions

 

Disinterested Trustees need not make initial or annual holdings reports under the Code. Disinterested Trustees must file a quarterly holdings report only if the Disinterested Trustee knew or, in the ordinary course of fulfilling his or her official duties as a Disinterested Trustee, should have known that during the 15-day period immediately before or after the Disinterested Trustee’s transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or the Advisor considered purchasing or selling the Covered Security for the Fund.

 

An Access Person of the Advisor need not make a Quarterly Transaction Report if all of the information in the report would duplicate information required to be recorded pursuant to Rules 204-2(a)(13) under the Investment Advisers Act of 1940, as amended.

 

Transactions effected through an Automatic Investment Plan need not be included in Quarterly Transaction Reports.

 

Annual Certification of Compliance

 

All Access Person must annually certify through a written acknowledgment that (1) they have read, understood and agree to abide by this Code; (2) they have complied with all applicable requirements of this Code; and (3) they have reported all transactions and holdings that they are required to report under this Code.

 

STATEMENT ON THE PROHIBITION OF INSIDER TRADING

 

Failure by you to recognize the importance of safeguarding information and using information appropriately is greatly detrimental both to your future and to the Fund’s. The information provided below should provide a useful guide about what constitutes insider trading and material inside information.

 

Summary of the Fund’s Business Activities

 

The Fund has been organized as a continuously offered, non-diversified, closed-end management investment company. To provide limited liquidity to Shareholders, the Fund is structured as an “interval fund” and conducts quarterly repurchase offers for a limited amount of the Fund’s Shares (at least 5%).

 

The Fund offers individual investors access to private debt with a focus on secured debt (including senior secured, unitranche and second-lien debt) and unsecured debt (including senior unsecured and subordinated debt), which will include directly originated corporate loans, broadly syndicated corporate loans and high yield corporate bonds, and which, under normal circumstances, will represent at least 80% of the Fund’s Managed Assets. “Managed Assets” means the total assets of the Fund (including any assets attributable to indebtedness or any preferred shares that may be issued) minus the Fund’s liabilities other than liabilities relating to indebtedness.

 

9

 

 

 

Certain data sources may make information available to the Fund that has not been fully disseminated in the marketplace. Where the Fund or its investment adviser receives such information, our Chief Investment Officer will update the Restricted List.

 

In the event that any Access Persons comes into possession of information that is not publically available, either through your work with us or outside of the workplace, you will be required to adhere to the Statement on the Prohibition of Insider Trading (the “Statement”) as described in the following pages. You will also be subject to certain reporting requirements in connection with complying with the Fund’s Code.

 

Background

 

The securities laws and the rules and regulations of the self-regulatory organizations are designed to assure that the securities markets are fair and honest, that material information regarding a company is publicly available, and that a security’s price and volume are determined by the free interplay of economic forces. The anti-fraud rules of the federal securities laws prohibit, in connection with the purchase or sale of a security:

 

·making an untrue statement of a material fact;

 

·omitting to state a material fact necessary to make the statements made not misleading;

 

·engaging in acts, practices or courses of business which would be fraudulent or deceptive.

 

Violation of these provisions is a crime that may result in imprisonment and can have other very serious repercussions for both the Fund and the employee. Violators may be censured by the government or self-regulatory organizations, suspended, barred from the securities business or fined. In addition, violations may result in liability under the Federal Securities Laws, including the Insider Trading Sanctions Act of 1984 (“ITSA”) and the Insider Trading and Securities Fraud Enforcement Act of 1988 (“ITSFEA”). The Advisor’s actions with respect to any violations will be swift and forceful.

 

In this connection, a violation of the Fund’s policies and procedures regarding confidential information, disclosure and the use of confidential information may result in dismissal, suspension without pay, loss of pay or bonus, loss of severance benefits, demotion or other sanctions, whether or not the violation of the Fund policy or procedure also constituted a violation of law. Trading while in possession of or tipping on the basis of non-public information could also result in civil or criminal liability which could lead to imprisonment, fines and/or a requirement of disgorgement of any profits realized, and as a result of the violation, to an injunction prohibiting the violator from being employed in the securities industry. The Fund may initiate or cooperate in proceedings resulting in such penalties.

 

10

 

 

Policy

 

No person to whom the Statement applies, including officers, trustees or employees of the Fund, may trade, either personally or on behalf of others, while in possession of material nonpublic information, nor may any officer, trustee or employee communicate material non-public information to others in violation of the law. This conduct is referred to as “insider trading”. Any questions regarding this policy and procedure should be directed to our Chief Compliance Officer.

 

While the law concerning insider trading is not rigid, it generally is understood to prohibit:

 

·trading by an “insider” while in possession of material non-public information;

 

·trading by a non-insider while in possession of material non-public information where the information either was disclosed to the non-insider in violation of an insider’s duty to keep it confidential or was misappropriated; or

 

·communicating material non-public information to others.

 

The elements of a claim for insider trading and the penalties for unlawful conduct are described below.

 

Who is an Insider?

 

The concept of an “insider” is broad. It includes officers, directors/trustees and employees of a company. In addition, a person can be a “temporary insider” if he or she enters into a special confidential relationship in the conduct of a company’s affairs and as a result is given access to information solely for the company’s purposes. A temporary insider can include, by way of example, attorneys, accountants, consultants, bank lending officers and employees of such organizations. According to the Supreme Court, a company must expect the outsider to keep the disclosed non-public information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider.

 

What is Material Information?

 

Trading on information is not a basis for liability unless the information is material. Information generally is considered “material” if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision, or if the information is reasonably certain to have a substantial effect on the price of a company’s securities. Information that should be considered material includes, but is not limited to: dividend changes, earnings estimates not previously disseminated, material changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems and extraordinary management developments.

 

Material information does not have to relate to a company’s business. For example, Carpenter v. United States, 108 S. Ct. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal and whether or not those reports would be favorable.

 

Any questions that you may have as to whether information is material must be addressed with our Chief Compliance Officer before acting in any way on such information.

 

11

 

 

What is Non-public Information?

 

Information is non-public until it has been effectively communicated to the market place. One must be able to point to some fact to show that the information is public. For example, information found in a report filed with the SEC, or appearing in Reuters, Bloomberg or a Dow Jones publication or in any other publication of general circulation would, generally, be considered public. In certain instances, information disseminated to certain segments of the investment community may be deemed “public.” For example, research communicated through institutional information dissemination services such as First Call. The amount of time since the information was first disseminated ordinarily is a factor regarding whether information is considered public.

 

Bases for Liability

 

Described below are circumstances under which a person or entity may be deemed to have traded on inside information, and prohibitions applicable, in particular to investment advisers.

 

1. Fiduciary Duty Theory. In 1980 the Supreme Court found that there is no general duty to disclose before trading on material non-public information, but that such a duty arises where there is a fiduciary relationship between the parties to the transaction. In such case, one party has a right to expect that the other party will not disclose any material non-public information and will refrain from trading. Chiarella v. U.S. 445 U.S. 22 (1980).

 

Insiders such as employees of an issuer are ordinarily considered to have a fiduciary duty to the issuer and its shareholders. In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternative theories by which such fiduciary duties are imposed on non-insiders: they can enter into a confidential relationship with the company such as, among others, attorneys and accountants (“temporary insiders”) or they can acquire a fiduciary duty to the company’s shareholders as “tippees” if they are aware or should have been aware that they have been given confidential information by an insider or temporary insider who has violated his fiduciary duty to the company’s shareholders.

 

In the “tippee” situation, a breach of duty occurs only if the insider or temporary insider personally benefits, directly or indirectly, from the disclosure. The benefit does not have to be of a financial nature, but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo.

 

2. Misappropriation Theory. Another basis for insider trading liability is the “misappropriation” theory, where liability is established when trading occurs on material nonpublic information that was stolen or misappropriated from another person. In Carpenter v. United States, the Court found that a columnist defrauded The Wall Street Journal by communicating information prior to its publication to another person who used the information to trade in the securities markets. It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory.

 

12

 

 

Penalties for Insider Trading

 

Penalties for trading on or communicating material non-public information are severe, both for individuals involved in such conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include the following:

 

·jail sentences;

 

·civil injunction;

 

·treble damages;

 

·disgorgement of profits;

 

·fines for the person who committed the violation of up to three times the profit gained or loss avoided, whether or not the person actually benefited; and

 

·fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided.

 

Controlling the Flow of Sensitive Information

 

The following procedures have been established to assist the officers, trustees and employees of the Fund in controlling the flow of sensitive information so as to avoid the possibility of trading on material non-public information either on behalf of the Fund or for themselves and to assist the Fund and its supervisory personnel in surveilling for, and otherwise preventing and detecting, insider trading. Every officer, trustee and employee of the Fund must follow these procedures or risk serious sanctions by one or more regulatory authorities and/or the Fund, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should consult our Chief Compliance Officer.

 

1.       Identifying Inside Information. Before trading for yourself or others in the securities of a company about which you have what you believe to be inside information, ask yourself the following questions:

 

·Is the information non-public? To whom has this information been provided? Has the information been effectively communicated to the marketplace? To what extent, for how long, and by what means has the information been disseminated? If information is not public, it normally may not be used in connection with effecting securities transactions; however, if you have any doubts whatsoever as to whether the information is public, you must ask our Chief Compliance Officer prior to trading on, or communicating (except in accordance with the procedures and requirements herein) such information.

 

·Is the information material? Is this information that an investor would consider important in making his or her investment decision? Is this information that would substantially affect the market price of the securities if generally disclosed?

 

13

 

 

If, after consideration of the above, you believe that the information may be material and non-public, or if you have questions in that regard, you should take the following steps:

 

·Report the matter immediately to our Chief Compliance Officer.

 

·Do not purchase or sell the securities on behalf of yourself or others.

 

·Do not communicate the information inside or outside of the Fund, other than to our Chief Compliance Officer.

 

·After our Chief Compliance Officer has reviewed the issue, you will be instructed to continue the prohibitions against trading and communication, or you will be allowed to communicate the information and/or trade.

 

2.       Restricting Access to Material Non-public Information. Information in your possession that you identify as material and non-public may not be communicated to anyone, except as provided in paragraph 1 above. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed; access to computer files containing material non-public information should be restricted.

 

3.       Personal Security Trading. All officers, trustees and employees must trade in accordance with the provisions of the Code as well as the Statement in order to assist the Fund with monitoring for violations of the law.

 

4.       Restricted List. As defined in the Code, the Fund’s Chief Investment Officer will maintain a Restricted List. Disclosure outside of the Fund as to what issuers and/or securities are on the Restricted List could therefore constitute tipping and is strictly prohibited.

 

5.       Supervision/Investigation. Should our Chief Compliance Officer learn, through regular review of personal trading documents, or from some other source, that a violation of this Code is suspected, our Chief Compliance Officer shall alert the Chief Executive Officer of the Fund. Together these parties will determine who should conduct further investigation, if they determine one is necessary.

 

ADMINISTRATION OF THE CODE

 

Our Chief Compliance Officer has overall responsibility for administering the Code and reporting on the administration of and compliance with the Code and related matters to our Board and the Audit Committee of the Board (the “Audit Committee”).

 

Our Chief Compliance Officer shall review reports to determine whether any transactions recorded therein constitute violations of the Code. Before making any determination that a violation has been committed by person subject to the Code, such person shall be given an opportunity to supply additional explanatory material. Our Chief Compliance Officer shall maintain copies of the reports as required by Rule 17j-1(f) under the 1940 Act.

 

No less frequently than annually our Chief Compliance Officer must furnish to the Board and Audit Committee, and the Board and/or Audit Committee must consider, a written report that describes any issues arising under the Code or its procedures since the last report to the Board, including but not limited to, information about material violations of the Code or its procedures and any sanctions imposed in response to material violations. This report should also certify that the Fund has adopted procedures reasonably designed to prevent persons subject to the Code from violating the Code.

 

14

 

 

SANCTIONS FOR CODE VIOLATIONS

 

All violations of the Code will result in appropriate corrective action, up to and including dismissal. If the violation involves potentially criminal activity, the individual or individuals in question will be reported, as warranted, to the appropriate authorities.

 

APPLICATION/WAIVERS

 

All the trustees, officers and employees of the Fund and its investment adviser are subject to this Code.

 

Insofar as other policies or procedures of the Fund or its investment adviser govern or purport to govern the behavior or activities of all persons who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.

 

RECORDS

 

The Fund shall maintain records with respect to this Code in the manner and to the extent set forth below, which records may be maintained on microfilm or electronic storage media under the conditions described in Rule 31a-2(f) under the 1940 Act and shall be available for examination by representatives of the Securities and Exchange Commission (the “SEC”):

 

1.       A copy of this Code that is, or at any time within the past five years has been, in effect shall be maintained in an easily accessible place;

 

2.       A record of any violation of this Code and of any action taken as a result of such violation shall be maintained in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs;

 

A copy of each report made by an Access Person or duplicate account statement received pursuant to the Code, shall be maintained for a period of not less than five years from the end of the fiscal year in which it is made or the information is provided, the first two years in an easily accessible place;

 

3.       A record of all persons who are, or within the past five years have been, required to make reports pursuant to this Code, or who are or were responsible for reviewing these reports, shall be maintained in an easily accessible place;

 

4.       A copy of each report made to the Fund’s Board shall be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and

 

5.       A record of any decision, and the reasons supporting the decision, to approve the direct or indirect acquisition by an Access Person of Beneficial Ownership in any securities in an Initial Public Offering or a Limited Offering shall be maintained for at least five years after the end of the fiscal year in which the approval is granted.

 

15

 

 

REVISIONS AND AMENDMENTS

 

This Code may be revised, changed or amended at any time by our Board of Trustees and any material changes must be approved by the Board and a majority of the Disinterested Trustees. Prior to any such approval, the Board must receive a certification from the Fund that it has adopted procedures as are reasonably necessary to prevent access persons from violating the Code. Following any material revisions or updates, an updated version of this Code will be distributed to you, and will supersede the prior version of this Code effective upon distribution. We may ask you to sign an acknowledgement confirming that you have read and understood the revised version of the Code, and that you agree to comply with the provisions.

 

16

 

 

APPENDIX A

 

______ Franklin BSP Private Credit Fund
(the “Company”)

 

Acknowledgment Regarding

 

Code of Business Conduct and Ethics

 

This acknowledgment is to be signed and returned to our Chief Compliance Officer and will be retained as part of your permanent personnel file 

 

I have received a copy of the Company’s Code of Business Conduct and Ethics (the “Code”), read it, and understand that the Code contains the expectations of the Company regarding employee conduct and ethical behavior. I agree to observe the policies and procedures contained in the Code and have been advised that, if I have any questions or concerns relating to such policies or procedures, I understand that I have an obligation to report to the Chief Compliance Officer, any suspected violations of the Code of which I am aware. I also understand that the Code is issued for informational purposes and that it is not intended to create, nor does it represent, a contract of employment.

 

 

  Employee’s Name (Printed)
   
   
  Employee’s Signature
   
   
  Date

 

The failure to read and/or sign this acknowledgment in no way relieves you of your responsibility to comply with the Company’s Code of Business Conduct, Ethics and Statement on the Prohibition of Insider Trading. 

 

A-1

 

 

APPENDIX B

 

____ Franklin BSP Private Credit Fund
or
____ Benefit Street Partners L.L.C.
(collectively, the “Company”)

 

PRE-CLEARANCE FORM

 

Use this form to request pre-clearance of a transaction to purchase a Limited Offering, Initial Public Offering or to purchase or sell a security issued by an issuer appearing on the Portfolio or Pipeline Reports. Please submit this form, together with a copy of the Limited Offering documentation to the Chief Compliance Officer at least five (5) business days before the planned investment.

 

Employee Name: Date:

 

Issuer/Investment Name:

 

Terms of Purchase (price, purchaser – individual, joint, entity, etc.):

 

Proposed Transaction Date:

 

How did you learn about this opportunity?

 

Related to a Portfolio or Pipeline security?

 

Approved: Date:

 

Not Approved: Date:

 

Comments:

 

B-1

 

 

APPENDIX C

 

____ Franklin BSP Private Credit Fund
or
____ Benefit Street Partners L.L.C.
(collectively, the “Company”)

 

INITIAL HOLDINGS REPORT

 

As of

 

To: Chief Compliance Officer

 

A.Securities Holdings. I have listed below (or attached hereto a listing) all of my Securities Holdings held by me or Beneficial Owners as defined by the Company’s Code of Ethics.

 

Title of Security CUSIP Number

Interest

Rate

and

Maturity
Date (If

Applicable)

Date of Transaction Number
of
Shares
or
Principal
Amount
Dollar
Amount of
Transaction

Nature of

Transaction

(Purchase,

Sale,

Other) Price

Broker/Dealer
or
Bank
Through
Whom
Effected

 

 

B.Brokerage Accounts. I, or a Beneficial Owner, have established the following accounts in which securities for my direct or indirect benefit:

 

Name of Broker, Dealer or Bank

 

1.

2.

3.

 

Date:   Signature: 

 

     Print Name: 

 

C-1

 

 

APPENDIX D

 

____ Franklin BSP Private Credit Fund
or
____ Benefit Street Partners L.L.C.
(collectively, the “Company”)

 

QUARTERLY TRANSACTION REPORT
For the Calendar ______ Quarter Ended: To: Chief
Compliance Officer

 

A.Securities Transactions. During the quarter referred to above, the following transactions were effected in securities of which I had, or by reason of such transactions acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Code of Ethics of the Company:

 

Title of Security CUSIP Number

Interest Rate and Maturity Date (If

Applicable)

Date of Transaction Number
of
Shares
or
Principal
Amount
Dollar
Amount of
Transaction

Nature of

Transaction

(Purchase,

Sale,

Other) Price

Broker/Dealer
or
Bank
Through
Whom
Effected

 

 

B.New Brokerage Accounts. During the quarter referred to above, I established the following accounts in which securities were held during the quarter for my direct or indirect benefit:

 

Name of Broker, Dealer or Bank Date Account Was Established

 

C.Other Matters. This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.

 

Date:   Signature: 

 

     Print Name: 

 

D-1

 

 

APPENDIX E

 

____ Franklin BSP Private Credit Fund
(the “Company”)

 

ANNUAL HOLDINGS REPORT
As of December 31, 20__

 

To: Chief Compliance Officer

 

As of December 31, 20__, I had direct or beneficial ownership interest in the securities listed below which are required to be reported pursuant to Rule 17j-1 under the Investment Company Act of 1940:

 

A.       Securities Holdings. I have listed below (or attached hereto a listing) all of my Securities Holdings held by me or Beneficial Owners as defined by the Company’s Code of Ethics.

 

Title of SecurityCUSIP NumberNumber of Shares or Principal Amount

 

 

B.       As of December 31, 20___, I maintained accounts with brokers, dealers, and banks listed below in which securities were held for my direct or indirect benefit:

 

C.       Brokerage Accounts. I, or a Beneficial Owner, have established the following accounts in which securities for my direct or indirect benefit:

 

Name of Broker, Dealer or Bank Date Account Was Established*

 

1.

2.

3.

 

This report (i) excludes securities and accounts over which I had no direct or indirect influence or control;(ii) excludes securities not required to be reported (for example, direct obligations of the U.S. Government, shares of registered investment companies etc.); and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities accounts listed above.

 

Date:   Signature: 

 

     Print Name: 

 

*Note: If account was established before 20___, you can state that it was established before 20___.

 

E-1

 

 

APPENDIX F

 

CERTIFICATION OF REBUTTAL OF ACCESS PRESUMPTION

 

I, ___________, do hereby certify and affirm that:

 

(1)       I serve as [position with Company] and am also [position with Company Affiliate]

 

(2)       During the immediate prior calendar year:

 

(a)       I have not, with respect to the Company, obtained information regarding the Company’s purchase or sale of securities;

 

(b)       I have not, with respect to the Company, made, participated in, or obtained information about, the purchase or sale of a Covered Security or related recommendations;

 

(c)       my regular functions and duties have not related to such recommendations, purchases or sales;

 

(d)       I have not been involved in making securities recommendations to the Company nor have I obtained information about such any such recommendations which are nonpublic;

 

(e)       I do not have, and will not accept, access to nonpublic information regarding the portfolio holdings of the Company;

 

(f)       I am aware of and have complied with all provisions of the Code that are relevant to me and with any policies and procedures of the Company and its affiliates relevant to the control of sensitive information about Client accounts or the Advisor recommendations to which I may be subject. I further agree to continue to comply with all such policies and procedures, as they may be amended from time to time.

 

(3)       If any of the representations set forth in 2(a) through (f) above ceases to be true, I will inform the CCO, promptly and, unless otherwise notified by the CCO, I will comply with relevant Code requirements applicable to Access Persons.

 

(4)       I recognize that I am providing this certification in order to allow the CCO to consider my designation as a Non-Access Covered Person. I have read, understand and agree to abide by the Code and, in particular, those provisions of the Code relevant to Non-Access Covered Persons.

 

F-1

 

 

Exhibit 99.(r)(2)

 

III.           CODE OF ETHICS

 

Benefit Street Partners L.L.C. (together with its affiliated management companies and its and their subsidiaries, “Benefit Street” or the “Firm”),5 has adopted the policies and procedures (as they may be amended from time to time, the “Policies”) set forth in this policies and procedures manual (the “Manual”) and implemented a compliance program intended to ensure that all Supervised Persons of the Firm obey the law and conduct themselves ethically.6

 

The Firm, as a registered investment adviser with the SEC and as investment manager or sub-adviser to BDCs and/or the Registered Funds, has adopted this code of ethics (“Code of Ethics”) as required by Rule 204A- 1 under the Advisers Act and Rule 17j-1 under the Investment Company Act, respectively, to set forth standards of business conduct that the Firm expects of persons employed by, working with the Firm and others designated by the Chief Compliance Officer. The Firm, as an investment adviser, has a fiduciary duty to act in the best interest of its Clients. The Firm’s reputation for integrity, honesty and openness is essential to its continued business success.

 

All Firm personnel are required to comply with applicable Federal Securities Laws and report violations of the rules set out in the Code of Ethics promptly to the Chief Compliance Officer. The Chief Compliance Officer shall provide you with a copy of this Code of Ethics which is contained in the Firm’s Manual and any amendments. You are expected to read and understand all requirements and procedures of the Code of Ethics. In fact, you will be required to provide a certification acknowledging your receipt of the Code of Ethics (and any amendment thereto). Such certifications may be provided to Supervised Persons via e-mail, hard copy or through a third-party compliance service provider of the Firm. The Management of the Firm and the Chief Compliance Officer will review the terms and provisions of the Code of Ethics at least annually and make amendments as necessary.

 

We expect our Supervised Persons to put the interest of Clients first and foremost in their business dealings and day-to-day activities. Each Supervised Person is expected to conduct himself or herself in accordance with such standards at all times, and to deal honestly and fairly with all persons with whom he or she has contact. It is generally improper for the Firm or persons covered by the Code of Ethics to (i) use for their own benefit (or the benefit of anyone other than a Client) information about the Firm’s trading or investment recommendations for a Client or (ii) take advantage of investment opportunities that would otherwise be available for a Client.

 

 

5“Benefit Street” or the “Firm” shall include, without limitation, Franklin BSP Lending Adviser, L.L.C. and Franklin BSP Capital Adviser, LLC.

 

6A “Supervised Person” means the Firm’s partners, officers, directors (or other persons occupying a similar status or performing similar functions) and employees, as well as any other persons who provide advice on behalf of the adviser and are subject to the adviser’s supervision and control. Except where otherwise indicated, for all purposes of this Manual the term “employee” and the term “supervised person” shall be deemed to include consultants to the Firm and any other non-employees of the Firm stationed in the Firm’s offices to whom copies of this Manual have been provided. Except where otherwise indicated, the Policies set forth in this Manual extend to all employees of Benefit Street: both investment and administrative personnel, both full-time and part-time employees, and both U.S. and non-U.S. employees.

 

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If you have any doubt or uncertainty about how to react to a particular circumstance or concern, contact Alexander H. McMillan who is designated as the Chief Compliance Officer of the Firm.7 Please do not guess at the answer. Mr. McMillan is based in New York and can be reached by telephone at extension 76712, (212) 588-6712 or by e-mail at [email protected].

 

Additionally, you should be aware that the Firm expects all persons covered by the Code of Ethics to comply with the spirit of the Code of Ethics, as well as the specific rules contained in the Code of Ethics. Technical compliance with the requirements set forth in this Code of Ethics and the Manual will not insulate you from scrutiny for any actions that create the appearance of a violation. You should also be aware that violations of either the letter or the spirit of the policies and procedures in this Code of Ethics and the Manual will be treated with the utmost seriousness and may result in penalties being imposed at the discretion of the Firm, including but not limited to cancellation of an offending trade (with any resulting loss charged to you and any profits forfeited to the Firm, a charity or our Clients), imposition of penalties or fines, reduction of your compensation, a letter of censure or reprimand, referrals to regulatory and self- regulatory bodies, suspension, substantial changes in duties and responsibilities, suspension and dismissal, or any combination of the foregoing. Violations may also result in civil or criminal proceedings and penalties. In addition, the Firm may, in its sole and absolute discretion, suspend or revoke your personal trading privileges. Supervised Persons may also be placed on paid or unpaid leave pending any investigation into whether these policies and procedures have been violated.

 

Improper trading activity can constitute a violation of the Code of Ethics. You can also violate the Code of Ethics by failing to file required reports, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. Your conduct can violate the Code of Ethics even if neither any Client nor the Firm is harmed by your conduct.

 

A.           Definitions

 

All capitalized terms used in this Code of Ethics have the meanings set forth in this Code of Ethics and below. You should note that some of these terms (such as “beneficial interest”) are sometimes used in other contexts, not related to codes of ethics, where they have different meanings.

 

1.“Automatic Investment Plan”

 

Automatic investment plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan.

 

 

7References herein to the “Chief Compliance Officer” refer to either Mr. McMillan in his capacity as the Firm’s Chief Compliance Officer or his designee for such purpose.

 

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2.“Client”

 

Any person or entity that the Firm provides investment advisory services to, including the Funds, any BDCs, the REIT, the Registered Funds and any separately managed accounts.

 

3.“Direct or Indirect Influence or Control” includes

 

·Suggesting to anyone that a particular purchase or sale be made for the account;

 

·Directing anyone to make any particular purchase or sale of investments for the account;

 

·Consulting with anyone to make any particular allocation of investments to be made in the account; and

 

·Discussing account holdings.

 

NOTE: Discussions about broad asset allocations that would not reasonably be expected to result in the purchase or sale of a particular security and discussions in which a trustee or third-party discretionary manager simply summarizes, describes or explains account activity to an access person would not indicate “direct or indirect influence or control.”

 

4.“Discretionary Account” means

 

A “Discretionary Account” is any trust or account over which a Supervised Person (or members of their Family/Household) does not exercise any Direct or Indirect Influence or Control, as explained in more detail below.

 

5.“Family/Household”, includes:

 

·A Supervised Person’s spouse or domestic partner (unless they do not live in the same household as you and you do not contribute in any way to their support);

 

·A Supervised Person’s children under the age of 18;

 

·A Supervised Person’s children who are 18 or older (unless they do not live in the same household as you and you do not contribute in any way to their support); and

 

·Any of these people who live in a Supervised Person’s household: a Supervised Person’s stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law and sisters-in-law, including adoptive relationships.

 

6.“Federal Securities Laws”

 

The term “Federal Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the SEC under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the SEC or the Department of the Treasury.

 

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7.“FT Client Account”

 

The term “FT Client Accounts” shall mean the client accounts that are advised or sub-advised by a Franklin Templeton investment adviser.

 

8.“FT Funds”

 

The term “FT Funds” shall mean the funds that are advised or sub-advised by a Franklin Templeton investment adviser. “FT Fund” includes all open-end and closed-end funds within the Franklin Templeton Group of Funds, as well as any other fund that is advised or sub-advised by a Franklin Templeton investment adviser.

 

9.“Funds”

 

The term “Fund” shall mean private investment partnerships, investment companies or the foreign investment vehicles advised by the Firm.

 

10.“Initial Public Offering”

 

The term “Initial Public Offering” (or “IPO”) means an offering of securities registered under the Securities Act of 1933 (the “Securities Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

 

11.“Personal Account”

 

The term “Personal Account” refers to any account (including any custody account, safekeeping account and any account maintained by an entity that may act as a broker or principal) in which a Supervised Person has any direct or indirect beneficial interest, including personal accounts and trusts for the benefit of such persons. Thus, the term “Personal Accounts” also includes among others:

 

(a)Trusts for which the Supervised Person acts as trustee, executor or custodian;

 

(b)Accounts of or for the benefit of the Supervised Person’s Family/Household; and

 

(c)Accounts of or for the benefit of a person who receives material financial support from the Supervised Person.

 

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12.“Private Placement or Limited Offering”

 

The term “Private Placement or Limited Offering” means an offering of securities that is exempt from registration under the Securities Act pursuant to Sections 4(a)(2) or 4(a)(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.

 

B.Personal Securities Transaction Reporting Obligations

 

1.Scope and Purpose

 

These policies and procedures apply to the personal investment activities of all Supervised Persons.

 

The purpose of this policy is to summarize the values, principles and business practices that guide the Firm’s business conduct and to establish a set of principles to guide Supervised Persons regarding the conduct expected of them when managing their personal investments.

 

These policies and procedures apply to all Personal Accounts and Discretionary Accounts of a Supervised Person. The Firm requires that the Chief Compliance Officer regularly monitor all trading activity in a Supervised Person’s Personal Account or Discretionary Account. A designated compliance associate will monitor the activity in any Personal Account or Discretionary Account of the Chief Compliance Officer. The Chief Compliance Officer will review the reports described below submitted by persons other than the Chief Compliance Officer (the Reports described below of the Chief Compliance Officer will be submitted to and reviewed by the Chief Operating Officer). The Chief Compliance Officer will undertake to conduct the review and monitoring on a strictly confidential and carefully controlled basis (except to the extent disclosure is required under the Advisers Act or other applicable laws or regulations or any court order or other legal process). It is a condition of your employment or association with the Firm, however, that you disclose all of your Personal Accounts and Discretionary Accounts to the Chief Compliance Officer. This includes Personal Accounts that do not trade in the securities covered by these policies and procedures (for example, IRA accounts that currently hold mutual fund investments), with the exception of personal savings or checking accounts that are not able to hold securities of any type. For purposes of these procedures where the activity involves the Personal Account, Discretionary Account or trading of the Chief Compliance Officer, copies of any notice or report will be given to a designated compliance associate and any permission or approval will be obtained from such designated compliance associate.

 

NOTE: One of the most complicated parts of complying with this Code of Ethics is understanding what holdings, transactions and accounts a Supervised Person must report and what accounts are subject to trading restrictions. For example, accounts of certain members of a Supervised Person’s Family/Household are covered, as are certain categories of trust accounts, certain investment pools in which a Supervised Person might participate, and certain accounts that others may be managing for a Supervised Person. To be sure a Supervised Person understands what holdings, transactions and accounts are covered, it is essential that all Supervised Person’s carefully review the definitions used and set forth herein.

 

ALSO NOTE: A Supervised Person must file the reports described below, even if he/she has no holdings, transactions or accounts to list in the reports.

 

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ALSO NOTE: Compliance with the following reporting requirements does not relieve you of any of your other obligations under the Code of Ethics, including the requirement that you seek pre-clearance of Private Placements or Limited Offerings and IPO transactions.

 

2.Statement of Principles

 

All Supervised Persons are required to conduct themselves in a lawful, honest and ethical manner in their business practices and to maintain an environment that fosters fairness, respect and integrity.

 

The Firm’s policy is that the interests of the Clients are paramount and come before the interests of any employee. Information concerning the securities8, holdings and financial circumstances of the Clients, as well as the identity of certain Clients, is confidential and Supervised Persons are required to safeguard this information.

 

The personal investment activities of Supervised Persons must be conducted in a manner to avoid actual or potential conflicts of interest with the Clients. In particular, to the extent that a Supervised Person learns of an investment opportunity because of his or her position with the Firm (e.g., internal or third party research, the Firm or company sponsored conferences, or communications with company officers), the Supervised Person must give preference to the Clients.

 

Personal transactions in a security may not be executed, regardless of quantity, if the Supervised Person has access to information regarding, or knowledge or even a presumed knowledge of, Client activity in such security, including proposed activity and recommendations.

 

3.Prohibited Activities

 

Supervised Persons generally are prohibited from engaging or participating in any activity that has the potential to cause harm to a Client. Examples of prohibited activities include, but are not limited to:

 

·Making investment decisions, changes in research ratings and trading decisions other than exclusively for the benefit of, and in the best interest of, the Clients;

 

·Taking, delaying or omitting to take any action with respect to any research recommendation, report or rating or any investment or trading decision for a Client in order to avoid economic injury to themselves or anyone other than the Clients;

 

·Purchasing or selling a security on the basis of knowledge of a possible trade by or for a Client with the intent of personally profiting from, or avoiding a loss with respect to, personal holdings in the same or related securities;

 

·Revealing to any other person (except in the normal course of the Supervised Person’s duties on behalf of a Client) any information regarding securities transactions by any Client or the consideration by any Client of any such securities transactions; or

 

 

8 For purposes of this Policy, the term “securities” also includes derivatives, such as futures, options and swaps.

 

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·Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on a Client or engaging in any manipulative practice with respect to any Client.

 

4.Monitoring of the Policy and Additional Information

 

Questions regarding this policy and related requirements should be directed to the Chief Compliance Officer or the Code of Ethics Department (which can be reached at [email protected]). The Firm uses PTA, http://coeprod/pta/index.jsp, an automated transaction pre-clearance system, to manage the oversight of personal investments. Administration of this policy is the responsibility of the Chief Compliance Officer.

 

5.Statement on Supervised Person Investments

 

The Firm recognizes the importance to Supervised Persons of managing their own financial resources. However, because of the potential conflicts of interest inherent in its business, the Firm has implemented this policy with regard to personal investments of Supervised Persons. This policy is designed to minimize these conflicts and help ensure that the Firm focuses on meeting its duties as a fiduciary to its Clients.

 

Supervised Persons should be aware that their ability to invest in certain securities and to liquidate those positions may be severely restricted under this policy due to trading by the Clients, including during times of market volatility. Therefore, as a general matter, the Firm encourages Supervised Persons to exercise caution when investing in individual securities, particularly in situations where a Supervised Person wishes to invest in securities held or likely to be held by the Clients.

 

The Firm also discourages Supervised Persons from engaging in a pattern of securities transactions that is so excessively frequent as to potentially impact the Supervised Person’s ability to carry out their assigned responsibilities, increases the possibility of potential conflicts or violates the policy.

 

6.Categories of Persons Subject to the Policy

 

All persons subject to this policy are assigned to the following categories based on their access to information regarding, or involvement in, investment activities. Please consult the Chief Compliance Officer if you have any questions about how this policy applies to you.

 

Access Persons: Access Persons are those who have access to non-public information regarding Clients’ securities transactions; or have access to recommendations that are non-public; or have access to non-public information regarding the portfolio holdings of the Clients.

 

Portfolio Persons: Portfolio Persons, a subset of Access Persons, are those who, in connection with their regular functions or duties, make or participate in the decision to purchase or sell a security by an FT Fund or FT Client Account or if his or her functions relate to the making of any recommendations about those purchases or sales.

 

Supervised Person: Supervised Persons are (i) the Firm’s partners, officers, directors (or other persons occupying a similar status or performing similar functions) and employees, as well as any other persons who provide advice on behalf of the Firm and are subject to the Firm’s supervision and control. Except where otherwise indicated, for all purposes of this Code of Ethics the term “employee” and the term “Supervised Person” shall be deemed to include consultants to the Firm and any other non-employees of the Firm stationed in the Firm’s offices to whom copies of this Code of Ethics have been provided and (ii) Access Persons.

 

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7.Accounts and Transactions Covered by the Policy

 

This policy covers two types of securities accounts and transactions: (a) those in which Supervised Persons have or share investment control, and (b) those in which Supervised Persons have direct or indirect beneficial ownership. Generally, a person has a beneficial ownership in a security if he or she, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the security. “Pecuniary interest” has the same meaning as in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934. Generally, a pecuniary interest in a security means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Supervised Persons are presumed to have a pecuniary interest in securities held by members of their Family/Household.

 

Certain types of securities are exempt from this policy. These exempt securities include, but are not limited to, direct obligations of the U.S. government, money market instruments, and registered open-end funds other than the FT Funds. Please consult the Chief Compliance Officer or PTA for further information about specific types of securities that are exempt from this policy.

 

8.Prohibited Transactions

 

(a)           Trading that Conflicts with the Clients. Supervised Persons are prohibited from any trading activity that conflicts with the Clients’ trading activity. Examples of prohibited trading activity include, but are not limited to:

 

§“front running” or trading ahead of a Client; and

 

§trading parallel to or against a Client.

 

(b)Short Sales of Securities Issued by Franklin Templeton and Closed-end

 

FT Funds. Supervised Persons are prohibited from effecting short sales, including “short sales against the box,” of securities issued by Franklin Templeton or any closed-end FT Funds. This prohibition includes economically equivalent transactions such as call or put options, swap transactions or other derivatives that would result in having a net short exposure to Franklin Templeton or any closed-end fund sponsored or advised by Franklin Templeton.

 

9.Trading in Shares of the FT Funds

 

A Supervised Person is prohibited from buying and selling shares of an FT Fund if in possession of material nonpublic information about the FT Fund. Specifically, Supervised Persons are prohibited from taking personal advantage of their non-public knowledge of recent or impending investment activities of FT Funds or the FT Funds’ investment advisers or any other non-public information that a reasonable investor would likely consider important in making his or her investment decisions, including information that may have a material effect on an FT Fund’s share price or net asset value.

 

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Supervised Persons must keep confidential at all times any non-public information they may obtain about an FT Fund, including but not limited to information such as portfolio holdings, pricing or valuation of an FT Fund’s portfolio holdings, recent or impending securities transactions by an FT Fund, activities of an FT Fund’s investment advisers, offerings of new FT Funds, changes to investment minimums, closings of FT Funds, changes to investment personnel, FT Fund flow activity, and information on current or prospective FT Fund shareholders.

 

10.Short-Term Trading in Open-end FT Funds

 

The Firm discourages short-term or excessive trading, often referred to as “market timing,” in shares of the open- end FT Funds. Supervised Persons must be familiar with the “Frequent Trading Policy” or its equivalent described in the prospectus of each open-end FT Fund in which they invest and must not engage in trading activity that might violate the purpose or intent of such policy. Accordingly, all Supervised Persons must comply with the purpose and intent of each open-end FT Fund’s Frequent Trading Policy or its equivalent and must not engage in any short-term or excessive trading in open-end FT Funds.

 

For open-end FT Funds within the Franklin Templeton Group of Funds, the Trade Control Team of each FT Fund’s transfer agent will monitor trading activity in shares of the FT Funds by Supervised Persons and will report any trading patterns or behaviors that may constitute short-term or excessive trading to Franklin Templeton’s Code of Ethics Department. These reports will include descriptions of any actions taken and any sanctions or penalties imposed in response to such trading activity. This policy applies to the open-end FT Funds including those FT Funds purchased through a 401(k) plan, but does not apply to purchases and sales of money market funds.

 

11.Trading Prohibitions and Restrictions in the REIT

 

The following prohibitions and restrictions apply to transactions in the REIT’s securities, including the REIT’s common stock, any securities that are exercisable for, or convertible or exchangeable into, shares of REIT common stock, and any other type of securities that the REIT may issue from time to time, including (but not limited to) preferred stock, notes, convertible debt and warrants, partnership units, as well as derivative securities that are not issued by the REIT, such as exchange-traded put or call options or swaps relating to the REIT. Supervised Persons (i) who are on the Board of Directors of the REIT; (ii) who are officers of the REIT (iii) who are employees of the REIT; and (iv) who provide services to, or are involved in the business and affairs, of the REIT, or otherwise have access to material nonpublic information relating to the REIT (together, “REIT Covered Employees”) are required to comply with the following prohibitions and restrictions, as well as any other processes that are in place, some of which that may be outside the scope of this Manual,

 

(a)           Short-Term Trading. REIT Covered Employees who purchase shares of the REIT, are prohibited from selling the REIT shares during the six months following the purchase (or vice versa).

 

(b)           Short Sales. Short sales of the REIT (i.e., the sale of a security that the seller does not own) are prohibited. In addition, Section 16(c) of the Exchange Act prohibits officers and directors of the REIT from engaging in short sales. Short sales may evidence an expectation on the part of the seller that the securities will decline in value, and therefore have the potential to signal to the market that the seller lacks confidence in the REIT’s prospects. In addition, short sales may reduce a seller’s incentive to seek to improve the REIT’s performance.

 

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(c)           Publicly-Traded Options. Given the relatively short term of publicly-traded options, transactions in options may create the appearance that a person is trading based on material nonpublic information and focus such person’s attention on short-term performance at the expense of the REIT’s long-term objectives. Accordingly, transactions in put options, call options or other derivative securities of the REIT, on an exchange or in any other organized market, are prohibited.

 

12.           Additional Prohibitions and Requirements for Access Persons and Portfolio Persons

 

(a)           Initial Public Offerings. Access Persons are prohibited from investing in securities sold in an initial public offering or a secondary offering by an issuer except for offerings of securities made by closed-end FT Funds advised or sub-advised by Franklin Templeton.

 

(b)           Short Sales of Securities. Portfolio Persons are prohibited from selling short any security held by the FT Funds, including “short sales against the box.” This prohibition also applies to effecting economically equivalent transactions, including, but not limited to, sales of uncovered call options, purchases of put options while not owning the underlying security, and short sales of bonds that are convertible into equity positions, swaps or other derivatives.

 

(c)           Disclosure of Interest in Securities. Portfolio Persons are required to disclose any interest they have in the securities of an issuer if they are involved in either analysis or investment decisions related to the issuer. Portfolio Persons must re-disclose any such interest if they participate in later recommendations or investment decisions related to the issuer.

 

Portfolio Persons must also disclose any personal transactions they are contemplating in the securities referenced above, any position they hold with the issuer and any proposed business relationship between the issuer and the Portfolio Person or any party in which the Portfolio Person has a significant interest.

 

The disclosures above must be made to the Chief Compliance Officer.

 

13.Reporting Requirements

 

All Supervised Persons must complete the required certification provided to the Supervised Person by the Firm via e-mail, hard copy or through a third-party compliance service provider no later than ten (10) calendar days after the date the person is notified by the Chief Compliance Officer or his designee of the requirement to do so. Additionally, by February 15th of each subsequent year they must complete an annual certification that they have complied with and will comply with this policy.

 

Access Persons must also file a certification provided to the Access Person by the Firm via e-mail, hard copy or through a third-party compliance service provider no later than ten (10) calendar days after the date the person is notified by the Chief Compliance Officer or his designee of the requirement to do so. Additionally, by February 15th of each subsequent year, Access Persons must file a then current annual report of all personal securities accounts and securities holdings and must certify that they have complied with and will comply with this policy.

 

On a quarterly basis, and no later than thirty (30) calendar days after the end of each calendar quarter, every Access Person must report all transactions in securities covered by this policy, except for those executed through an Automatic Investment Plan or that would duplicate information already provided in broker confirmations or statements sent to the Code of Ethics Department directly from the broker.

 

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No later than thirty (30) calendar days after the calendar quarter, Access Persons must report any account established in which any securities were held during that calendar quarter.

 

14.Pre-Clearance Requirements

 

(a)           Pre-Clearance of Securities Transactions. Access Persons must obtain pre-clearance from the Chief Compliance Officer before buying or selling any security (other than those not requiring pre-clearance, a full list of which is available from the Chief Compliance Officer or the Code of Ethics Department) and are always prohibited from executing transactions in a security if aware that a Client are active or contemplate being active in the security (even if the transactions have been precleared). Pre-clearance requests should be submitted via PTA.

 

(b)           Private Investments and Limited Offerings. Access Persons must obtain pre-clearance from the Chief Compliance Officer before investing in a private placement or purchasing other securities in a limited offering. For example, investments in private or unregistered funds (i.e., hedge funds) are required to be pre-cleared under this policy.

 

(c)           Client Securities. Access Persons must obtain pre-clearance from the Chief Compliance Officer before buying or selling any Client securities, including for the avoidance of doubt, purchases and sales of any Firm Funds, Registered Funds, the BDC or the REIT.

 

(d)           Discretionary Accounts. If a Supervised Person (or any members of such Supervised Person’s Family/Household) has a Discretionary Account, such Supervised Person must complete the Discretionary Account Certification, in the form attached to this Manual as Exhibit I or available through a third-party compliance service provider, no later than 30 calendar days after such Supervised Person joins the Firm or otherwise becomes covered by the Code of Ethics, and annually thereafter. If a Supervised Person (or any members of such Supervised Person’s Family/Household) opens a Discretionary Account after such Supervised Person joins the Firm or otherwise becomes covered by the Code of Ethics, such Supervised Person must complete the Discretionary Account Certification no later than 30 calendar days after such Discretionary Account is opened. In addition, such Supervised Person must provide the Chief Compliance Officer with a copy of the agreement governing the Discretionary Account and obtain or facilitate the Firm’s obtaining of a certification from such Discretionary Account’s third party manager.

 

Generally, a Supervised Person (or any members of such Supervised Person’s Family/Household) has no direct or indirect influence or control where an account is managed by an independent (i.e., no familial or personal relationship to the covered person and no affiliation with the Firm) professional third party investment manager or investment adviser without the advance knowledge, input or consent of the account holder.

 

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A Supervised Person (or any members of such Supervised Person’s Family/Household) may discuss general policy matters with his or her Discretionary Account manager such as, for example, such person’s tolerance for investment risk, overall defensive or aggressive postures, asset allocation by broad categories, tax matters such as tolerance for gains and losses, and cash disbursement requirements for taxes or otherwise. A Supervised Person (or any members of such Supervised Person’s Family/Household) may also instruct his or her Discretionary Account manager to buy, sell (including short sales), and generally trade in, on margin or otherwise, securities or instruments of all types and kinds, or specified types and kinds, so long as the Discretionary Account manager has full discretion over investment decisions. A Discretionary Account manager, however, may not consult with a Supervised Person (or any members of such Supervised Person’s Family/Household), and such person may not provide instructions to his or her Discretionary Account manager, with respect to any specific buy, sell or hold decisions at any time. Such impermissible instructions include suggesting purchases or sales of investments to the Discretionary Account manager, directing purchases or sales of investments by the Discretionary Account manager or consulting with the Discretionary Account manager as to the particular allocation of investments to be made in the account. Such impermissible instructions also include instructions to sell or buy investments when certain trigger events occur, such as a specified price per share.

 

Based on the information received, the Chief Compliance Officer will determine initially and annually that such Supervised Person and members of his or her Family/Household do not have Direct or Indirect Influence or Control over the Discretionary Account.

 

Unless otherwise waived by the Chief Compliance Officer, until the requirements set forth in this section are complied with by a Supervised Person with regards to any of his or her accounts, such accounts will not be treated as Discretionary Accounts and will instead be treated as Personal Accounts.

 

(e)           Limited Clearance. Any approval granted pursuant to clause (a), (b) or (c) above is valid only for the specific securities transaction described to the Firm’s Chief Compliance Officer and only for the remainder of the business day following the grant of such approval or until the date of a Private Placement or Limited Offering. For example, if a Supervised Person wishes to effect another transaction in the same security on the next business day hours after the Chief Compliance Officer’s grant of approval of the original transaction, or a different security of the same issuer on the same business day of the Chief Compliance Officer’s grant of approval of the original transaction, the Supervised Person must again seek and receive approval from the Firm’s Chief Compliance Officer prior to engaging in the subsequent transaction.

 

(f)           Exemptions from Pre-Clearance. Certain types of securities and transactions are exempt from pre-clearance requirements. Examples of these types of securities and transactions include, but are not limited to, shares issued by Franklin Templeton; shares of open-end and closed-end funds (including the FT Funds); shares of ETFs; certain government obligations and transactions effected pursuant to dividend reinvestment plans. Please consult the Chief Compliance Officer for further information about the types of securities and transactions that are exempt from the pre-clearance requirements of this policy.

 

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(g)           “Intent” Is Important. While pre- clearance of Access Persons’ transactions is a cornerstone of the Firm’s compliance efforts, it cannot detect inappropriate or illegal transactions where the intent conflicts with the principles of this policy. Thus, the fact that a proposed transaction received pre-clearance is not a defense against a charge of violating this policy or the securities laws. For example, even if an Access Person received pre-clearance for a transaction, that transaction might constitute front-running if it occurred shortly before a transaction by a Client that the Access Person was aware of. In cases like this, the intent may not be evident when a particular transaction request is analyzed for pre-clearance.

 

15.Insider Trading

 

Policy on Insider Trading. Insider trading, or trading on material non-public information, is against the law and penalties are severe, both for individuals involved in such unlawful conduct and their employers. No Supervised Person may (a) trade, either personally or on behalf of a Client, while in possession of material non-public information, or (b) communicate material non-public information to others.

 

Material non-public information may be obtained by many means, both in connection with a Supervised Person’s job functions (e.g., from meetings with company executives or consultations with expert networks) or independent of the Supervised Person’s employment or relationship with the Firm (e.g., from friends or relatives).

 

Before trading for themselves or others in the securities of a company about which a Supervised Person potentially may have material non-public information, the Supervised Person should consider the following questions:

 

§First, is the information material? Information is considered material if there is a substantial likelihood that a reasonable investor would consider the information to be important in making his or her investment decision, or if it is reasonably certain to have a substantial effect on the price of the company’s securities.

 

§Second, is the information non-public? Information is non-public until it has been effectively communicated to the marketplace. For example, information in a report filed with the SEC, or that appears in a publication of general circulation (e.g., The Wall Street Journal or Reuters) would be considered public. If the information has been obtained from someone who is betraying an obligation not to share the information (e.g., a company insider), that information is very likely to be non-public.

 

If, after consideration of these questions, the Supervised Person believes that the information that they have about a company may be material and non-public, or if the Supervised Person has questions as to whether the information is material or non-public, he or she must report the matter immediately to the Chief Compliance Officer. In addition, the Supervised Person must not purchase or sell any securities issued by such company on behalf of themselves or others, or communicate the information inside or outside the Firm.

 

After review of the facts, the Chief Compliance Officer will provide instructions to the Supervised Person. If the information in the Supervised Person’s possession is determined to be material and non-public, the Supervised Person is required to keep the information confidential and secure. Those securities for which the Supervised Person material non-public information will be placed on restricted trading lists for a timeframe determined by the Compliance Officer.

 

16.Statement on Other Policies and Requirements

 

In addition to this policy, Supervised Persons are required to observe the applicable policies and procedures prescribed in the Code of Ethics, the policies contained in the U.S. and non-U.S. employee handbooks (as applicable), and various other policies adopted by the Firm and Franklin Templeton, as applicable.

 

 - 13 - 

 

 

17.Administration of the Policy, Waivers and Reporting Obligations

 

(a)           Chief Compliance Officer; Reporting to FT Fund Boards. The Chief Compliance Officer is responsible for the administration of this policy and provides oversight of compliance with the personal trading requirements of this policy. Among other things, the Chief Compliance Officer has the authority and responsibility to review this policy periodically, review sanction guidelines for violations of this policy and review trading violations and waivers granted.

 

At least annually, the Franklin Templeton Fund Boards will be provided with a report describing any issues arising under this policy.

 

(b)           Violations of the Policy. A Supervised Person that violates this policy will be sanctioned in a manner commensurate with the violation. Prescribed sanctions range from warning memos for a first time failure to pre-clear a transaction to the immediate sale of positions, disgorgement of profits, personal trading suspensions and other sanctions, up to and including termination and reporting to regulatory authorities for more serious violations.

 

(c)           Waivers of the Policy. The Chief Compliance Officer may, in his or her discretion, waive compliance by any Supervised Person with the provisions of this policy, if he or she finds that such a waiver:

 

(1) is necessary to alleviate undue hardship or in view of unforeseen circumstances or is otherwise appropriate under all the relevant facts and circumstances;

 

(2) will not be inconsistent with the purposes and objectives of this policy;

 

(3) will not adversely affect the interests of the Clients or the interests of Firm; and

 

(4) will not result in a transaction or conduct that would violate provisions of applicable laws or regulations.

 

Any waiver will be in writing and will contain a statement of the basis for it.

 

(d)           Reporting Violations. Supervised Persons are required to report violations of this policy or the related Procedures, whether by themselves or by others.

 

Franklin Templeton is dedicated to providing Supervised Persons with the means and opportunity to report violations of this policy or the related Procedures, or other instances of wrongdoing, or any concerns they may have regarding ethical violations or accounting, internal control or auditing matters, including fraud. Several means are provided by which reports can be made including:

 

Franklin Templeton will not allow retaliation against any Supervised Person who has submitted a report of a violation of this policy or the related Procedures in good faith.

 

 - 14 - 

 

 

 

Exhibit 99.(r)(3)

 

FRANKLIN RESOURCES, INC.

 

CODE OF ETHICS AND BUSINESS CONDUCT

 

This Code of Ethics and Business Conduct (this “Code”) has been adopted by the Board of Directors (the “Board”) of Franklin Resources, Inc. (“Franklin”) in connection with its oversight of the management and business affairs of Franklin.

 

1.Purpose and Overview.

 

(a)Application. This Code is applicable to all officers, directors, employees and temporary employees (each, a “Covered Person”) of Franklin and all of its United States (“U.S.”) and non-U.S. subsidiaries and affiliates, including specialist investment managers (“SIMs”) (Franklin and such entities collectively, the “Company” or “Franklin Templeton”). Many subsidiaries, affiliates and/or business units within the Company, including SIMs, have adopted individual policies and procedures on various topics, including topics covered by this Code, that may be different from and, in some cases, more restrictive than, this Code. Covered Persons must know and comply with any such policies and procedures that apply to them. When this Code conflicts with another Company policy or procedure, Covered Persons must comply with the more restrictive provision.

 

(b)Purpose. This Code summarizes the values, principles and business practices that guide the business conduct of the Company and also provides a set of basic principles to guide Covered Persons regarding the minimum ethical requirements expected of them. This Code supplements the Company’s existing employee policies, including those specified in applicable U.S. or non-U.S. employee handbooks. All Covered Persons are expected to become familiar with this Code and to apply these principles in the daily performance of their jobs.

 

This Code is intended to promote each Covered Person’s awareness of their responsibilities on a variety of legal and ethical issues and to help each Covered Person determine the appropriate course of action under a variety of circumstances. This Code is not intended to cover every ethical issue that a Covered Person may confront while working or serving for the Company, but it sets out basic principles designed to guide Covered Persons in their conduct.

 

(c)Overriding Responsibilities. It is the responsibility of all Covered Persons to maintain a work environment that fosters fairness, respect and integrity. The Company requires all Covered Persons to conduct themselves in a lawful, honest and ethical manner in all of the Company’s business practices. A Covered Person must never compromise these ethics, or even give the appearance that they may have done so.

 

(d)Questions. Covered Persons should contact their supervisor or manager, representatives of Human Resources, their local Legal and Compliance resources, Franklin Templeton’s Legal or Regulatory Compliance groups, or the General Counsel of Franklin, for additional guidance or if there is any question about issues discussed in this Code.

 

 

 

 

(e)Violations. If any Covered Person observes possible unethical or illegal conduct, such concerns or complaints should be reported as set forth in Section 16 below.

 

(f)Definition of Executive Officer. For the purposes of this Code, the term “Executive Officer” shall mean those officers, as shall be determined by the Board from time to time, who are subject to the reporting obligations of Section 16(a) of the Securities Exchange Act of 1934, as amended.

 

(g)Definition of Director. For purposes of this Code, the term “Director” shall mean a member of the Board.

 

(h)Definition of Government Agency. For purposes of this Code, the term “Government Agency” includes any U.S. or non-U.S. national, federal, provincial, regional, state, or local government agency, commission or legislative body, or self-regulatory organization, including, by way of representative example only, any securities, financial, employment and labor regulators.

 

2.           Compliance with Laws, Rules and Regulations. The Company operates in a highly regulated industry. While a Covered Person is not expected to be an expert on all applicable laws and regulations, each Covered Person is expected to know the laws and regulations well enough to recognize when an issue arises and to seek the advice of their local Legal and Compliance resources for support. All Covered Persons of the Company are required to comply with all of the applicable laws, rules and regulations of the U.S. and other countries, and the states, counties, cities and other jurisdictions, in which the Company conducts its business, although traffic violations and other minor offenses will not be considered violations of this Code. Local laws may in some instances be less restrictive than the principles set forth in this Code. In those situations, Covered Persons should comply with this Code, even if the conduct would otherwise be legal under applicable local laws. On the other hand, if local laws are more restrictive than this Code, Covered Persons should comply with applicable local laws. Further, any provision of this Code that is contrary to law in a particular jurisdiction will have no force or effect in that jurisdiction solely with respect to such provision(s), although this Code (including any such provision) will remain applicable in all other jurisdictions.

 

3.Securities Transactions.

 

(a)Insider Trading. Material non-public information is often referred to as inside information. Covered Persons must comply with applicable insider trading laws and Company insider trading policies that prohibit Covered Persons from trading securities, or encouraging others to trade securities, or recommending securities, either personally or on behalf of others, while in possession of applicable material non-public information or communicating such material non-public information to others in violation of the law. Securities include common stocks, bonds, options, futures and other financial instruments. Material information includes any information that a reasonable investor would consider important in a decision to buy, hold, or sell securities, or any information that could reasonably be expected to affect the price of such securities. Information about an issuer is non-public if it has not been publicly disclosed or released. In addition, sharing inside information with another person who buys or sells securities is known as “tipping” and is illegal, even if there is no personal pecuniary benefit. Applicable insider trading laws provide substantial civil and criminal penalties for companies and individuals who fail to comply. Insider trading restrictions are described in more detail in applicable Company insider trading policies, various Company employee handbooks and compliance policies. In addition, the Company has implemented trading restrictions to reduce the risk, or appearance, of insider trading.

 

 

 

(b)Rule 10b5-1(c) Plans. The Company may permit exemptions from the insider trading policies and procedures described above for transactions in securities issued by Franklin effected pursuant to pre-approved, written trading plans or arrangements complying with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended. Rule 10b5-1(c) plans or arrangements may not be entered into or modified either during trading blackout periods or when the Covered Person is aware of material, non-public information relating to Franklin or its securities. All such plans or arrangements (and any modification or termination thereof) must be pre-approved by the General Counsel of Franklin (or such person’s designee).

 

(c)Rumors. The dissemination of false or misleading information about companies or securities, particularly in volatile or fragile market conditions, can be a damaging form of market abuse, which can affect both the firm concerned as well as general market conditions. It is against the law to start or circulate a rumor (defined as “information that is circulated purporting to be fact but which has not yet been verified”) if that rumor is likely to influence the market price of that security or that a reasonable person would expect to have a material effect on the price of a security if it were widely circulated. Starting or disseminating any rumor with the intention of influencing the price movement of a security is a breach of this Code and may also constitute a violation of securities laws.

 

(d)Short Sales. Covered Persons are prohibited from effecting short sales, including “short sales against the box” of securities issued by Franklin and securities issued by any closed-end fund sponsored or advised by the Company. Also prohibited are economically equivalent transactions, whether in the form of call or put options, swap transactions or other derivative transactions, that would result in a Covered Person having a net short exposure to Franklin or any closed-end fund sponsored or advised by the Company.

 

(e)Short-term Trading. Covered Persons must comply with the Frequent Trading Policy described in the prospectus of each fund in which they invest and must not engage in trading activity that violates that policy. Accordingly, Covered Persons must not engage in any short-term or excessive trading in funds. Violations are subject to discipline, up to and including termination of employment and permanent suspension of such person’s ability to purchase shares in any funds.

 

 

 

(f)Pledged Securities.

 

(i)Unless otherwise previously approved by the Company’s Compensation Committee, Directors and Executive Officers are prohibited from directly or indirectly pledging, hypothecating or otherwise encumbering securities issued by Franklin as collateral for indebtedness. This prohibition includes, but is not limited to, holding such securities in a margin account that could cause securities issued by Franklin to be subject to a margin call or serve as collateral for a margin loan. Securities issued by Franklin which were not received by the Director or Executive Officer as compensation are not subject to this prohibition, provided that the pledge of such securities does not cause the holder to be out of compliance with applicable Stock Ownership Guidelines.

 

(ii)If any person has subject securities issued by Franklin pledged as collateral or held in a margin account when such person becomes a Director or Executive Officer, the pledge must be released within one year from the date the person becomes a Director or Executive Officer.

 

(iii)Any pledged securities under this provision shall remain subject to Franklin’s Trading Blackout Policy.

 

(g)Questions Regarding Securities Transactions. All questions regarding insider trading or reports of impropriety in connection with securities transactions should be directed to Franklin Templeton’s Regulatory Compliance group or through the applicable local Legal and Compliance resources. See also Section 16 below.

 

4.Conflicts of Interest.

 

(a)Avoidance of Conflicts. All Covered Persons are required to conduct themselves in a manner and with such ethics and integrity so as to avoid a conflict of interest, either real or apparent.

 

(b)Conflict of Interest Defined. A conflict of interest is any circumstance where an individual’s personal interest interferes with the interests of the Company. All Covered Persons have a duty to avoid financial, business or other relationships that might be opposed to the interests of the Company or might cause a conflict with the performance of their duties.

 

(c)Potential Conflict Situations. A conflict can arise when a Covered Person takes actions or has interests that may make it difficult to perform their Company-related work objectively and effectively. Conflicts also may arise when a Covered Person, or a member of their family, receives improper personal benefits as a result of their position in the Company.

 

 

 

(d)Examples of Potential Conflicts. Some of the areas where a conflict could arise include:

 

(i)Employment by a competitor, regardless of the nature of the employment, while employed by the Company.

 

(ii)Placement of business with any firm or organization in which a Covered Person, or any member of the Covered Person’s family, has a substantial ownership interest or management responsibility.

 

(iii)Making endorsements or testimonials for third parties.

 

(iv)Processing a transaction on the Covered Person’s personal account(s), or their friends’ or family members’ account(s), through the Company’s internal systems without first submitting the transaction request to the Company’s Customer Service Center.

 

(v)Disclosing the Company’s confidential information to a third party (other than as permitted in accordance with Section 9 below) without the prior consent of senior management.

 

(e)Questions Regarding Conflicts. All questions regarding conflicts of interest and whether a particular situation constitutes a conflict of interest should be directed to Franklin Templeton’s Regulatory Compliance group or through the applicable local Legal and Compliance resources. See also Section 16 below.

 

5.            Corporate Opportunities. Covered Persons are prohibited from (i) taking for themselves opportunities that are discovered through the use of Company property, information or position, (ii) using Company property, information or position for personal gain, and/or (iii) competing with the Company. For example, to the extent that a Covered Person learns of an investment opportunity because of their position with the Company, the Covered Person must not disadvantage fund or client accounts by personally taking advantage of the trading opportunity.

 

6.Gifts, Entertainment and Contributions.

 

(a)Receipt of Gifts and Entertainment. The Company’s aim is to deter providers of gifts or entertainment from seeking or receiving special favors from Covered Persons in connection with activities performed by or for, or business relationships established with, the Company. The concern is that gifts of more than a nominal value may cause Covered Persons to feel placed in a position of “obligation” and/or give the appearance of a conflict of interest. Covered Persons should not solicit any third party for any gift, gratuity, entertainment or any other item regardless of its value. Covered Persons, including members of their immediate families, may accept or participate in “reasonable entertainment.” Covered Persons are encouraged to be guided by their own sense of ethical responsibility, along with any policies or guidelines adopted from time to time by the Company with respect to gifts and entertainment. This Section 6 is not intended to limit Directors who do not also serve in management positions within the Company from accepting compensation, bonuses, fees and other similar consideration paid in the normal course of business as a result of their outside business activity, employment or directorships.

 

 

 

(b)Anti-Corruption. All Covered Persons are strictly prohibited from offering or giving gifts, meals or entertainment to business partners or others (including government officials, government employees, certain other government-related entities and persons, and certain family members of the foregoing) in order to improperly influence them. Covered Persons should consult the Company’s Anti-Corruption Policy before providing gifts or other items of value, including entertainment and travel, to others and should seek to avoid even the appearance of any impropriety. Covered Persons should be aware that practices that may be acceptable in the commercial business environment (such as providing certain transportation, meals, entertainment and other things of value) may be unacceptable and even illegal when they involve government officials, government employees, certain other government-related entities and persons, or certain family members of the foregoing, or others who act on behalf of government entities or persons. Therefore, Covered Persons are required to comply with the relevant laws and regulations governing relations between government officials, government employees and related entities or persons, on the one hand, and customers and suppliers, on the other hand, in every country where the Company conducts business.
   
  Additional information regarding anti-corruption can be found in the Company’s Anti-Corruption Policy. In addition to these responsibilities, Covered Persons should also remember that a number of the Company’s subsidiaries, affiliates and/or business units have specific policies and procedures relating to the prevention of money laundering. Covered Persons must know and comply with any such policies and procedures that apply to them.

 

(c)Political Contributions.

 

(i)Election laws in many jurisdictions generally prohibit political contributions by corporations to candidates. Many local laws also prohibit corporate contributions to local political campaigns. In accordance with these laws, the Company does not make direct contributions to any candidates for federal, state or local offices where applicable laws make such contributions illegal and, in such cases, contributions to political campaigns must not be made with or reimbursed by the Company’s funds or resources. The Company’s resources include, but are not limited to, the Company’s facilities, office supplies, letterhead, computer equipment, telephones and fax machines.
   
  Political contributions by the Company are subject to restriction and require prior approval by designated members of senior management within the Company.

 

 

 

(ii)Employee’s personal political contributions also may be restricted by U.S. and non-U.S. federal, state or local election laws. For certain employees associated with U.S.-registered investment advisers, political contributions are highly restricted and require prior approval and reporting. Employees of regulated entities such as investment advisers or broker/dealers should look to their specific policies and procedures and/or ask their relevant local Legal and Compliance resources for further guidance. The Legal and Compliance resources should escalate applicable questions and concerns regarding political contributions to Franklin Templeton’s Regulatory Compliance group as necessary.

 

7.Outside Employment/Business Activities.

 

(a)Restrictions. Subject to any applicable departmental or other restrictions, Covered Persons are permitted to engage in outside employment/outside business activity (“Outside Activity”) if it is free of any actions that could be considered a conflict of interest in accordance with the Company’s applicable requirements, policies and processes. Outside Activity must not adversely affect a Covered Person’s job performance at the Company, and Outside Activity must not result in absenteeism, tardiness or a Covered Person’s inability to work overtime when requested or required. Covered Persons may not engage in Outside Activity that requires or involves using Company time, materials, resources, trademarks, intellectual property, or confidential or other proprietary information or data.

 

(b)Self-Employment. For purposes of this Code, Outside Activity includes self-employment.

 

(c)Required Approvals. Due to the fiduciary nature of the Company’s business, there may be potential conflicts of interest that could result from a Covered Person’s Outside Activity. Employees should look to their local policies and/or ask their relevant Legal and Compliance resources or Human Resources for further guidance prior to entering any Outside Activity.

 

(d)Outside Directors Exempt. This Section 7 is not applicable to Directors who do not also serve in management positions within the Company.

 

8.             Service as a Director. Covered Persons may not serve as a director, trustee, or in a similar capacity for any for-profit public entity, without approval of an Executive Officer and the Head of Franklin Templeton’s Regulatory Compliance group, or their respective designees. Covered Persons who are interested in serving on a board of directors, as a trustee or in a similar capacity should, in the first instance, consult with their relevant local Legal and Compliance resources and review and comply with other policies that may apply. This Section 8 is not applicable to Directors who do not also serve in management positions within the Company.

 

 

 

9.Confidential Information Obligations.

 

(a)Confidentiality. Covered Persons are responsible for maintaining the confidentiality of information entrusted to them as a result of their roles with the Company, except when disclosure is authorized or legally mandated. The sensitive nature of the investment business requires that Covered Persons be continuously aware of the confidential nature of the information to which they may have access.
   
  As a result of employment or service with the Company, a Covered Person may produce, receive, or become acquainted with the confidential information or trade secrets of the Company, information the Company has received from others that the Company is required to treat as confidential, including information concerning the Company’s employees, stockholders, clients, customers, business partners, and mutual fund shareholders and other product investors, and other commercially sensitive information the privacy, confidentiality, and secrecy of which is valued by the Company (collectively, “Confidential Information”). Each Covered Person must comply with all applicable Company policies concerning confidentiality and/or public statements, as they may be amended from time to time.

 

(b)What Is Included in Confidential Information. Confidential Information includes, without limitation, non-public corporate and mutual fund and other product: financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data, and pricing lists or schedules; client and business prospect identities and information (including but not limited to financial advisors and consultants and sales information); marketing strategies and methods; market analyses or projections; products, services, and the pricing for same; business plans, strategies, methods, templates, models, policies and procedures; software, databases, hardware configurations, or other technology or tools created, developed or compiled by the Company; formulas, discoveries, inventions, designs, improvements, concepts and ideas; client, supplier, or other third party confidential and/or proprietary information received in confidence by the Company, and any information that may be subject to non-disclosure or confidentiality agreements between the Company and said parties; any confidential and privileged legal advice given to the Company, which legal privilege belongs to the Company; applicant and employee private or otherwise protected information or data obtained by a Covered Person in connection with the Covered Person’s employment or service with the Company, including, but not limited to, personal information contained in applications and resumes submitted to the Company and in Company performance evaluations, and Company termination information and agreements not otherwise available outside of the Company; the Company’s internal reporting or organizational structure information and personnel lists; and the Company’s compensation structure and formula information (except with respect to a Covered Person’s own compensation amount) for any business purpose competitive to the Company.
   
  Nothing herein is intended to prohibit, limit, or dissuade (or create or suggest any understanding of a Covered Person’s rights that would prohibit, limit, or dissuade) a Covered Person from engaging in activities protected by applicable law, including under U.S. federal or state law, such as the National Labor Relations Act or under any similar laws in other jurisdictions, for example by communicating with fellow employees or others about their wages, hours, workplace complaints, benefits or other terms of employment.

 

  Confidential Information shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company, the Company’s employees, or the Company’s business partners, stockholders, clients, mutual fund shareholders or other product investors.

 

 

 

(c)Disclosure Restrictions. Except as provided in Section 9(e) below, both during a Covered Person’s employment or service with the Company (except where use and/or disclosure is required and authorized in connection with the Covered Person’s enumerated job duties to third parties with confidentiality obligations to the Company) and after a Covered Person’s employment or service with the Company ends for any reason, a Covered Person must: (i) keep the Confidential Information confidential; (ii) not disclose any Confidential Information to any non-governmental third parties, including without limitation any former Company employees, without the prior consent of senior management; and (iii) not use Confidential Information for the Covered Person’s personal benefit or for the benefit of any third party.

 

(d)Continuing Obligations. The obligations under this Code shall: (i) with regard to Confidential Information, remain in effect for so long as such information constitutes Confidential Information as defined in this Code; and (ii) with regard to any trade secret specifically, remain in effect for as long as such information constitutes a trade secret as defined by applicable law.

 

(e)Exception For Disclosure to a Government Agency. Nothing in this Code shall limit or interfere with a Covered Person’s right to file a charge or complaint with any Government Agency or ability, without notice to or authorization from the Company, to communicate with any Government Agency for the purpose of reporting a reasonable belief that a possible violation of law has occurred or may occur, or to participate, cooperate, provide information or cause information to be provided (including documents) or testify in any inquiry, investigation, proceeding or action that may be conducted by any Government Agency.

 

(f)Responding to Legal Process. Separately, to the extent a Covered Person receives any subpoena, court order, or other legal process issued in any private litigation or arbitration regarding any matter or action involving the Company, then to the extent permitted by law or regulation, the Covered Person shall, before providing any Confidential Information, give prompt prior written notice to the Company’s General Counsel, or to the Covered Person’s local Legal and Compliance resources who will then escalate to Franklin Templeton’s Legal or Regulatory Compliance groups as necessary in order to provide the Company with a reasonable opportunity to take appropriate steps to protect its Confidential Information to the fullest extent possible.

 

(g)Acknowledgments. Upon request, all Covered Persons of the Company are expected to sign an agreement or acknowledgment regarding the confidentiality terms set forth herein, including from time to time as the Company may amend its confidentiality provisions.

 

 

 

10.Ownership of Intellectual Property.

 

(a)Company Ownership. The Company owns all Intellectual Property, as defined below, in all of the works and inventions created or made by a Covered Person at and/or for the Company, whether partial or completed. A Covered Person shall hold on trust for, and is obligated to assign to, the Company all Intellectual Property that does not by operation of law in any specific jurisdiction automatically vest in the Company, in any works or inventions that the Covered Person creates or develops, alone or with others, while working for the Company.

 

(b)What Is Included in Intellectual Property. “Intellectual Property” includes all trademarks and service marks, trade secrets, patents and patent subject matter and inventor rights in the U.S. and foreign countries and related applications. It includes all U.S. and foreign copyrights and subject matter and all other literary property and author rights, whether or not copyrightable. It includes all creations, not limited to inventions, discoveries, developments, works of authorship, ideas and know-how. It does not matter whether or not the Company can protect them by patent, copyright, trade secrets, trade names, trade or service marks or other intellectual property right. It also includes all materials containing any intellectual property. These materials include but are not limited to flash drives and other electronic media storage devices now known or hereafter developed, electronic files, printouts, notebooks, drawings, artwork and other record types, media, or documentation. To the extent applicable, non-trade secret intellectual property constitutes a “work made for hire” owned by the Company.

 

(c)Exceptions. The Company will not be considered to have a proprietary interest in a Covered Person’s work product if: (i) the work product is developed entirely on the Covered Person’s own time without the use or aid of any Company resources, including without limitation, equipment, supplies, facilities, or Confidential Information; (ii) the work product does not result from the Covered Person’s employment with the Company; and (iii) at the time a Covered Person conceives or reduces the creation to practice, it is neither related to the Company’s business nor the Company’s actual or expected research or development.

 

(d)Required Disclosure and Cooperation. Upon request, a Covered Person must promptly disclose in writing to the Company, including through their local Human Resources or Legal resources, all Intellectual Property conceived or developed while working for the Company. To the extent not otherwise covered by the power of attorney required to be granted to the Company in accordance with Section 10(f) below, if requested, a Covered Person must sign all documents necessary to memorialize the Company’s ownership of Intellectual Property under and in accordance with this Code, including, but not limited to, assignments and patent, copyright and trademark applications. A Covered Person must take any other actions reasonably required by the Company to accomplish the assignment contemplated in this section, and to assist the Company in any registration, perfection, or enforcement of such assigned rights.

 

10 

 

 

(e)Prior Inventions. A Covered Person is not conveying any rights to Intellectual Property that the person may have made, conceived, or first reduced to practice before the person’s employment or service with the Company of which the person has provided written notice to the Company.

 

(f)Acknowledgments, Powers of Attorney and Waiver of Moral Rights. Upon request, all Covered Persons of the Company are expected to sign an agreement or acknowledgment regarding the intellectual property terms set forth herein, including from time to time as the Company may amend its intellectual property provisions. Upon request, all employees are expected to (i) execute powers of attorney in favor of the Company to have the Company execute on the person’s behalf all applications, specifications, oaths, assignments and all other instruments that the Company shall deem necessary in order to apply for them and obtain such rights and in order to assign and convey to the Company and its successors, assigns and nominees sole and exclusive rights, title and interest in and to such Intellectual Property and/or rights relating thereto; and (ii) waive all applicable moral rights under the United Kingdom Copyright, Designs and Patents Act 1988 (and all similar rights in other jurisdictions) that the person has or will have in any existing or future Intellectual Property referred to in this Section 10.

 

11.          Fair Dealing. The Company seeks to succeed through superior performance, service, diligence, effort and knowledge, and not through any unfair advantage. Each Covered Person should deal fairly and in good faith with the Company’s customers, suppliers, competitors and Covered Persons and not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice.

 

12.          Protection and Use of Company Property. Each Covered Person is responsible for safeguarding the Company’s assets and properties under their control. All Covered Persons should ensure that the Company’s assets are used for legitimate business purposes. Improper use includes unauthorized personal appropriation or use of the Company’s assets, data or resources, including computer equipment, software and information.

 

13.Standards of Business Conduct.

 

(a)Respectful Work Environment. The Company is committed to fostering a work environment in which all individuals are treated fairly and with respect and dignity. Each individual should be permitted to work in a business-like atmosphere that promotes equal employment opportunities.

 

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(b)Prohibited Conduct. The following conduct will not be tolerated and could result in disciplinary action, including termination:

 

(i)Any act which causes doubt about a Covered Person’s integrity, such as the falsifying of Company records and documents, competing in business with the Company, unauthorized use or disclosure of the Company’s Confidential Information, or engaging in any criminal conduct.

 

(ii)Any act which may create a dangerous situation, such as carrying weapons, firearms or explosives on Company premises or surrounding areas, assaulting another individual, or disregarding property and safety standards.

 

(iii)The use, sale or purchase or attempted use, sale or purchase of alcohol, unless at a Company-sponsored or approved event, or illegal drugs while at work, or reporting to work in a condition not fit for work, such as reporting to work under the influence of alcohol or illegal drugs.

 

(iv)Insubordination, including refusal to perform a job assignment or to follow a reasonable request from a Covered Person’s supervisor or manager, or discourteous conduct toward customers, associates, or supervisors or managers.

 

(v)Harassment of any form including threats, intimidation, abusive behavior and/or coercion of any other person in the course of doing business.

 

(vi)Falsification or destruction of any timekeeping record, intentionally clocking in on another Covered Person’s attendance or timekeeping record, assisting another Covered Person’s tampering with their attendance record or tampering with one’s own attendance record.

 

(vii)Failure to perform work that meets the standards/expectations of the Covered Person’s position.

 

(viii)Excessive unauthorized absenteeism, chronic tardiness, or consecutive absence of three or more days without notification or authorization.

 

(ix)Any act of dishonesty or falsification of any Company records or documents, including obtaining employment based on false, misleading, or omitted information.

 

(c)Disciplinary Action. A Covered Person or the Company may terminate the employment or service relationship at will, at any time, without cause or advance notice (except as may be agreed to in writing or required by law). Thus, the Company does not strictly adhere to a progressive disciplinary system in connection with misconduct by a Covered Person given each incident of misconduct may have a different set of circumstances or differ in its severity. The Company will take such disciplinary action as it deems appropriate and commensurate with any misconduct of the Covered Person.

 

(d)Covered Persons are also subject to any standards of business conduct of the particular subsidiary, affiliate or business unit in which they work, which may be different from, and more restrictive than, this Code.

 

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14.Disclosure in Reports and Documents.

 

(a)Filings and Public Materials. Any Covered Person involved in the preparation or review of materials that are filed or disseminated to the public must use caution to ensure that the information in the materials is truthful and accurate in all material respects. It is important that the Company’s filings with Government Agencies are full, fair, accurate, timely and understandable. The Company also makes many filings with Government Agencies on behalf of the funds that its subsidiaries and affiliates manage. Further, the Company prepares mutual fund account statements, client investment performance information, prospectuses and advertising materials that are sent out to its mutual fund shareholders and clients.

 

(b)Disclosure and Reporting Policy. Each Covered Person is responsible for ensuring the accuracy and completeness of any business information, reports and records under their control. The Company’s policy is to comply with all disclosure, financial reporting and accounting regulations applicable to the Company. The Company maintains the highest commitment to its disclosure and reporting requirements, and expects all Covered Persons to record information accurately and truthfully in the books and records of the Company.

 

(c)Information for Filings. Depending on their position with the Company, a Covered Person may be called upon to provide necessary information to ensure that the Company’s public reports and regulatory filings are full, fair, accurate, timely and understandable. The Company expects all Covered Persons to be diligent in providing accurate information to the inquiries that are made related to the Company’s public disclosure requirements.

 

(d)Disclosure Controls and Procedures and Internal Control Over Financial Reporting. Covered Persons are required to cooperate and comply with the Company’s disclosure controls and procedures and internal control over financial reporting so that the Company’s reports and documents filed with Government Agencies comply in all material respects with applicable laws, rules and regulations, and provide full, fair, accurate, timely and understandable disclosure.

 

15.Accountability for Adherence to this Code.

 

(a)Honesty and Integrity. The Company is committed to upholding ethical standards in all of its corporate and business activities. All Covered Persons are expected to perform their work with honesty, truthfulness and integrity and to comply with the general principles set forth in this Code. Covered Persons are also expected to perform their work with honesty and integrity in any areas not specifically addressed by this Code.

 

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(b)Disciplinary Actions. A violation of this Code may result in appropriate disciplinary action including the possible termination from employment with the Company. Nothing in this Code restricts the Company from taking any disciplinary action on any matters pertaining to the conduct of a Covered Person, whether or not expressly set forth in this Code.

 

(c)Annual Certifications. Directors and Executive Officers will be required to certify annually, on a form to be provided by Franklin Templeton’s Regulatory Compliance group, that they have received, read and understand this Code and have complied with the requirements of this Code.

 

(d)Training and Educational Requirements.

 

(i)Orientation. New Covered Persons will receive a copy of this Code during the orientation process conducted by representatives of Human Resources or as part of integration activities in connection with Company acquisitions and shall acknowledge that they have received, read and understand this Code and will comply with the requirements of this Code.

 

(ii)Continuing Education. Covered Persons shall be required to complete such additional training and continuing education requirements regarding this Code and matters related to this Code as the Company shall from time to time establish.

 

16.Reporting Violations of this Code.

 

(a)Questions and Concerns. Described in this Code are procedures generally available for addressing ethical issues that may arise. As a general matter, if a Covered Person has any questions or concerns about compliance with this Code, they are encouraged to speak with their supervisor or manager, representatives of Human Resources, Company Ombudsman, their local Legal and Compliance resources, Franklin Templeton’s Legal or Regulatory Compliance groups, or the General Counsel of Franklin.

 

(b)Compliance and Ethics Hotline. If a Covered Person does not feel comfortable talking to any of the persons or resources listed above for any reason, they may call their applicable Company Compliance and Ethics Hotline. (Telephone numbers for applicable Compliance and Ethics Hotlines are located on the Intranet website of the Company and/or individual subsidiaries.) If a Covered Person does not feel comfortable stating their name, calls to any Company Compliance and Ethics Hotline may be made anonymously.

 

(c)Responsibility to Report Violations of this Code and Law. As part of its commitment to ethical and lawful conduct, the Company strongly encourages Covered Persons to promptly report any suspected violations of this Code or law. Covered Persons have multiple avenues for reporting such matters, including through the Company Ombudsman, their local Legal and Compliance resources, or to Franklin Templeton’s Legal or Regulatory Compliance groups.

 

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(d)Confidentiality and Investigation. The Company will treat the information set forth in a report of any suspected violation of this Code or law, including the identity of the caller, in a confidential manner and will conduct a prompt and appropriate evaluation and investigation of any matter reported. Covered Persons are expected to cooperate in any investigations of reported violations.

 

(e)Protection of Covered Persons. It is a violation of this Code to retaliate against anyone for reporting to the Company information that such person reasonably and in good faith believes constitutes a violation of this Code or that is otherwise illegal or unethical, or for participating in an investigation of such a report. It is also a violation of this Code to retaliate against anyone who has communicated with any Government Agency in accordance with Section 9(e) above. A Covered Person may not be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment on account of having provided the Company with information about, or otherwise assisted the Company in any investigation regarding, any conduct that the Covered Person reasonably and in good faith believes constitutes a violation of this Code or is otherwise illegal or unethical. Equally, a Covered Person may not be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment because the Covered Person communicated with a Government Agency in accordance with Section 9(e) above.

 

(f)Accounting/Auditing Complaints. The law requires that the Company’s Audit Committee have in place procedures for the receipt, retention and treatment of complaints concerning accounting, internal accounting controls, or auditing matters and procedures for Covered Persons to submit their concerns regarding questionable accounting or auditing matters.
   
  Complaints concerning accounting, internal accounting controls or auditing matters will be directed to the attention of the Audit Committee, or the appropriate members of that committee. For direct access to the Company’s Audit Committee, please address complaints regarding accounting, internal accounting controls, or auditing matters to:
   
  Audit Committee
Franklin Resources, Inc.
One Franklin Parkway
San Mateo, California 94403
   
  Complaints or concerns regarding accounting or auditing matters may also be made to the applicable Compliance and Ethics Hotline. (Telephone numbers for the applicable Compliance and Ethics Hotline are located on the Intranet website of the Company and/or individual subsidiaries.) If a Covered Person does not feel comfortable stating his or her name, calls to the Compliance and Ethics Hotline may be made anonymously.

 

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17.Waivers of this Code.

 

(a)Waivers by Directors and Executive Officers. Any change in or waiver of this Code for Directors or Executive Officers may be made only by the Board or a committee thereof in the manner described in Section 17(d) below, and any such waiver (including any implicit waiver) shall be promptly disclosed to stockholders of Franklin to the extent required by the applicable laws, rules and regulations of any Government Agency.

 

(b)Waivers by Other Covered Persons. Any requests for waivers of this Code for Covered Persons other than Directors and Executive Officers may be made to Franklin Templeton’s Regulatory Compliance group in the manner described in Section 17(e) below.

 

(c)Definition of Waiver. For the purposes of this Code, the term “waiver” shall mean a material departure from a provision of this Code. An “implicit waiver” shall mean the failure of the Company to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to an Executive Officer.

 

(d)Manner for Requesting Director and Executive Officer Waivers.

 

(i)Request and Criteria. If a Director or Executive Officer wishes to request a waiver of this Code, the Director or Executive Officer may submit to Franklin Templeton’s Regulatory Compliance group a written request for a waiver of this Code only if they can demonstrate that such a waiver:

 

(A)is necessary to alleviate undue hardship or in view of unforeseen circumstances or is otherwise appropriate under all the relevant facts and circumstances;

 

(B)will not be inconsistent with the purposes and objectives of this Code;

 

(C)will not adversely affect the interests of clients of the Company or the interests of the Company; and

 

(D)will not result in a transaction or conduct that would violate provisions of applicable laws or regulations.

 

(ii)Discretionary Waiver and Response. Franklin Templeton’s Regulatory Compliance group will forward the waiver request to the Board or a committee thereof for consideration. Any decision to grant a waiver from this Code shall be at the sole and absolute discretion of the Board or committee thereof, as appropriate. The Secretary of Franklin will advise Franklin Templeton’s Regulatory Compliance group in writing of the Board’s decision regarding the waiver, including the grounds for granting or denying the waiver request. Franklin Templeton’s Regulatory Compliance group shall promptly advise the Director or Executive Officer in writing of the Board’s decision.

 

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(e)Manner for Requesting Other Covered Person Waivers.

 

(i)Request and Criteria. If a Covered Person who is a non-Director and non-Executive Officer wishes to request a waiver of this Code, the Covered Person may submit to Franklin Templeton’s Regulatory Compliance group a written request for a waiver of this Code only if they can demonstrate that such a waiver would satisfy the same criteria set forth in Section 17(d).

 

(ii)Discretionary Waiver and Response. The Head of Franklin Templeton’s Regulatory Compliance group (or their designee) shall, after appropriate consultation with the applicable business unit head, forward the waiver request to the General Counsel of Franklin for consideration. The decision to grant a waiver request shall be at the sole and absolute discretion of the General Counsel of Franklin. The General Counsel will advise Franklin Templeton’s Regulatory Compliance group in writing of their decision regarding the waiver, including the grounds for granting or denying the waiver request. Franklin Templeton’s Regulatory Compliance group shall promptly advise the Covered Person in writing of the General Counsel’s decision.

 

18.          Internal Use. This Code is intended solely for the internal use by the Company and does not constitute an admission, by or on behalf of the Company, as to any fact, circumstance, or legal conclusion.

 

19.          Other Policies and Procedures. The following nonexclusive list of policies and procedures adopted by the Company or entities within the Company provide additional requirements that, depending upon the specific terms of such policies and procedures and the applicable subsidiary, affiliate or business unit involved, may apply to a Covered Person:

 

·Franklin Resources, Inc. Anti-Corruption Policy

 

·Franklin Templeton Corporate Policy on Public and Media Communications

 

·Franklin Resources, Inc. Trading Blackout Policy

 

·Franklin Templeton Investments Employee Service as an Outside Director Policy

 

·Franklin Templeton Outside Employment/Business Activities Policy and Procedures

 

·Franklin Templeton Personal Investments and Insider Trading Policy

 

·Franklin Templeton Policy for Reporting and Investigation of Suspected Dishonest or Fraudulent Conduct

 

·Franklin Templeton Social Media Compliance Policy and Procedures

 

In addition, individual subsidiaries, affiliates and business units within the Company, including SIMs, may have their own applicable policies with which their respective employees are required to comply.

 

  Last approved by the Board on June 29, 2021.

 

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