81 FR 17741 - NexPoint Capital, Inc., et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 61 (March 30, 2016)

[Federal Register Volume 81, Number 61 (Wednesday, March 30, 2016)]
[Notices]
[Pages 17741-17746]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-07101]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32048; File No. 812-14430]


NexPoint Capital, Inc., et al.; Notice of Application

March 24, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(d) and 
section 57(i) of the Investment Company Act of 1940 (the ``Act'') and 
rule 17d-1 under the Act to permit certain joint transactions otherwise 
prohibited by section 17(d) and section 57(a)(4) of the Act and rule 
17d-1 under the Act.

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Summary of Application: Applicants request an order to permit a 
business development company (``BDC'') and a closed-end management 
investment company to co-invest in portfolio companies with each other 
and with certain affiliated investment funds.

Applicants: NexPoint Capital, Inc. (``NexPoint Capital''), NexPoint 
Credit Strategies Fund (``NHF'') (each of NexPoint Capital and NHF, an 
``Existing Investment Company'' and collectively, the ``Existing 
Investment Companies''), NexPoint Advisors, L.P. (``NexPoint 
Advisors''), Highland Multi Strategy Credit Fund, L.P. (``HMSCF'') and 
Highland Capital Healthcare Partners (Master), L.P. (``HCHP'' and, 
collectively with HMSCF, the ``Existing Private Funds''), Highland 
Capital Management, L.P., Highland Capital Healthcare Advisors, L.P. 
and Acis Capital Management, L.P. (each, a ``Current Adviser to Private 
Funds'' and, collectively, the ``Current Advisers to Private Funds,'' 
and, the Current Advisers to Private Funds collectively with the 
Existing Investment Companies, NexPoint Advisors and the Existing 
Private Funds, the ``Applicants'').

[[Page 17742]]


Filing Dates: The application was filed on March 6, 2015 and amended on 
August 28, 2015, December 21, 2015, March 11, 2016, and March 18, 2016.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 18, 2016, and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
St. NE., Washington, DC 20549-1090. Applicants: 300 Crescent Court, 
Suite 700, Dallas, Texas 75201.

FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 
551-6819, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Chief Counsel's Office).

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

Applicants' Representations

    1. NexPoint Capital, a Delaware corporation, is an externally 
managed, non-diversified, closed-end management investment company that 
has elected to be regulated as a BDC under the Act.\1\ NexPoint 
Capital's investment objective is to generate current income and 
capital appreciation primarily through investments in middle-market 
healthcare companies, middle-market companies in non-healthcare 
sectors, syndicated floating rate debt of large nonpublic and public 
companies and collateralized loan obligations. NexPoint Capital's board 
of directors currently consists of six members, five of whom are not 
``interested persons'' of NexPoint Capital within the meaning of 
section 2(a)(19) of the Act (the ``Independent Directors'').
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. NHF, a Delaware statutory trust, is an externally managed, non-
diversified, closed-end management investment company registered under 
the Act. NHF's investment objective is to generate current income and 
capital appreciation primarily through investments in: (i) Secured and 
unsecured floating and fixed rate loans; (ii) bonds and other debt 
obligations; (iii) debt obligations of stressed, distressed and 
bankrupt issuers; (iv) structured products, including but not limited 
to, mortgage-backed and other asset-backed securities and 
collateralized debt obligations; and (v) equities. NHF's board of 
trustees currently consists of six members, five of whom are not 
``interested persons'' of NHF within the meaning of section 2(a)(19) of 
the Act (the ``Independent Trustees'').
    3. NexPoint Advisors, a Delaware limited partnership, is registered 
under the Investment Advisers Act of 1940 (``Advisers Act'') and is the 
investment adviser of NexPoint Capital and NHF.
    4. The Existing Private Funds are entities formed under the laws of 
Delaware or under the laws of the Cayman Islands. In reliance on the 
exclusion from the definition of ``investment company'' provided by 
section 3(c)(1) or 3(c)(7) of the Act, neither of the Existing Private 
Funds will be registered under the Act. Highland Capital Management, 
L.P., registered as an investment adviser under the Advisers Act, 
serves as the investment adviser to HMSCF, and Acis Capital Management, 
L.P., registered as an investment adviser under the Advisers Act, 
serves as the investment sub-adviser to HMSCF. Highland Capital 
Healthcare Advisors, L.P., registered as an investment adviser under 
the Advisers Act, serves as the investment adviser to HCHP. NexPoint 
Advisors expects that certain portfolio companies that are appropriate 
investments for a Private Fund \2\ may also be appropriate for one or 
more Investment Companies,\3\ with certain exceptions based on 
available capital or diversification.
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    \2\ ``Private Fund'' means any Existing Private Fund or any 
entity (a) whose investment adviser is an Adviser, (b) that would be 
an investment company but for section 3(c)(1) or 3(c)(7) of the Act, 
and (c) that intends to participate in the Co-Investment Program (as 
defined below). ``Adviser'' means (a) NexPoint Advisors, (b) the 
Current Advisers to Private Funds, and (c) any future investment 
adviser that controls, is controlled by or is under common control 
with any of NexPoint Advisors or the Current Advisers to Private 
Funds and is registered as an investment adviser under the Advisers 
Act.
    \3\ The term ``Investment Company'' means any Existing 
Investment Company and any future closed-end investment company that 
(a) is registered under the Act or has elected to be regulated as a 
BDC under the Act, (b) will be advised by an Adviser, and (c) that 
intends to participate in the Co-Investment Program.
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    5. Applicants seek an order (``Order'') \4\ to allow an Investment 
Company to co-invest in the same issuers of securities with one or more 
other Investment Companies or Private Funds (the ``Co-Investment 
Program'') with which it may be prohibited from co-investing by reason 
of section 17(d) or section 57 of the Act. For purposes of the 
application, a ``Co-Investment Transaction'' means any transaction in 
which an Investment Company (or one of its Wholly Owned Investment 
Subsidiaries, as defined below) participates together with one or more 
other Investment Companies and/or Private Funds in reliance on the 
requested Order. ``Potential Co-Investment Transaction'' means any 
investment opportunity in which an Investment Company (or a Wholly 
Owned Investment Subsidiary) could not participate together with one or 
more other Investment Companies and/or Private Funds without obtaining 
and relying on the Order.
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    \4\ All existing entities that currently intend to rely on the 
Order have been named as Applicants and any entities that may rely 
on the Order in the future will comply with the terms and conditions 
of the application.
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    6. Each of the Investment Companies may, from time to time and as 
applicable, form a special purpose subsidiary (a ``Wholly-Owned 
Investment Subsidiary'').\5\ Wholly-Owned Investment Subsidiaries would 
be prohibited from investing in a Co-

[[Page 17743]]

Investment Transaction with any other Investment Company or Private 
Fund because the Wholly-Owned Investment Subsidiary would be a company 
controlled by the applicable Investment Company for purposes of section 
17(d) and section 57(a)(4) and rule 17d-1. Applicants request that any 
Wholly Owned Investment Subsidiary be permitted to participate in Co-
Investment Transactions in lieu of the Investment Company of which it 
is a subsidiary and that the participation in any such transaction by 
any Wholly Owned Investment Subsidiary be treated, for purposes of the 
Order, as though the Investment Company of which it is a subsidiary 
were participating directly. Applicants represent that this treatment 
is justified because any Wholly Owned Investment Subsidiary would have 
no purpose other than serving as a holding and financing vehicle for 
the applicable Investment Company's investments and, therefore, no 
conflicts of interest could arise between an Investment Company and its 
Wholly Owned Investment Subsidiary. The board of directors or board of 
trustees, as applicable, of an Investment Company would make all 
relevant determinations under the conditions with regard to the 
participation of such Investment Company's Wholly Owned Investment 
Subsidiary in a Co-Investment Transaction, and the board of directors 
or the board of trustees, as applicable, of an Investment Company would 
be informed of, and take into consideration, any proposed use of any 
Wholly Owned Investment Subsidiary in such Investment Company's place. 
If an Investment Company proposes to participate in the same Co-
Investment Transaction with any of its Wholly Owned Investment 
Subsidiaries, the board of directors or the board of trustees, as 
applicable, of such Investment Company will also be informed of, and 
take into consideration, the relative participation of the Investment 
Company and the Wholly Owned Investment Subsidiary.
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    \5\ The term ``Wholly-Owned Investment Subsidiary'' means an 
entity (a) whose sole business purpose is to hold one or more 
investments and issue debt on behalf of such Investment Company, to 
obtain debt financing for those investments and, in the case of a 
Wholly Owned Investment Subsidiary organized as a small business 
investment company under the Small Business Investment Act of 1958 
(``SBA Act''), to maintain a license under the SBA Act and issue 
debentures guaranteed by the Small Business Administration; (b) that 
is wholly owned by such Investment Company (with the applicable 
Investment Company at all times holding directly or indirectly, 
beneficially and of record, 100% of the voting and economic 
interests); (c) with respect to which the board of directors or 
board of trustees, as applicable, of such Investment Company has the 
sole authority to make all determinations with respect to the Wholly 
Owned Investment Subsidiary's participation under the conditions to 
the application; and (d) that is an entity that would be an 
investment company but for section 3(c)(1) or 3(c)(7) of the Act.
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    7. Applicants represent that the Adviser of another Investment 
Company or a Private Fund will refer to the Adviser of an Investment 
Company all Potential Co-Investment Transactions within such Investment 
Company's Objectives and Strategies \6\ that are considered for such 
other Investment Company or Private Fund, and such investment 
opportunities may result in a Co-Investment Transaction. For each such 
referral, the applicable Adviser will consider the investment 
objective, investment policies, investment position, investment 
strategies, investment restrictions, regulatory and tax requirements, 
capital available for investment and other pertinent factors applicable 
to such Investment Company. Likewise, when selecting investments for a 
Private Fund, the applicable Adviser to the Private Fund will select 
investments separately for the Private Fund, considering the investment 
objective, investment policies, investment position, investment 
strategies, investment restrictions, regulatory and tax requirements, 
capital available for investment and other pertinent factors applicable 
to such Private Fund. Each Co-Investment Transaction and the proposed 
allocation of such Co-Investment Transaction would be approved prior to 
the actual investment by the required majority (within the meaning of 
section 57(o) of the Act) (the ``Required Majority'') \7\ of the 
Investment Company's board of directors or board of trustees, as 
applicable.
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    \6\ ``Objectives and Strategies'' means the Investment Company's 
investment objectives and strategies, as described in its 
registration statement on Form N-2 and other filings made with the 
Commission by such Investment Company under the Securities Act of 
1933, as amended (``1933 Act''), or the Act, any reports filed by 
such Investment Company with the Commission under the Securities 
Exchange Act of 1934, as amended, or the Act and such Investment 
Company's reports to stockholders.
    \7\ In the case of an Investment Company that is a registered 
closed-end fund, the directors or trustees that make up the Required 
Majority will be determined as if the Investment Company were a BDC 
subject to section 57(o).
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    8. Other than pro rata dispositions and follow-on investments \8\ 
as provided in conditions 7 and 8, and after making the determinations 
required in conditions 1 and 2(a), the applicable Adviser will present 
each Potential Co-Investment Transaction and the proposed allocation to 
the directors or trustees of the applicable Investment Company who are 
eligible to vote under section 57(o) of the Act (``Eligible 
Directors''), and the Required Majority will approve each Co-Investment 
Transaction prior to any investment by such Investment Company.
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    \8\ ``Follow-on investment'' means an additional investment in 
an existing portfolio company, including through the exercise of 
warrants, conversion privileges or other rights to acquire 
securities of the portfolio company.
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    9. With respect to the pro rata dispositions and follow-on 
investments provided in conditions 7 and 8, the Investment Companies 
may participate in a pro rata disposition or follow-on investment 
without obtaining prior approval of the Required Majority if, among 
other things: (i) The proposed participation of such Investment Company 
and each other Investment Company or Private Fund in such disposition 
or follow-on investment is proportionate to its outstanding investments 
in the issuer immediately preceding the disposition or follow-on 
investment, as the case may be; and (ii) the board of directors or 
board of trustees, as applicable, of the Investment Company has 
approved such Investment Company's participation in pro rata 
dispositions and follow-on investments as being in the best interests 
of the Investment Company. If such board does not so approve, any such 
disposition or follow-on investment will be submitted to the Investment 
Company's Eligible Directors. The board of directors or board of 
trustees, as applicable, of an Investment Company may at any time 
rescind, suspend or qualify its approval of pro rata dispositions and 
follow-on investments, with the result that all dispositions and/or 
follow-on investments must be submitted to the Eligible Directors of 
such Investment Company.
    10. No Independent Director or Independent Trustee of an Investment 
Company will have a financial interest in any Co-Investment 
Transaction, other than indirectly through share ownership in the 
Investment Company.
    11. Under condition 14, if NexPoint Advisors or its principals, or 
any person controlling, controlled by, or under common control with 
NexPoint Advisors or its principals, and the Private Funds 
(collectively, the ``Holders'') own in the aggregate more than 25 
percent of the outstanding voting shares of an Investment Company (the 
``Shares''), then the Holders will vote such Shares as directed by an 
independent third party when voting on matters specified in the 
condition. Applicants believe that this condition will ensure that the 
Independent Directors or Independent Trustees will act independently in 
evaluating the Co-Investment Program, because the ability of NexPoint 
Advisors or its principals to influence the Independent Directors or 
Independent Trustees by a suggestion, explicit or implied, that the 
Independent Directors or Independent Trustees can be removed will be 
limited significantly. Applicants represent that the Independent 
Directors or Independent Trustees shall evaluate and approve any 
independent third party, taking into account its qualifications, 
reputation for independence, cost to the shareholders, and other 
factors that they deem relevant.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
affiliated

[[Page 17744]]

persons of a registered investment company from participating in joint 
transactions with the company or a company controlled by such company 
unless the Commission has granted an order permitting such 
transactions. Section 57(a)(4) of the Act prohibits certain affiliated 
persons of a BDC from participating in joint transactions with the BDC 
(or a company controlled by such company) in contravention of rules as 
prescribed by the Commission. Section 57(i) of the Act provides that, 
until the Commission prescribes rules under section 57(a)(4), the 
Commission's rules under section 17(d) of the Act applicable to 
registered closed-end investment companies will be deemed to apply to 
BDCs. Because the Commission has not adopted any rules under section 
57(a)(4), rule 17d-1 applies to BDCs. NexPoint Advisors and any other 
Investment Company or Private Fund that it advises could be deemed to 
be persons related to an Investment Company in a manner described by 
section 2(a)(3) or section 57(b), as applicable, and, therefore, 
prohibited by section 17(d) or section 57(a)(4), as applicable, and 
rule 17d-1 from participating in the Co-Investment Program. In 
addition, because the other Advisers are ``affiliated persons'' of 
NexPoint Advisors, such Advisers and the Investment Companies and 
Private Funds advised by any of them could be deemed to be persons 
related to such Investment Company in a manner described by section 
2(a)(3) or section 57(b), as applicable, and also prohibited from 
participating in the Co-Investment Program. Finally, because any Wholly 
Owned Investment Subsidiary will be controlled by an Investment 
Company, it will subject to section 17(d) or section 57(a)(4), and thus 
also subject to the provisions of rule 17d-1.
    2. Rule 17d-1, as made applicable to BDCs by section 57(i), 
prohibits any person who is related to a BDC in a manner described in 
section 57(b), acting as principal, from participating in, or effecting 
any transaction in connection with, any joint enterprise or other joint 
arrangement or profit-sharing plan in which the BDC is a participant, 
absent an order from the Commission. In passing upon applications under 
rule 17d-1, the Commission considers whether the company's 
participation in the joint transaction is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
such participation is on a basis different from or less advantageous 
than that of other participants.
    3. Applicants state that they expect that co-investment in 
portfolio companies by the Investment Companies and the Private Funds 
will increase favorable investment opportunities for each participant.
    4. Applicants submit that the fact that the Required Majority will 
approve each Co-Investment Transaction before investment, and other 
protective conditions set forth in the application, will ensure that 
each Investment Company will be treated fairly. Applicants state that 
each Investment Company's participation in the Co-Investment 
Transactions will be consistent with the provisions, policies, and 
purposes of the Act and on a basis that is not different from, or less 
advantageous than, that of the other Investment Companies or the 
Private Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each time an Adviser considers a Potential Co-Investment 
Transaction for a Private Fund or another Investment Company that falls 
within an Investment Company's then-current Objectives and Strategies, 
the Investment Company's Adviser will make an independent determination 
of the appropriateness of such investment for such Investment Company 
in light of such Investment Company's then-current circumstances.
    2. (a) If the applicable Adviser deems an Investment Company's 
participation in any Potential Co-Investment Transaction to be 
appropriate for such Investment Company, it will then determine an 
appropriate level of investment for such Investment Company;
    (b) If the aggregate amount recommended by the applicable Adviser 
to be invested in such Potential Co-Investment Transaction by an 
Investment Company, together with the amount proposed to be invested by 
the other participating Investment Companies and Private Funds, 
collectively, in the same transaction, exceeds the amount of the 
investment opportunity, then the investment opportunity will be 
allocated among them pro rata based on each participating party's 
capital available for investment in the asset class being allocated, up 
to the amount proposed to be invested by each party. The applicable 
Adviser will provide the Eligible Directors of each participating 
Investment Company with information concerning each participating 
party's available capital to assist the Eligible Directors with their 
review of such Investment Company's investments for compliance with 
these allocation procedures; and
    (c) After making the determinations required in conditions 1 and 
2(a), the applicable Adviser will distribute written information 
concerning the Potential Co-Investment Transaction, including the 
amount proposed to be invested by each Investment Company and each 
Private Fund, to the Eligible Directors of each participating 
Investment Company for their consideration. An Investment Company will 
co-invest with one or more other Investment Companies and/or Private 
Funds only if, prior to the Investment Company's participation in the 
Potential Co-Investment Transaction, the Required Majority concludes 
that:
    (i) The terms of the Potential Co-Investment Transaction, including 
the consideration to be paid, are reasonable and fair to such 
Investment Company and its stockholders and do not involve overreaching 
in respect of such Investment Company or its stockholders on the part 
of any person concerned;
    (ii) the Potential Co-Investment Transaction is consistent with:
    (A) The interests of the stockholders of such Investment Company; 
and
    (B) such Investment Company's then-current Objectives and 
Strategies;
    (iii) the investment by another Investment Company or any Private 
Fund would not disadvantage such Investment Company, and participation 
by such Investment Company would not be on a basis different from, or 
less advantageous than, that of any other Investment Company or Private 
Fund; provided, that if any other Investment Company or Private Fund, 
but not such Investment Company itself, gains the right to nominate a 
director for election to a portfolio company's board of directors or 
the right to have a board observer or any similar right to participate 
in the governance or management of the portfolio company, such event 
will not be interpreted to prohibit the Required Majority from reaching 
the conclusions required by this condition (2)(c)(iii), if
    (A) The Eligible Directors will have the right to ratify the 
selection of such director or board observer, if any;
    (B) the Advisers agree to, and do, provide periodic reports to each 
Investment Company's board of directors or board of trustees, as 
applicable, with respect to the actions of such director or the 
information received by such board observer or obtained through the 
exercise of any similar right to participate in the governance or 
management of the portfolio company; and

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    (C) any fees or other compensation that any other Investment 
Company, Private Fund or any affiliated person of another Investment 
Company or Private Fund receives in connection with the right of such 
other Investment Company or Private Fund to nominate a director or 
appoint a board observer or otherwise to participate in the governance 
or management of the portfolio company will be shared proportionately 
among the participating Private Funds (which each may, in turn, share 
their portion with their affiliated persons) and the participating 
Investment Companies in accordance with the amount of each party's 
investment; and
    (iv) the proposed investment by the Investment Company will not 
benefit the other Investment Companies, the Advisers, the Private Funds 
or any affiliated person of any of them (other than the parties to the 
Co-Investment Transaction), except (A) to the extent permitted by 
condition 13; (B) to the extent permitted by sections 17(e) or 57(k) of 
the Act, as applicable; (C) indirectly, as a result of an interest in 
the securities issued by one of the parties to the Co-Investment 
Transaction; or (D) in the case of fees or other compensation described 
in condition 2(c)(iii)(C).
    3. Each Investment Company has the right to decline to participate 
in any Potential Co-Investment Transaction or to invest less than the 
amount proposed.
    4. The applicable Adviser will present to the board of directors or 
the board of trustees, as applicable, of each Investment Company, on a 
quarterly basis, a record of all investments in Potential Co-Investment 
Transactions made by any of the other Investment Companies and the 
Private Funds during the preceding quarter that fell within such 
Investment Company's then-current Objectives and Strategies that were 
not made available to such Investment Company and an explanation of why 
the investment opportunities were not offered to such Investment 
Company. All information presented to a board pursuant to this 
condition will be kept for the life of such Investment Company and at 
least two years thereafter, and will be subject to examination by the 
Commission and its staff.
    5. Except for follow-on investments made in accordance with 
condition 8,\9\ an Investment Company will not invest in reliance on 
the Order in any issuer in which any other Investment Company, Private 
Fund or any affiliated person of another Investment Company or Private 
Fund is an existing investor.
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    \9\ This exception applies only to follow-on investments by an 
Investment Company in issuers in which that Investment Company 
already holds investments.
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    6. An Investment Company will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of 
securities to be purchased, settlement date and registration rights 
will be the same for each participating Investment Company and Private 
Fund. The grant to another participant, but not such Investment 
Company, of the right to nominate a director for election to a 
portfolio company's board of directors, the right to have an observer 
on the board of directors or similar rights to participate in the 
governance or management of the portfolio company will not be 
interpreted so as to violate this condition 6, if conditions 
2(c)(iii)(A), (B) and (C) are met.
    7. (a) If any Investment Company or Private Fund elects to sell, 
exchange or otherwise dispose of an interest in a security that was 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Investment Company that participated in the Co-
Investment Transaction of the proposed disposition at the earliest 
practical time; and
    (ii) formulate a recommendation as to participation by such 
Investment Company in any such disposition.
    (b) Each Investment Company will have the right to participate in 
such disposition on a proportionate basis, at the same price and on the 
same terms and conditions as those applicable to any participating 
Private Funds and other participating Investment Companies.
    (c) An Investment Company may participate in such disposition 
without obtaining prior approval of the Required Majority if: (i) The 
proposed participation of such Investment Company and of each other 
participant in such disposition is proportionate to its outstanding 
investment in the issuer immediately preceding the disposition; (ii) 
the board of directors or board of trustees, as applicable, of such 
Investment Company has approved as being in the best interests of such 
Investment Company the ability to participate in such dispositions on a 
pro rata basis (as described in greater detail in the application); and 
(iii) such board is provided on a quarterly basis with a list of all 
dispositions made in accordance with this condition. In all other 
cases, the applicable Adviser will provide its written recommendation 
as to an Investment Company's participation to the Eligible Directors 
of such Investment Company, and the Investment Company will participate 
in such disposition solely to the extent that the Required Majority 
determines that it is in the Investment Company's best interests.
    (d) Each Investment Company and each other participant will bear 
its own expenses in connection with any such disposition.
    8. (a) If any Investment Company or Private Fund desires to make a 
follow-on investment in a portfolio company whose securities were 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Investment Company that participated in the Co-
Investment Transaction of the proposed transaction at the earliest 
practical time; and
    (ii) formulate a recommendation as to the proposed participation, 
including the amount of the proposed follow-on investment, by such 
Investment Company.
    (b) Such Investment Company may participate in such follow-on 
investment without obtaining prior approval of the Required Majority 
if: (i) The proposed participation of each Investment Company and each 
Private Fund in such investment is proportionate to its outstanding 
investment in the issuer immediately preceding the follow-on 
investment; (ii) the board of directors or board of trustees, as 
applicable, of such Investment Company has approved as being in the 
best interests of such Investment Company the ability to participate in 
follow-on investments on a pro rata basis (as described in greater 
detail in the application); and (iii) such board is provided on a 
quarterly basis with a list of all follow on investments made in 
accordance with this condition. In all other cases, the applicable 
Adviser will provide its written recommendation as to such Investment 
Company's participation to the Eligible Directors, and such Investment 
Company will participate in such follow-on investment solely to the 
extent that the Required Majority determines that it is in such 
Investment Company's best interests.
    (c) If with respect to any follow-on investment:
    (i) The amount of the opportunity is not based on the Investment 
Companies' and the Private Funds' outstanding investments immediately 
preceding the follow-on investment; and
    (ii) the aggregate amount recommended by the applicable Adviser to 
be invested by each Investment Company in the follow-on investment, 
together with the amount proposed to be invested by the participating 
Private Funds in the same transaction, exceeds the amount of the 
opportunity, then the

[[Page 17746]]

amount to be invested by each such party will be allocated among them 
pro rata based on each participating party's capital available for 
investment in the asset class being allocated, up to the amount 
proposed to be invested by each.
    (d) The acquisition of follow-on investments as permitted by this 
condition will be considered a Co-Investment Transaction for all 
purposes and subject to the other conditions set forth in the 
application.
    9. The Independent Directors or Independent Trustees, as 
applicable, of each Investment Company will be provided quarterly for 
review all information concerning Potential Co-Investment Transactions 
and Co-Investment Transactions, including investments made by the other 
Investment Companies and the Private Funds that the applicable 
Investment Company considered but declined to participate in, so that 
the Independent Directors or Independent Trustees, as applicable, may 
determine whether all investments made during the preceding quarter, 
including those investments which the applicable Investment Company 
considered but declined to participate in, comply with the conditions 
of the Order. In addition, the Independent Directors or Independent 
Trustees, as applicable, will consider at least annually the continued 
appropriateness for such Investment Company of participating in new and 
existing Co-Investment Transactions.
    10. The Investment Companies will maintain the records required by 
section 57(f)(3) of the Act as if each of the Investment Companies were 
a business development company and as if each of the investments 
permitted under these conditions were approved by the Required Majority 
under section 57(f) of the Act.
    11. No Independent Directors or Independent Trustees, as 
applicable, will also be a director, general partner, managing member 
or principal, or otherwise an ``affiliated person'' (as defined in the 
Act) of any Private Fund.
    12. The expenses, if any, associated with acquiring, holding or 
disposing of any securities acquired in a Co-Investment Transaction 
(including, without limitation, the expenses of the distribution of any 
such securities registered for sale under the 1933 Act) will, to the 
extent not payable by the Advisers under their respective advisory 
agreements with the Investment Companies and the Private Funds, be 
shared by the participating Investment Companies and the participating 
Private Funds in proportion to the relative amounts of the securities 
held or being acquired or disposed of, as the case may be.
    13. Any transaction fee \10\ (including break-up or commitment fees 
but excluding broker's fees contemplated by section 17(e) or 57(k) of 
the Act, as applicable) received in connection with a Co-Investment 
Transaction will be distributed to the participating Investment 
Companies and the participating Private Funds on a pro rata basis, 
based on the amount each invested or committed, as the case may be, in 
such Co-Investment Transaction. If any transaction fee is to be held by 
an Adviser pending consummation of the Co-Investment Transaction, the 
fee will be deposited into an account maintained by such Adviser at a 
bank or banks having the qualifications prescribed in section 26(a)(1) 
of the Act, and such account will earn a competitive rate of interest 
that will also be divided pro rata among the participating Investment 
Companies and the participating Private Funds based on the amount each 
invests in such Co-Investment Transaction. None of the Investment 
Companies, the Private Funds, the Advisers, nor any affiliated person 
of the Investment Companies or Private Funds will receive additional 
compensation or remuneration of any kind as a result of, or in 
connection with, a Co-Investment Transaction (other than (a) in the 
case of the participating Investment Companies and the participating 
Private Funds, the pro rata transaction fees described above and fees 
or other compensation described in condition 2(c)(iii)(C) and (b) in 
the case of the Advisers, investment advisory fees paid in accordance 
with the respective investment advisory agreements).
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    \10\ Applicants are not requesting and the staff is not 
providing any relief for transaction fees received in connection 
with any Co-Investment Transaction.
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    14. If the Holders own in the aggregate more than 25 percent of the 
Shares of an Investment Company, then the Holders will vote such Shares 
as directed by an independent third party when voting on (1) the 
election of directors; (2) the removal of one or more directors; or (3) 
any other matter under either the Act or applicable state law affecting 
the Board's composition, size, or manner of election.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2016-07101 Filed 3-29-16; 8:45 am]
 BILLING CODE 8011-01-P