Morgan Stanley Direct Lending Fund, et al., 46747-46755 [2020-16830]
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Federal Register / Vol. 85, No. 149 / Monday, August 3, 2020 / Notices
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) 3 an amendment to the
national market system plan
establishing procedures under Rule 605
of Regulation NMS (‘‘Plan’’).4 The
amendment adds MEMX as a
Participant 5 to the Plan. The
Commission is publishing this notice to
solicit comments on the amendment
from interested persons.
I. Description and Purpose of the Plan
Amendment
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As noted above, the sole proposed
amendment to the Plan is to add the
Exchange as a Participant. On May 4,
2020, the Commission issued an order
granting MEMX’s application for
registration as a national securities
exchange.6 A condition of the
Commission’s approval was the
requirement for MEMX to join the Plan.
Under Section II(c) of the Plan, any
entity registered as a national securities
exchange or national securities
association under the Act may become
a Participant by: (i) Executing a copy of
the Plan, as then in effect; (ii) providing
each then-current Participant with a
copy of such executed Plan; and (iii)
effecting an amendment to the Plan as
specified in Section III(b) of the Plan.
Section III(b) of the Plan sets forth the
process for a prospective new
Participant to effect an amendment of
the Plan. Specifically, the Plan provides
that such an amendment to the Plan
may be effected by the new national
securities exchange or national
securities association by executing a
copy of the Plan, as then in effect (with
the only changes being the addition of
the new Participant’s name in Section
II(a) of the Plan and the new
Participant’s single-digit code in Section
VI(a)(1) of the Plan) and submitting such
executed Plan to the Commission. The
amendment will be effective when it is
approved by the Commission in
accordance with Rule 608 of Regulation
NMS, or otherwise becomes effective
pursuant to Rule 608 of Regulation
NMS.
3 See Letter from Anders Franzon, General
Counsel, MEMX LLC, to Vanessa A. Countryman,
Secretary, Commission, dated July 6, 2020.
4 17 CFR 242.605. On April 12, 2001, the
Commission approved a national market system
plan for the purpose of establishing procedures for
market centers to follow in making their monthly
reports available to the public under Rule 11Ac1–
5 under the Act (n/k/a Rule 605 of Regulation
NMS). See Securities Exchange Act Release No.
44177 (April 12, 2001), 66 FR 19814 (April 17,
2001).
5 The term ‘‘Participant’’ is defined as a party to
the Plan.
6 See Securities Exchange Act Release No. 88806
(May 4, 2020), 85 FR 27451 (May 8, 2020).
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MEMX has executed a copy of the
Plan currently in effect, with the only
changes being the addition of its name
in Section II(a) of the Plan and adding
its single-digit code in Section VI(a)(1)
of the Plan, and has provided a copy of
the Plan executed by MEMX to each of
the other Participants. MEMX has also
submitted the executed Plan to the
Commission. Accordingly, all of the
Plan requirements for effecting an
amendment to the Plan to add MEMX as
a Participant have been satisfied.
II. Effectiveness of the Proposed Plan
Amendment
The foregoing Plan amendment has
become effective pursuant to Rule
608(b)(3)(iii) of the Act 7 because it
involves solely technical or ministerial
matters. At any time within sixty days
of the filing of this amendment, the
Commission may summarily abrogate
the amendment and require that it be
refiled pursuant to paragraph (a)(1) of
Rule 608,8 if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanisms of, a national
market system or otherwise in
furtherance of the purposes of the Act.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the amendment is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number 4–
518 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number 4–518. This file number should
be included on the subject line if email
is used. To help the Commission
process and review your comments
more efficiently, please use only one
method. The Commission will post all
comments on the Commission’s internet
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7 17
8 17
CFR 242.608(b)(3)(iii).
CFR 242.608(a)(1).
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website (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
plan amendment that are filed with the
Commission, and all written
communications relating to the
amendment between the Commission
and any person, other than those that
may be withheld from the public in
accordance with the provisions of 5
U.S.C. 552, will be available for website
viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE, Washington, DC 20549,
on official business days between the
hours of 10:00 a.m. and 3:00 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the MEMX. All
comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number 4–518 and should be
submitted on or before August 24, 2020.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16806 Filed 7–31–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33958; File No. 812–15057]
Morgan Stanley Direct Lending Fund,
et al.
July 28, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under sections 17(d) and 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 sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
Summary of Application: Applicants
request an order to permit certain
business development companies
(‘‘BDCs’’) and closed-end management
investment companies to co-invest in
portfolio companies with each other and
with certain affiliated funds.
Applicants: Morgan Stanley Direct
Lending Fund (‘‘MS BDC’’), MS Capital
Partners Adviser Inc. (‘‘MS Adviser’’),
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Federal Register / Vol. 85, No. 149 / Monday, August 3, 2020 / Notices
NH Credit Partners III Holdings L.P., NH
Expansion Credit Fund Holdings LP,
North Haven Credit Partners II L.P.,
North Haven Credit Partners III L.P.,
North Haven Senior Loan Fund (ALMA)
Designated Activity Company, North
Haven Senior Loan Fund L.P., North
Haven Senior Loan Fund Offshore L.P.,
North Haven Senior Loan Fund
Unleveraged Offshore L.P., North Haven
Tactical Value Fund (AIV) LP, North
Haven Tactical Value Fund LP, North
Haven Unleveraged Senior Loan Fund
(Yen) L.P., NH Senior Loan Fund
Offshore Holdings L.P., NH Senior Loan
Fund Onshore Holdings LLC, and DLF
CA SPV LLC (‘‘MS BDC Sub’’).
Filing Dates: The application was
filed on August 9, 2019, and amended
on December 20, 2019, April 3, 2020
and May 21, 2020.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request by email.
Hearing requests should be received by
the Commission by 5:30 p.m. on August
24, 2020, 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
emailing the Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
Mr. Mustufa Salehbhai, Executive
Director, Mustufa.Salehbhai@
morganstanley.com.
FOR FURTHER INFORMATION CONTACT: Jean
E. Minarick, Senior Counsel, at (202)
551–6811 or Kaitlin C. Bottock, Branch
Chief, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Introduction
1. The applicants request an order of
the Commission under sections 17(d)
and 57(i) of the Act and rule 17d–1
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thereunder (the ‘‘Order’’) to permit,
subject to the terms and conditions set
forth in the application (the
‘‘Conditions’’), a Regulated Fund 1 and
one or more other Regulated Funds and/
or one or more Affiliated Funds 2 to
enter into Co-Investment Transactions
with each other. ‘‘Co-Investment
Transaction’’ means any transaction in
which a Regulated Fund (or its WhollyOwned Investment Sub (as defined
below)) participated together with one
or more Affiliated Funds and/or one or
more other Regulated Funds (or its
Wholly-Owned Investment Sub) in
reliance on the Order. ‘‘Potential CoInvestment Transaction’’ means any
investment opportunity in which a
Regulated Fund (or its Wholly-Owned
Investment Sub) could not participate
together with one or more Affiliated
Funds and/or one or more other
Regulated Funds (or its Wholly-Owned
Investment Sub) without obtaining and
relying on the Order.3
Applicants
2. MS BDC is a non-diversified,
closed-end management investment
company incorporated in Delaware that
will elect to be regulated as a BDC under
the Act.4 The Board 5 of MS BDC
currently consist of six directors, four of
whom are Independent Directors.6
1 ‘‘Regulated Funds’’ means MS BDC and the
Future Regulated Funds. ‘‘Future Regulated Fund’’
means a closed-end management investment
company (a) that is registered under the Act or has
elected to be regulated as a BDC, (b) whose
investment adviser (and sub-adviser, if any) is an
Adviser, and (c) that intends to participate in the
Co-investment Program.
‘‘Adviser’’ means the MS Adviser, together with
any future investment adviser that (a) is controlled
by the MS Adviser, (b) (i) is registered as an
investment adviser under the Investment Advisers
Act of 1940 (‘‘Advisers Act’’) or (ii) is a relying
adviser of an investment adviser that is registered
under the Advisers Act, and that is controlled by
the MS Adviser, and (c) is not a Regulated Fund or
a subsidiary of a Regulated Fund.
2 ‘‘Affiliated Fund’’ means any entity (a) whose
investment adviser (and sub-adviser(s), if any) is an
Adviser, (b) that either (i) would be an investment
company but for section 3(c)(1) or 3(c)(7) of the Act
or (ii) relies on rule 3a–7 under the Act, and (c) that
intends to participate in the Co-Investment
Program.
3 All existing entities that currently intend to rely
on the Order have been named as applicants and
any existing or future entities that may rely on the
Order in the future will comply with its terms and
Conditions set forth in the application.
4 Section 2(a)(48) defines a BDC to be any closedend investment company that operates for the
purpose of making investments in securities
described in section 55(a)(1) through 55(a)(3) and
makes available significant managerial assistance
with respect to the issuers of such securities.
5 ‘‘Board’’ means the board of directors (or the
equivalent) of a Regulated Fund.
6 ‘‘Independent Director’’ means a member of the
Board of any relevant entity who is not an
‘‘interested person’’ as defined in section 2(a)(19) of
the Act. No Independent Director of a Regulated
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3. MS Adviser, a corporation under
the laws of the state of Delaware, is
registered with the Commission as an
investment adviser under the Advisers
Act. MS Adviser is a wholly-owned
subsidiary of Morgan Stanley, a global
financial services firm that through its
subsidiaries and affiliates, advises,
originates, trades, manages and
distributes capital for governments,
institutions and individuals. Morgan
Stanley is a bank holding company
structured as a Delaware corporation
that controls the MS Adviser.
4. MS BDC Sub is a wholly-owned
subsidiary of MS BDC formed
specifically for the purpose of procuring
financing or otherwise holding
investments.
5. Applicants state that a Regulated
Fund may, from time to time, form one
or more Wholly-Owned Investment
Subs.7 Such a subsidiary may be
prohibited from investing in a CoInvestment Transaction with a
Regulated Fund (other than its parent)
or any Affiliated Fund because it would
be a company controlled by its parent
Regulated Fund for purposes of section
57(a)(4) and rule 17d–1. Applicants
request that each Wholly-Owned
Investment Sub be permitted to
participate in Co-Investment
Transactions in lieu of the Regulated
Fund that owns it and that the WhollyOwned Investment Sub’s participation
in any such transaction be treated, for
purposes of the Order, as though the
parent Regulated Fund were
participating directly.
Applicants’ Representations
A. Allocation Process
6. Applicants represent that the
Adviser will establish processes for
allocating initial investment
Fund (including any non-interested member of an
Independent Party) will have a financial interest in
any Co-Investment Transaction, other than
indirectly through share ownership in one of the
Regulated Funds.
7 ‘‘Wholly-Owned Investment Sub’’ means the MS
BDC Sub or an entity (i) that is wholly-owned by
a Regulated Fund (with such Regulated Fund at all
times holding, beneficially and of record, 100% or
more of the voting and economic interests); (ii)
whose sole business purpose is to hold one or more
investments on behalf of such Regulated Fund (and
in the case of an SBIC Subsidiary, maintain a
license under the Small Business Investment Act of
1958 (‘‘SBA Act’’) and issue debentures guaranteed
by the Small Business Administration (‘‘SBA’’));
(iii) with respect to which such Regulated Fund’s
Board has the sole authority to make all
determinations with respect to the entity’s
participation under the Conditions; and (iv) that (a)
would be an investment company but for section
3(c)(1) or 3(c)(7) of the Act, or (b) that relies on Rule
3a–7 under the Act. ‘‘SBIC Subsidiary’’ means a
Wholly-Owned Investment Sub that is licensed by
the SBA to operate under the SBA Act as a small
business investment company.
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opportunities, opportunities for
subsequent investments in an issuer and
dispositions of securities holdings
reasonably designed to treat all clients
fairly and equitably. Further, applicants
represent that these processes will be
extended and modified in a manner
reasonably designed to ensure that the
additional transactions permitted under
the Order will both (i) be fair and
equitable to the Regulated Funds and
the Affiliated Funds and (ii) comply
with the Conditions.
7. Opportunities for Potential CoInvestment Transactions may arise
when investment advisory personnel of
an Adviser becomes aware of
investment opportunities that may be
appropriate for one or more Regulated
Funds and/or one or more Affiliated
Funds. If the requested Order is granted,
the Adviser will establish, maintain and
implement policies and procedures
reasonably designed to ensure that,
when such opportunities arise, the
Advisers to the relevant Regulated
Funds are promptly notified and receive
the same information about the
opportunity as any other Advisers
considering the opportunity for their
clients. In particular, consistent with
Condition 1, if a Potential CoInvestment Transaction falls within the
then-current Objectives and Strategies 8
and any Board-Established Criteria 9 of a
Regulated Fund, the policies and
procedures will require that the relevant
portfolio managers, as well as the teams
8 ‘‘Objectives and Strategies’’ means (i) with
respect to any Regulated Fund, its investment
objectives and strategies, as described in its most
current filings with the Commission under the
Securities Act of 1933 (‘‘Securities Act’’) or under
the Securities Exchange Act of 1934, and the Act,
and its most current report to stockholders.
9 ‘‘Board-Established Criteria’’ means criteria that
the Board of a Regulated Fund may establish from
time to time to describe the characteristics of
Potential Co-Investment Transactions regarding
which the Adviser to the Regulated Fund should be
notified under Condition 1. The Board-Established
Criteria will be consistent with the Regulated
Fund’s Objectives and Strategies. If no BoardEstablished Criteria are in effect, then the Regulated
Fund’s Adviser will be notified of all Potential CoInvestment Transactions that fall within the
Regulated Fund’s then-current Objectives and
Strategies. Board-Established Criteria will be
objective and testable, meaning that they will be
based on observable information, such as industry/
sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or
required commitment size, and not on
characteristics that involve a discretionary
assessment. The Adviser to the Regulated Fund may
from time to time recommend criteria for the
Board’s consideration, but Board-Established
Criteria will only become effective if approved by
a majority of the Independent Directors. The
Independent Directors of a Regulated Fund may at
any time rescind, suspend or qualify their approval
of any Board-Established Criteria, though applicants
anticipate that, under normal circumstances, the
Board would not modify these criteria more often
than quarterly.
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and committees of portfolio managers,
analysts and senior management
(‘‘Investment Teams’’ and ‘‘Investment
Committees’’) responsible for that
Regulated Fund receive sufficient
information to allow the Regulated
Fund’s Adviser to make its independent
determination and recommendations
under the Conditions. The Adviser to
each applicable Regulated Fund,
working through the applicable
portfolio manager, or in conjunction
with any applicable Investment Team or
Investment Committee, will then make
an independent determination of the
appropriateness of the investment for
the Regulated Fund in light of the
Regulated Fund’s then-current
circumstances. If the Adviser to a
Regulated Fund deems the Regulated
Fund’s participation in such Potential
Co-Investment Transaction to be
appropriate, then it will, working
through the applicable portfolio
manager, or in conjunction with any
applicable Investment Team or
Investment Committee, formulate a
recommendation regarding the proposed
order amount for the Regulated Fund.
8. Applicants state that, for each
Regulated Fund and Affiliated Fund
whose Adviser recommends
participating in a Potential CoInvestment Transaction, the Adviser,
working through the applicable
portfolio manager, or in conjunction
with any applicable Investment Team or
Investment Committee, will approve an
investment amount. Prior to the
External Submission (as defined below),
each proposed order amount may be
reviewed and adjusted, in accordance
with the applicable Advisers’ written
allocation policies and procedures, by
the Morgan Stanley Private Credit
Allocation Committee, on which senior
management and the Adviser’s chief
compliance officer participate.10 The
order of a Regulated Fund or Affiliated
Fund resulting from this process is
referred to as its ‘‘Internal Order.’’ The
Internal Order will be submitted for
approval by the Required Majority of
any participating Regulated Funds in
accordance with the Conditions.11
9. If the aggregate Internal Orders for
a Potential Co-Investment Transaction
do not exceed the size of the investment
opportunity immediately prior to the
10 The reason for any such adjustment to a
proposed order amount will be documented in
writing and preserved in the records of each
Adviser.
11 ‘‘Required Majority’’ means a required
majority, as defined in section 57(o) of the Act. In
the case of a Regulated Fund that is a registered
closed-end fund, the Board members that make up
the Required Majority will be determined as if the
Regulated Fund were a BDC subject to section 57(o).
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46749
submission of the orders to the
underwriter, broker, dealer or issuer, as
applicable (the ‘‘External Submission’’),
then each Internal Order will be
fulfilled as placed. If, on the other hand,
the aggregate Internal Orders for a
Potential Co-Investment Transaction
exceed the size of the investment
opportunity immediately prior to the
External Submission, then the allocation
of the opportunity will be made pro rata
on the basis of the size of the Internal
Orders.12 If, subsequent to such External
Submission, the size of the opportunity
is increased or decreased, or if the terms
of such opportunity, or the facts and
circumstances applicable to the
Regulated Funds’ or the Affiliated
Funds’ consideration of the opportunity,
change, the participants will be
permitted to submit revised Internal
Orders in accordance with written
allocation policies and procedures that
the Advisers will establish, implement
and maintain.13
B. Follow-On Investments
10. Applicants state that from time to
time the Regulated Funds and Affiliated
Funds may have opportunities to make
Follow-On Investments 14 in an issuer in
which a Regulated Fund and one or
more other Regulated Funds and/or
Affiliated Funds previously have
invested.
11. Applicants propose that FollowOn Investments would be divided into
two categories depending on whether
the prior investment was a CoInvestment Transaction or a PreBoarding Investment.15 If the Regulated
12 The Advisers will maintain records of all
proposed order amounts, Internal Orders and
External Submissions in conjunction with Potential
Co-Investment Transactions. Each applicable
Adviser will provide the Eligible Directors with
information concerning the Affiliated Funds’ and
Regulated Funds’ order sizes to assist the Eligible
Directors with their review of the applicable
Regulated Fund’s investments for compliance with
the Conditions.
‘‘Eligible Directors’’ means, with respect to a
Regulated Fund and a Potential Co-Investment
Transaction, the members of the Regulated Fund’s
Board eligible to vote on that Potential CoInvestment Transaction under section 57(o) of the
Act (treating any registered investment company or
series thereof as a BDC for this purpose).
13 The Board of the Regulated Fund will then
either approve or disapprove of the investment
opportunity in accordance with Condition 2, 6, 7,
8 or 9, as applicable.
14 ‘‘Follow-On Investment’’ means an additional
investment in the same issuer, including, but not
limited to, through the exercise of warrants,
conversion privileges or other rights to purchase
securities of the issuer.
15 ‘‘Pre-Boarding Investments’’ are investments in
an issuer held by a Regulated Fund as well as one
or more Affiliated Funds and/or one or more other
Regulated Funds that: (a) Were acquired prior to
participating in any Co-Investment Transaction; (b)
were acquired in transactions in which the only
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Funds and Affiliated Funds had
previously participated in a CoInvestment Transaction with respect to
the issuer, then the terms and approval
of the Follow-On Investment would be
subject to the Standard Review FollowOns described in Condition 8. If the
Regulated Funds and Affiliated Funds
have not previously participated in a
Co-Investment Transaction with respect
to the issuer but hold a Pre-Boarding
Investment, then the terms and approval
of the Follow-On Investment would be
subject to the Enhanced-Review FollowOns described in Condition 9. All
Enhanced Review Follow-Ons require
the approval of the Required Majority.
For a given issuer, the participating
Regulated Funds and Affiliated Funds
would need to comply with the
requirements of Enhanced-Review
Follow-Ons only for the first CoInvestment Transaction. Subsequent CoInvestment Transactions with respect to
the issuer would be governed by the
requirements of Standard Review
Follow-Ons.
12. A Regulated Fund would be
permitted to invest in Standard Review
Follow-Ons either with the approval of
the Required Majority under Condition
8(c) or without Board approval under
Condition 8(b) if it is (i) a Pro Rata
Follow-On Investment 16 or (ii) a NonNegotiated Follow-On Investment.17
Applicants believe that these Pro Rata
and Non-Negotiated Follow-On
Investments do not present a significant
term negotiated by or on behalf of such funds was
price; and (c) were acquired either (i) in reliance on
one of the JT No-Action Letters (defined below); or
(ii) in transactions occurring at least 90 days apart
and without coordination between the Regulated
Fund and any Affiliated Fund or other Regulated
Fund.
16 A ‘‘Pro Rata Follow-On Investment’’ is a
Follow-On Investment (i) in which the participation
of each Affiliated Fund and each Regulated Fund
is proportionate to its outstanding investments in
the issuer or security, as appropriate, immediately
preceding the Follow-On Investment, and (ii) in the
case of a Regulated Fund, a majority of the Board
has approved the Regulated Fund’s participation in
the pro rata Follow-On Investments as being in the
best interests of the Regulated Fund. The Regulated
Fund’s Board may refuse to approve, or at any time
rescind, suspend or qualify, its approval of Pro Rata
Follow-On Investments, in which case all
subsequent Follow-On Investments will be
submitted to the Regulated Fund’s Eligible Directors
in accordance with Condition 8(c).
17 A ‘‘Non-Negotiated Follow-On Investment’’ is a
Follow-On Investment in which a Regulated Fund
participates together with one or more Affiliated
Funds and/or one or more other Regulated Funds
(i) in which the only term negotiated by or on behalf
of the funds is price and (ii) with respect to which,
if the transaction were considered on its own, the
funds would be entitled to rely on one of the JT NoAction Letters.
‘‘JT No-Action Letters’’ means SMC Capital, Inc.,
SEC No-Action Letter (pub. avail. Sept. 5, 1995) and
Massachusetts Mutual Life Insurance Company,
SEC No-Action Letter (pub. avail. June 7, 2000).
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opportunity for overreaching on the part
of any Adviser and thus do not warrant
the time or the attention of the Board.
Pro Rata Follow-On Investments and
Non-Negotiated Follow-On Investments
remain subject to the Board’s periodic
review in accordance with Condition
10.
C. Dispositions
13. Applicants propose that
Dispositions 18 would be divided into
two categories. If the Regulated Funds
and Affiliated Funds holding
investments in the issuer had previously
participated in a Co-Investment
Transaction with respect to the issuer,
then the terms and approval of the
Disposition would be subject to the
Standard Review Dispositions described
in Condition 6. If the Regulated Funds
and Affiliated Funds have not
previously participated in a CoInvestment Transaction with respect to
the issuer but hold a Pre-Boarding
Investment, then the terms and approval
of the Disposition would be subject to
the Enhanced Review Dispositions
described in Condition 7. Subsequent
Dispositions with respect to the same
issuer would be governed by Condition
6 under the Standard Review
Dispositions.19
14. A Regulated Fund may participate
in a Standard Review Disposition either
with the approval of the Required
Majority under Condition 6(d) or
without Board approval under
Condition 6(c) if (i) the Disposition is a
Pro Rata Disposition 20 or (ii) the
18 ‘‘Disposition’’ means the sale, exchange or
other disposition of an interest in a security of an
issuer.
19 However, with respect to an issuer, if a
Regulated Fund’s first Co-Investment Transaction is
an Enhanced Review Disposition, and the Regulated
Fund does not dispose of its entire position in the
Enhanced Review Disposition, then before such
Regulated Fund may complete its first Standard
Review Follow-On in such issuer, the Eligible
Directors must review the proposed Follow-On
Investment not only on a stand-alone basis but also
in relation to the total economic exposure in such
issuer (i.e., in combination with the portion of the
Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition), and the other terms
of the investments. This additional review would be
required because such findings would not have
been required in connection with the prior
Enhanced Review Disposition, but they would have
been required had the first Co-Investment
Transaction been an Enhanced Review Follow-On.
20 A ‘‘Pro Rata Disposition’’ is a Disposition (i) in
which the participation of each Affiliated Fund and
each Regulated Fund is proportionate to its
outstanding investment in the security subject to
Disposition immediately preceding the Disposition;
and (ii) in the case of a Regulated Fund, a majority
of the Board has approved the Regulated Fund’s
participation in pro rata Dispositions as being in the
best interests of the Regulated Fund. The Regulated
Fund’s Board may refuse to approve, or at any time
rescind, suspend or qualify, its approval of Pro Rata
Dispositions, in which case all subsequent
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securities are Tradable Securities 21 and
the Disposition meets the other
requirements of Condition 6(c)(ii). Pro
Rata Dispositions and Dispositions of a
Tradable Security remain subject to the
Board’s periodic review in accordance
with Condition 10.
D. Delayed Settlement
15. Applicants represent that under
the terms and Conditions of the
application, all Regulated Funds and
Affiliated Funds participating in a CoInvestment Transaction will invest at
the same time, for the same price and
with the same terms, conditions, class,
registration rights and any other rights,
so that none of them receives terms
more favorable than any other.
However, the settlement date for an
Affiliated Fund in a Co-Investment
Transaction may occur up to ten
business days after the settlement date
for the Regulated Fund, and vice versa.
Nevertheless, in all cases, (i) the date on
which the commitments of the
Affiliated Funds and Regulated Funds
are made will be the same even where
the settlement date is not and (ii) the
earliest settlement date and the latest
settlement date of any Affiliated Fund
or Regulated Fund participating in the
transaction will occur within ten
business days of each other.
E. Holders
16. Under Condition 15, if an Adviser,
its principals, or any person controlling,
controlled by, or under common control
with the Adviser or its principals, and
the Affiliated Funds (collectively, the
‘‘Holders’’) own in the aggregate more
than 25 percent of the outstanding
voting shares of a Regulated Fund (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 will act independently in
evaluating Co-Investment Transactions,
Dispositions will be submitted to the Regulated
Fund’s Eligible Directors.
21 ‘‘Tradable Security’’ means a security that
meets the following criteria at the time of
Disposition: (i) It trades on a national securities
exchange or designated offshore securities market
as defined in rule 902(b) under the Securities Act;
(ii) it is not subject to restrictive agreements with
the issuer or other security holders; and (iii) it
trades with sufficient volume and liquidity
(findings as to which are documented by the
Advisers to any Regulated Funds holding
investments in the issuer and retained for the life
of the Regulated Fund) to allow each Regulated
Fund to dispose of its entire position remaining
after the proposed Disposition within a short period
of time not exceeding 30 days at approximately the
value (as defined by section 2(a)(41) of the Act) at
which the Regulated Fund has valued the
investment.
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because the ability of the Adviser or its
principals to influence the Independent
Directors by a suggestion, explicit or
implied, that the Independent Directors
can be removed will be limited
significantly. The Independent Directors
shall evaluate and approve any
independent 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
participation by a registered investment
company and an affiliated person in any
‘‘joint enterprise or other joint
arrangement or profit-sharing plan,’’ as
defined in the rule, without prior
approval by the Commission by order
upon application. Section 17(d) of the
Act and rule 17d–1 under the Act are
applicable to Regulated Funds that are
registered closed-end investment
companies.
2. Similarly, with regard to BDCs,
section 57(a)(4) of the Act generally
prohibits certain persons specified in
section 57(b) from participating in joint
transactions with the BDC or a company
controlled by the BDC 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 transactions
subject to section 57(a)(4). Because the
Commission has not adopted any rules
under section 57(a)(4), rule 17d–1 also
applies to joint transactions with
Regulated Funds that are BDCs.
3. Co-Investment Transactions are
prohibited by either or both of rule 17d–
1 and section 57(a)(4) without a prior
exemptive order of the Commission to
the extent that the Affiliated Funds and
the Regulated Funds participating in
such transactions fall within the
category of persons described by rule
17d–1 and/or section 57(b), as modified
by rule 57b–1 thereunder, as applicable,
vis-a`-vis each participating Regulated
Fund. Because an Adviser will be the
investment adviser (and sub-adviser, if
any) to each Affiliated Fund and
Regulated Fund, the Advisers, a
Regulated Fund and the Affiliated
Funds may be deemed to be a person
related to each other Regulated Fund in
a manner described by section 57(b) (or
section 17(d) in the case of Regulated
Funds that are registered under the Act).
Thus, each Regulated Fund and each
Affiliated Fund could be deemed to be
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a person related to a Regulated Fund, in
a manner described by section 57(b) and
related to the other Regulated Funds in
a manner described by rule 17d–1; and
therefore the prohibitions of rule 17d–
1 and section 57(a)(4) (or Section 17(d)
in the case of Regulated Funds that are
registered under the Act) would apply
respectively to prohibit the Affiliated
Funds from participating in CoInvestment Transactions with the
Regulated Funds. Further, because the
Wholly-Owned Investment Subs are
controlled by the Regulated Funds, the
Wholly-Owned Investment Subs are
subject to section 57(a)(4) (or section
17(d) in the case of Wholly-Owned
Investment Subs controlled by
Regulated Funds that are registered
under the Act) and thus also subject to
the provisions of rule 17d–1.
4. 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.
5. Applicants state that in the absence
of the requested relief, in many
circumstances the Regulated Funds
would be limited in their ability to
participate in attractive and appropriate
investment opportunities. Applicants
state that, as required by rule 17d–1(b),
the Conditions ensure that the terms on
which Co-Investment Transactions may
be made will be consistent with the
participation of the Regulated Funds
being on a basis that it is neither
different from nor less advantageous
than other participants, thus protecting
the equity holders of any participant
from being disadvantaged. Applicants
further state that the Conditions ensure
that all Co-Investment Transactions are
reasonable and fair to the Regulated
Funds and their shareholders and do
not involve overreaching by any person
concerned, including the Advisers.
Applicants state that the Regulated
Funds’ participation in the CoInvestment Transactions in accordance
with the Conditions will be consistent
with the provisions, policies, and
purposes of the Act and would be done
in a manner that is not different from,
or less advantageous than, that of other
participants.
Applicants’ Conditions
Applicants agree that the Order will
be subject to the following Conditions:
1. Identification and Referral of
Potential Co-Investment Transactions.
(a) The Advisers will establish,
maintain and implement policies and
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46751
procedures reasonably designed to
ensure that each Adviser is promptly
notified of all Potential Co-Investment
Transactions that fall within the thencurrent Objectives and Strategies and
Board-Established Criteria of any
Regulated Fund the Adviser manages.
(b) When an Adviser to a Regulated
Fund is notified of a Potential CoInvestment Transaction under
Condition 1(a), the Adviser will make
an independent determination of the
appropriateness of the investment for
the Regulated Fund in light of the
Regulated Fund’s then-current
circumstances.
2. Board Approvals of Co-Investment
Transactions.
(a) If the Adviser deems a Regulated
Fund’s participation in any Potential
Co-Investment Transaction to be
appropriate for the Regulated Fund, it
will then determine an appropriate level
of investment for the Regulated Fund.
(b) If the aggregate amount
recommended by the Advisers to be
invested in the Potential Co-Investment
Transaction by the participating
Regulated Funds and any participating
Affiliated Funds, collectively, exceeds
the amount of the investment
opportunity, the investment opportunity
will be allocated among them pro rata
based on the size of the Internal Orders,
as described in section III.A.1.b. of the
application. Each Adviser to a
participating Regulated Fund will
promptly notify and provide the Eligible
Directors with information concerning
the Affiliated Funds’ and Regulated
Funds’ order sizes to assist the Eligible
Directors with their review of the
applicable Regulated Fund’s
investments for compliance with these
Conditions.
(c) After making the determinations
required in Condition 1(b) above, each
Adviser to a participating Regulated
Fund will distribute written information
concerning the Potential Co-Investment
Transaction (including the amount
proposed to be invested by each
participating Regulated Fund and each
participating Affiliated Fund) to the
Eligible Directors of its participating
Regulated Fund(s) for their
consideration. A Regulated Fund will
enter into a Co-Investment Transaction
with one or more other Regulated Funds
or Affiliated Funds only if, prior to the
Regulated Fund’s participation in the
Potential Co-Investment Transaction, a
Required Majority concludes that:
(i) The terms of the transaction,
including the consideration to be paid,
are reasonable and fair to the Regulated
Fund and its equity holders and do not
involve overreaching in respect of the
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Regulated Fund or its equity holders on
the part of any person concerned;
(ii) the transaction is consistent with:
(A) The interests of the Regulated
Fund’s equity holders; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the investment by any other
Regulated Fund(s) or Affiliated Fund(s)
would not disadvantage the Regulated
Fund, and participation by the
Regulated Fund would not be on a basis
different from, or less advantageous
than, that of any other Regulated
Fund(s) or Affiliated Fund(s)
participating in the transaction;
provided that the Required Majority
shall not be prohibited from reaching
the conclusions required by this
Condition 2(c)(iii) if:
(A) The settlement date for another
Regulated Fund or an Affiliated Fund in
a Co-Investment Transaction is later
than the settlement date for the
Regulated Fund by no more than ten
business days or earlier than the
settlement date for the Regulated Fund
by no more than ten business days, in
either case, so long as: (x) The date on
which the commitments of the
Affiliated Funds and Regulated Funds
are made is the same; and (y) the earliest
settlement date and the latest settlement
date of any Affiliated Fund or Regulated
Fund participating in the transaction
will occur within ten business days of
each other; or
(B) any other Regulated Fund or
Affiliated Fund, but not the Regulated
Fund itself, gains the right to nominate
a director for election to a portfolio
company’s board of directors, the right
to have a board observer or any similar
right to participate in the governance or
management of the portfolio company
so long as: (x) The Eligible Directors will
have the right to ratify the selection of
such director or board observer, if any;
(y) the Adviser agrees to, and does,
provide periodic reports to the
Regulated Fund’s Board 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 (z) any fees or other compensation
that any other Regulated Fund or
Affiliated Fund or any affiliated person
of any other Regulated Fund or
Affiliated Fund receives in connection
with the right of one or more Regulated
Funds or Affiliated Funds 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 any participating
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Affiliated Funds (who may, in turn,
share their portion with their affiliated
persons) and any participating
Regulated Fund(s) in accordance with
the amount of each such party’s
investment; and
(iv) the proposed investment by the
Regulated Fund will not involve
compensation, remuneration or a direct
or indirect 22 financial benefit to the
Advisers, any other Regulated Funds,
the Affiliated 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 14, (B) to the
extent permitted by section 17(e) or
57(k), as applicable, (C) indirectly, as a
result of an interest in the securities
issued by one of the parties to the CoInvestment Transaction, or (D) in the
case of fees or other compensation
described in Condition 2(c)(iii)(B)(z).
3. Right to Decline. Each Regulated
Fund has the right to decline to
participate in any Potential CoInvestment Transaction or to invest less
than the amount proposed.
4. General Limitation. Except for
Follow-On Investments made in
accordance with Conditions 8 and 9
below,23 a Regulated Fund will not
invest in reliance on the Order in any
issuer in which a Related Party has an
investment.24
5. Same Terms and Conditions. A
Regulated Fund will not participate in
any Potential Co-Investment
Transaction unless (i) the terms,
conditions, price, class of securities to
be purchased, date on which the
commitment is entered into and
registration rights (if any) will be the
same for each participating Regulated
Fund and Affiliated Fund and (ii) the
earliest settlement date and the latest
22 For example, procuring the Regulated Fund’s
investment in a Potential Co-Investment
Transaction to permit an affiliate to complete or
obtain better terms in a separate transaction would
constitute an indirect financial benefit.
23 This exception applies only to Follow-On
Investments by a Regulated Fund in issuers in
which that Regulated Fund already holds
investments.
24 ‘‘Related Party’’ means (i) any Close Affiliate
and (ii) in respect of matters as to which any
Adviser has knowledge, any Remote Affiliate.
‘‘Close Affiliate’’ means the Advisers, the
Regulated Funds, the Affiliated Funds and any
other person described in section 57(b) (after giving
effect to rule 57b–1) in respect of any Regulated
Fund (treating any registered investment company
or series thereof as a BDC for this purpose) except
for limited partners included solely by reason of the
reference in section 57(b) to section 2(a)(3)(D).
‘‘Remote Affiliate’’ means any person described
in section 57(e) in respect of any Regulated Fund
(treating any registered investment company or
series thereof as a BDC for this purpose) and any
limited partner holding 5% or more of the relevant
limited partner interests that would be a Close
Affiliate but for the exclusion in that definition.
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settlement date of any participating
Regulated Fund or Affiliated Fund will
occur as close in time as practicable and
in no event more than ten business days
apart. The grant to one or more
Regulated Funds or Affiliated Funds,
but not the respective Regulated Fund,
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 5, if Condition 2(c)(iii)(B) is
met.
6. Standard Review Dispositions.
(a) General. If any Regulated Fund or
Affiliated Fund elects to sell, exchange
or otherwise dispose of an interest in a
security and one or more Regulated
Funds and Affiliated Funds have
previously participated in a CoInvestment Transaction with respect to
the issuer, then:
(i) The Adviser to such Regulated
Fund or Affiliated Fund, as applicable,
will notify each Regulated Fund that
holds an investment in the issuer of the
proposed Disposition at the earliest
practical time; and
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to participation by such Regulated
Fund in the Disposition.
(b) Same Terms and Conditions. Each
Regulated Fund 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 the Affiliated
Funds and any other Regulated Funds.
(c) No Board Approval Required. A
Regulated Fund may participate in such
a Disposition without obtaining prior
approval of the Required Majority if:
(i) (A) The participation of each
Regulated Fund and Affiliated Fund in
such Disposition is proportionate to its
then-current holding of the security (or
securities) of the issuer that is (or are)
the subject of the Disposition; 25 (B) the
Board of the Regulated Fund has
approved as being in the best interests
of the Regulated Fund the ability to
participate in such Dispositions on a pro
rata basis (as described in greater detail
in the application); and (C) the Board of
the Regulated Fund is provided on a
quarterly basis with a list of all
25 In the case of any Disposition, proportionality
will be measured by each participating Regulated
Fund’s and Affiliated Fund’s outstanding
investment in the security in question immediately
preceding the Disposition.
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Dispositions made in accordance with
this Condition; or
(ii) each security is a Tradable
Security and (A) the Disposition is not
to the issuer or any affiliated person of
the issuer; and (B) the security is sold
for cash in a transaction in which the
only term negotiated by or on behalf of
the participating Regulated Funds and
Affiliated Funds is price.
(d) Standard Board Approval. In all
other cases, the Adviser will provide its
written recommendation as to the
Regulated Fund’s participation to the
Eligible Directors and the Regulated
Fund will participate in such
Disposition solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
7. Enhanced Review Dispositions.
(a) General. If any Regulated Fund or
Affiliated Fund elects to sell, exchange
or otherwise dispose of a Pre-Boarding
Investment in a Potential Co-Investment
Transaction and the Regulated Funds
and Affiliated Funds have not
previously participated in a CoInvestment Transaction with respect to
the issuer:
(i) The Adviser to such Regulated
Fund or Affiliated Fund, as applicable,
will notify each Regulated Fund that
holds an investment in the issuer of the
proposed Disposition at the earliest
practical time;
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to participation by such Regulated
Fund in the Disposition; and
(iii) the Advisers will provide to the
Board of each Regulated Fund that
holds an investment in the issuer all
information relating to the existing
investments in the issuer of the
Regulated Funds and Affiliated Funds,
including the terms of such investments
and how they were made, that is
necessary for the Required Majority to
make the findings required by this
Condition.
(b) Enhanced Board Approval. The
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such Disposition solely to
the extent that a Required Majority
determines that:
(i) The Disposition complies with
Condition 2(c)(i), (ii), (iii)(A), and (iv);
and
(ii) the making and holding of the PreBoarding Investments were not
prohibited by section 57 or rule 17d–1,
as applicable, and records the basis for
the finding in the Board minutes.
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(c) Additional Requirements: The
Disposition may only be completed in
reliance on the Order if:
(i) Same Terms and Conditions. Each
Regulated Fund has 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 the Affiliated
Funds and any other Regulated Funds;
(ii) Original Investments. All of the
Affiliated Funds’ and Regulated Funds’
investments in the issuer are PreBoarding Investments;
(iii) Advice of counsel. Independent
counsel to the Board advises that the
making and holding of the investments
in the Pre-Boarding Investments were
not prohibited by section 57 (as
modified by rule 57b–1) or rule 17d–1,
as applicable;
(iv) Multiple Classes of Securities. All
Regulated Funds and Affiliated Funds
that hold Pre-Boarding Investments in
the issuer immediately before the time
of completion of the Co-Investment
Transaction hold the same security or
securities of the issuer. For the purpose
of determining whether the Regulated
Funds and Affiliated Funds hold the
same security or securities, they may
disregard any security held by some but
not all of them if, prior to relying on the
Order, the Required Majority is
presented with all information
necessary to make a finding, and finds,
that: (x) Any Regulated Fund’s or
Affiliated Fund’s holding of a different
class of securities (including for this
purpose a security with a different
maturity date) is immaterial 26 in
amount, including immaterial relative to
the size of the issuer; and (y) the Board
records the basis for any such finding in
its minutes. In addition, securities that
differ only in respect of issuance date,
currency, or denominations may be
treated as the same security; and
(v) No control. The Affiliated Funds,
the other Regulated Funds and their
affiliated persons (within the meaning
of section 2(a)(3)(C) of the Act),
individually or in the aggregate, do not
control the issuer of the securities
(within the meaning of section 2(a)(9) of
the Act).
8. Standard Review Follow-Ons.
(a) General. If any Regulated Fund or
Affiliated Fund desires to make a
Follow-On Investment in an issuer and
26 In determining whether a holding is
‘‘immaterial’’ for purposes of the Order, the
Required Majority will consider whether the nature
and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable
person would not believe that the interest affected
the determination of whether to enter into the
transaction or arrangement or the terms of the
transaction or arrangement.
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46753
the Regulated Funds and Affiliated
Funds holding investments in the issuer
previously participated in a CoInvestment Transaction with respect to
the issuer:
(i) The Adviser to each such
Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated
Fund that holds securities of the
portfolio company of the proposed
transaction at the earliest practical time;
and
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to the proposed participation,
including the amount of the proposed
investment, by such Regulated Fund.
(b) No Board Approval Required. A
Regulated Fund may participate in the
Follow-On Investment without
obtaining prior approval of the Required
Majority if:
(i) (A) The proposed participation of
each Regulated Fund and each
Affiliated Fund in such investment is
proportionate to its outstanding
investments in the issuer or the security
at issue, as appropriate,27 immediately
preceding the Follow-On Investment;
and (B) the Board of the Regulated Fund
has approved as being in the best
interests of the Regulated Fund the
ability to participate in Follow-On
Investments on a pro rata basis (as
described in greater detail in the
application); or
(ii) it is a Non-Negotiated Follow-On
Investment.
(c) Standard Board Approval. In all
other cases, the Adviser will provide its
written recommendation as to the
Regulated Fund’s participation to the
Eligible Directors and the Regulated
Fund will participate in such Follow-On
Investment solely to the extent that a
Required Majority makes the
determinations set forth in Condition
2(c). If the only previous Co-Investment
Transaction with respect to the issuer
was an Enhanced Review Disposition,
the Eligible Directors must complete
this review of the proposed Follow-On
27 To the extent that a Follow-On Investment
opportunity is in a security or arises in respect of
a security held by the participating Regulated
Funds and Affiliated Funds, proportionality will be
measured by each participating Regulated Fund’s
and Affiliated Fund’s outstanding investment in the
security in question immediately preceding the
Follow-On Investment using the most recent
available valuation thereof. To the extent that a
Follow-On Investment opportunity relates to an
opportunity to invest in a security that is not in
respect of any security held by any of the
participating Regulated Funds or Affiliated Funds,
proportionality will be measured by each
participating Regulated Fund’s and Affiliated
Fund’s outstanding investment in the issuer
immediately preceding the Follow-On Investment
using the most recent available valuation thereof.
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Investment both on a stand-alone basis
and together with the Pre-Boarding
Investments in relation to the total
economic exposure and other terms of
the investment.
(d) Allocation. If, with respect to any
such Follow-On Investment:
(i) The amount of the opportunity
proposed to be made available to any
Regulated Fund is not based on the
Regulated Funds’ and the Affiliated
Funds’ outstanding investments in the
issuer or the security at issue, as
appropriate, immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the Advisers to be
invested in the Follow-On Investment
by the participating Regulated Funds
and any participating Affiliated Funds,
collectively, exceeds the amount of the
investment opportunity, then the
Follow-On Investment opportunity will
be allocated among them pro rata based
on the size of the Internal Orders, as
described in section III.A.1.b. of the
application.
(e) Other Conditions. 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. Enhanced Review Follow-Ons.
(a) General. If any Regulated Fund or
Affiliated Fund desires to make a
Follow-On Investment in an issuer that
is a Potential Co-Investment Transaction
and the Regulated Funds and Affiliated
Funds holding investments in the issuer
have not previously participated in a
Co-Investment Transaction with respect
to the issuer:
(i) The Adviser to each such
Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated
Fund that holds securities of the
portfolio company of the proposed
transaction at the earliest practical time;
(ii) the Adviser to each Regulated
Fund that holds an investment in the
issuer will formulate a recommendation
as to the proposed participation,
including the amount of the proposed
investment, by such Regulated Fund;
and
(iii) the Advisers will provide to the
Board of each Regulated Fund that
holds an investment in the issuer all
information relating to the existing
investments in the issuer of the
Regulated Funds and Affiliated Funds,
including the terms of such investments
and how they were made, that is
necessary for the Required Majority to
make the findings required by this
Condition.
(b) Enhanced Board Approval. The
Adviser will provide its written
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21:55 Jul 31, 2020
Jkt 250001
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such Follow-On
Investment solely to the extent that a
Required Majority reviews the proposed
Follow-On Investment both on a standalone basis and together with the PreBoarding Investments in relation to the
total economic exposure and other
terms and makes the determinations set
forth in Condition 2(c). In addition, the
Follow-On Investment may only be
completed in reliance on the Order if
the Required Majority of each
participating Regulated Fund
determines that the making and holding
of the Pre-Boarding Investments were
not prohibited by section 57 (as
modified by rule 57b–1) or rule 17d–1,
as applicable. The basis for the Board’s
findings will be recorded in its minutes.
(c) Additional Requirements. The
Follow-On Investment may only be
completed in reliance on the Order if:
(i) Original Investments. All of the
Affiliated Funds’ and Regulated Funds’
investments in the issuer are PreBoarding Investments;
(ii) Advice of counsel. Independent
counsel to the Board advises that the
making and holding of the investments
in the Pre-Boarding Investments were
not prohibited by section 57 (as
modified by rule 57b–1) or rule 17d–1,
as applicable;
(iii) Multiple Classes of Securities. All
Regulated Funds and Affiliated Funds
that hold Pre-Boarding Investments in
the issuer immediately before the time
of completion of the Co-Investment
Transaction hold the same security or
securities of the issuer. For the purpose
of determining whether the Regulated
Funds and Affiliated Funds hold the
same security or securities, they may
disregard any security held by some but
not all of them if, prior to relying on the
Order, the Required Majority is
presented with all information
necessary to make a finding, and finds,
that: (x) Any Regulated Fund’s or
Affiliated Fund’s holding of a different
class of securities (including for this
purpose a security with a different
maturity date) is immaterial in amount,
including immaterial relative to the size
of the issuer; and (y) the Board records
the basis for any such finding in its
minutes. In addition, securities that
differ only in respect of issuance date,
currency, or denominations may be
treated as the same security; and
(iv) No control. The Affiliated Funds,
the other Regulated Funds and their
affiliated persons (within the meaning
of section 2(a)(3)(C) of the Act),
individually or in the aggregate, do not
control the issuer of the securities
PO 00000
Frm 00169
Fmt 4703
Sfmt 4703
(within the meaning of section 2(a)(9) of
the Act).
(d) Allocation. If, with respect to any
such Follow-On Investment:
(i) The amount of the opportunity
proposed to be made available to any
Regulated Fund is not based on the
Regulated Funds’ and the Affiliated
Funds’ outstanding investments in the
issuer or the security at issue, as
appropriate, immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the Advisers to be
invested in the Follow-On Investment
by the participating Regulated Funds
and any participating Affiliated Funds,
collectively, exceeds the amount of the
investment opportunity, then the
Follow-On Investment opportunity will
be allocated among them pro rata based
on the size of the Internal Orders, as
described in section III.A.1.b. of the
application.
(e) Other Conditions. 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.
10. Board Reporting, Compliance and
Annual Re-Approval.
(a) Each Adviser to a Regulated Fund
will present to the Board of each
Regulated Fund, on a quarterly basis,
and at such other times as the Board
may request, (i) a record of all
investments in Potential Co-Investment
Transactions made by any of the other
Regulated Funds or any of the Affiliated
Funds during the preceding quarter that
fell within the Regulated Fund’s thencurrent Objectives and Strategies and
Board-Established Criteria that were not
made available to the Regulated Fund,
and an explanation of why such
investment opportunities were not made
available to the Regulated Fund; (ii) a
record of all Follow-On Investments in
and Dispositions of investments in any
issuer in which the Regulated Fund
holds any investments by any Affiliated
Fund or other Regulated Fund during
the prior quarter; and (iii) all
information concerning Potential CoInvestment Transactions and CoInvestment Transactions, including
investments made by other Regulated
Funds or Affiliated Funds that the
Regulated Fund considered but declined
to participate in, so that the
Independent Directors, may determine
whether all Potential Co-Investment
Transactions and Co-Investment
Transactions during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the Conditions.
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03AUN1
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Federal Register / Vol. 85, No. 149 / Monday, August 3, 2020 / Notices
(b) All information presented to the
Regulated Fund’s Board pursuant to this
Condition will be kept for the life of the
Regulated Fund and at least two years
thereafter, and will be subject to
examination by the Commission and its
staff.
(c) Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4), will prepare an annual
report for its Board each year that
evaluates (and documents the basis of
that evaluation) the Regulated Fund’s
compliance with the terms and
Conditions of the application and the
procedures established to achieve such
compliance.
(d) The Independent Directors
(including the non-interested members
of each Independent Party) will
consider at least annually whether
continued participation in new and
existing Co-Investment Transactions is
in the Regulated Fund’s best interests.
11. Record Keeping. Each Regulated
Fund will maintain the records required
by section 57(f)(3) of the Act as if each
of the Regulated Funds were a BDC and
each of the investments permitted under
these Conditions were approved by the
Required Majority under section 57(f).
12. Director Independence. No
Independent Director (including the
non-interested members of any
Independent Party) of a Regulated Fund
will also be a director, general partner,
managing member or principal, or
otherwise be an ‘‘affiliated person’’ (as
defined in the Act) of any Affiliated
Fund.
13. Expenses. 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 Securities
Act) will, to the extent not payable by
the Advisers under their respective
advisory agreements with the Regulated
Funds and the Affiliated Funds, be
shared by the Regulated Funds and the
participating Affiliated Funds in
proportion to the relative amounts of the
securities held or being acquired or
disposed of, as the case may be.
14. Transaction Fees.28 Any
transaction fee (including break-up,
structuring, monitoring or commitment
fees but excluding brokerage or
underwriting compensation permitted
by section 17(e) or 57(k)) received in
connection with any Co-Investment
Transaction will be distributed to the
28 Applicants are not requesting and the
Commission is not providing any relief for
transaction fees received in connection with any
Co-Investment Transaction.
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20:39 Jul 31, 2020
Jkt 250001
participants on a pro rata basis based on
the amounts they 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
transaction, the fee will be deposited
into an account maintained by the
Adviser at a bank or banks having the
qualifications prescribed in section
26(a)(1), and the account will earn a
competitive rate of interest that will also
be divided pro rata among the
participants. None of the Advisers, the
Affiliated Funds, the other Regulated
Funds or any affiliated person of the
Affiliated Funds or the Regulated Funds
will receive any additional
compensation or remuneration of any
kind as a result of or in connection with
a Co-Investment Transaction other than
(i) in the case of the Regulated Funds
and the Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
Condition 2(c)(iii)(B)(z), (ii) brokerage or
underwriting compensation permitted
by section 17(e) or 57(k) or (iii) in the
case of the Advisers, investment
advisory compensation paid in
accordance with investment advisory
agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s)
and its Adviser.
15. Independence. If the Holders own
in the aggregate more than 25 percent of
the Shares of a Regulated Fund, 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16830 Filed 7–31–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33959; 812–14997]
1WS Credit Income Fund, et al.
July 28, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under section 17(d) of the Investment
PO 00000
Frm 00170
Fmt 4703
Sfmt 4703
46755
Company Act of 1940 (the ‘‘Act’’) and
rule 17d–1 under the Act permitting
certain joint transactions otherwise
prohibited by section 17(d) of the Act
and under rule 17d–1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
closed–end management investment
companies to co-invest in portfolio
companies with each other and with
affiliated investment funds.
APPLICANTS: 1WS Credit Income Fund
(‘‘1WS’’ or the ‘‘Existing Regulated
Fund’’), 1WS Capital Advisors, LLC
(‘‘1WS Capital’’ or the ‘‘Existing 1WS
Adviser’’), the investment adviser to
1WS, on behalf of itself and its
successors,1 One William Street Capital
Master Fund, Ltd., OWS Credit
Opportunity Master Fund, Ltd., OWS
ABS Master Fund II, LP, OWS COF I
Master, L.P., OWS ABS IV, LP, OWS
Global Fixed Income Fund (USDHedged), Ltd., OWS Credit Opportunity
Fund, L.P., One William Street Capital
Partners, L.P., One William Street
Capital Partners II, L.P., One William
Street Capital Offshore Fund, Ltd., OWS
Capital Offshore Fund II, Ltd, One
William Street Capital Intermediate
Fund, L.P., OWS Credit Opportunity
Offshore Fund, Ltd., OWS Credit
Opportunity Offshore Fund II, Ltd, OWS
Credit Opportunity Offshore Fund III,
Ltd, OWS Credit Opportunity
Intermediate Fund, LP, OWS Credit
Opportunity I, LLC, OWS COF I, Ltd.,
OWS ABS Fund II, Ltd. and OWS ABS
Fund V, Ltd.
FILING DATES: The application was filed
on January 11, 2019, and amended on
May 21, 2019, June 17, 2019, and May
29, 2020.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request by email.
Hearing requests should be received by
the Commission by 5:30 p.m. on August
24, 2020, and should be accompanied
by proof of service on the applicants, in
the form of an affidavit, or, for lawyers,
a certificate of service. Pursuant to rule
0–5 under the Act, hearing requests
should state the nature of the writer’s
interest, any facts bearing upon the
desirability of a hearing on the matter,
the reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
1 The term ‘‘successor,’’ as applied to the Adviser,
means an entity that results from a reorganization
into another jurisdiction or change in the type of
business organization.
E:\FR\FM\03AUN1.SGM
03AUN1
]]>Agencies
[Federal Register Volume 85, Number 149 (Monday, August 3, 2020)]
[Notices]
[Pages 46747-46755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16830]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33958; File No. 812-15057]
Morgan Stanley Direct Lending Fund, et al.
July 28, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an order under sections 17(d) and 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 sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit
certain business development companies (``BDCs'') and closed-end
management investment companies to co-invest in portfolio companies
with each other and with certain affiliated funds.
Applicants: Morgan Stanley Direct Lending Fund (``MS BDC''), MS
Capital Partners Adviser Inc. (``MS Adviser''),
[[Page 46748]]
NH Credit Partners III Holdings L.P., NH Expansion Credit Fund Holdings
LP, North Haven Credit Partners II L.P., North Haven Credit Partners
III L.P., North Haven Senior Loan Fund (ALMA) Designated Activity
Company, North Haven Senior Loan Fund L.P., North Haven Senior Loan
Fund Offshore L.P., North Haven Senior Loan Fund Unleveraged Offshore
L.P., North Haven Tactical Value Fund (AIV) LP, North Haven Tactical
Value Fund LP, North Haven Unleveraged Senior Loan Fund (Yen) L.P., NH
Senior Loan Fund Offshore Holdings L.P., NH Senior Loan Fund Onshore
Holdings LLC, and DLF CA SPV LLC (``MS BDC Sub'').
Filing Dates: The application was filed on August 9, 2019, and
amended on December 20, 2019, April 3, 2020 and May 21, 2020.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on August 24, 2020, 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 emailing the Commission's Secretary.
ADDRESSES: The Commission: [email protected]. Applicants: Mr.
Mustufa Salehbhai, Executive Director,
[email protected].
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811 or Kaitlin C. Bottock, Branch Chief, at (202) 551-6825
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Introduction
1. The applicants request an order of the Commission under sections
17(d) and 57(i) of the Act and rule 17d-1 thereunder (the ``Order'') to
permit, subject to the terms and conditions set forth in the
application (the ``Conditions''), a Regulated Fund \1\ and one or more
other Regulated Funds and/or one or more Affiliated Funds \2\ to enter
into Co-Investment Transactions with each other. ``Co-Investment
Transaction'' means any transaction in which a Regulated Fund (or its
Wholly-Owned Investment Sub (as defined below)) participated together
with one or more Affiliated Funds and/or one or more other Regulated
Funds (or its Wholly-Owned Investment Sub) in reliance on the Order.
``Potential Co-Investment Transaction'' means any investment
opportunity in which a Regulated Fund (or its Wholly-Owned Investment
Sub) could not participate together with one or more Affiliated Funds
and/or one or more other Regulated Funds (or its Wholly-Owned
Investment Sub) without obtaining and relying on the Order.\3\
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\1\ ``Regulated Funds'' means MS BDC and the Future Regulated
Funds. ``Future Regulated Fund'' means a closed-end management
investment company (a) that is registered under the Act or has
elected to be regulated as a BDC, (b) whose investment adviser (and
sub-adviser, if any) is an Adviser, and (c) that intends to
participate in the Co-investment Program.
``Adviser'' means the MS Adviser, together with any future
investment adviser that (a) is controlled by the MS Adviser, (b) (i)
is registered as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act'') or (ii) is a relying adviser of an
investment adviser that is registered under the Advisers Act, and
that is controlled by the MS Adviser, and (c) is not a Regulated
Fund or a subsidiary of a Regulated Fund.
\2\ ``Affiliated Fund'' means any entity (a) whose investment
adviser (and sub-adviser(s), if any) is an Adviser, (b) that either
(i) would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act or (ii) relies on rule 3a-7 under the Act, and
(c) that intends to participate in the Co-Investment Program.
\3\ All existing entities that currently intend to rely on the
Order have been named as applicants and any existing or future
entities that may rely on the Order in the future will comply with
its terms and Conditions set forth in the application.
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Applicants
2. MS BDC is a non-diversified, closed-end management investment
company incorporated in Delaware that will elect to be regulated as a
BDC under the Act.\4\ The Board \5\ of MS BDC currently consist of six
directors, four of whom are Independent Directors.\6\
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\4\ 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 section 55(a)(1) through
55(a)(3) and makes available significant managerial assistance with
respect to the issuers of such securities.
\5\ ``Board'' means the board of directors (or the equivalent)
of a Regulated Fund.
\6\ ``Independent Director'' means a member of the Board of any
relevant entity who is not an ``interested person'' as defined in
section 2(a)(19) of the Act. No Independent Director of a Regulated
Fund (including any non-interested member of an Independent Party)
will have a financial interest in any Co-Investment Transaction,
other than indirectly through share ownership in one of the
Regulated Funds.
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3. MS Adviser, a corporation under the laws of the state of
Delaware, is registered with the Commission as an investment adviser
under the Advisers Act. MS Adviser is a wholly-owned subsidiary of
Morgan Stanley, a global financial services firm that through its
subsidiaries and affiliates, advises, originates, trades, manages and
distributes capital for governments, institutions and individuals.
Morgan Stanley is a bank holding company structured as a Delaware
corporation that controls the MS Adviser.
4. MS BDC Sub is a wholly-owned subsidiary of MS BDC formed
specifically for the purpose of procuring financing or otherwise
holding investments.
5. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs.\7\ Such a subsidiary may
be prohibited from investing in a Co-Investment Transaction with a
Regulated Fund (other than its parent) or any Affiliated Fund because
it would be a company controlled by its parent Regulated Fund for
purposes of section 57(a)(4) and rule 17d-1. Applicants request that
each Wholly-Owned Investment Sub be permitted to participate in Co-
Investment Transactions in lieu of the Regulated Fund that owns it and
that the Wholly-Owned Investment Sub's participation in any such
transaction be treated, for purposes of the Order, as though the parent
Regulated Fund were participating directly.
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\7\ ``Wholly-Owned Investment Sub'' means the MS BDC Sub or an
entity (i) that is wholly-owned by a Regulated Fund (with such
Regulated Fund at all times holding, beneficially and of record,
100% or more of the voting and economic interests); (ii) whose sole
business purpose is to hold one or more investments on behalf of
such Regulated Fund (and in the case of an SBIC Subsidiary, maintain
a license under the Small Business Investment Act of 1958 (``SBA
Act'') and issue debentures guaranteed by the Small Business
Administration (``SBA'')); (iii) with respect to which such
Regulated Fund's Board has the sole authority to make all
determinations with respect to the entity's participation under the
Conditions; and (iv) that (a) would be an investment company but for
section 3(c)(1) or 3(c)(7) of the Act, or (b) that relies on Rule
3a-7 under the Act. ``SBIC Subsidiary'' means a Wholly-Owned
Investment Sub that is licensed by the SBA to operate under the SBA
Act as a small business investment company.
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Applicants' Representations
A. Allocation Process
6. Applicants represent that the Adviser will establish processes
for allocating initial investment
[[Page 46749]]
opportunities, opportunities for subsequent investments in an issuer
and dispositions of securities holdings reasonably designed to treat
all clients fairly and equitably. Further, applicants represent that
these processes will be extended and modified in a manner reasonably
designed to ensure that the additional transactions permitted under the
Order will both (i) be fair and equitable to the Regulated Funds and
the Affiliated Funds and (ii) comply with the Conditions.
7. Opportunities for Potential Co-Investment Transactions may arise
when investment advisory personnel of an Adviser becomes aware of
investment opportunities that may be appropriate for one or more
Regulated Funds and/or one or more Affiliated Funds. If the requested
Order is granted, the Adviser will establish, maintain and implement
policies and procedures reasonably designed to ensure that, when such
opportunities arise, the Advisers to the relevant Regulated Funds are
promptly notified and receive the same information about the
opportunity as any other Advisers considering the opportunity for their
clients. In particular, consistent with Condition 1, if a Potential Co-
Investment Transaction falls within the then-current Objectives and
Strategies \8\ and any Board-Established Criteria \9\ of a Regulated
Fund, the policies and procedures will require that the relevant
portfolio managers, as well as the teams and committees of portfolio
managers, analysts and senior management (``Investment Teams'' and
``Investment Committees'') responsible for that Regulated Fund receive
sufficient information to allow the Regulated Fund's Adviser to make
its independent determination and recommendations under the Conditions.
The Adviser to each applicable Regulated Fund, working through the
applicable portfolio manager, or in conjunction with any applicable
Investment Team or Investment Committee, will then make an independent
determination of the appropriateness of the investment for the
Regulated Fund in light of the Regulated Fund's then-current
circumstances. If the Adviser to a Regulated Fund deems the Regulated
Fund's participation in such Potential Co-Investment Transaction to be
appropriate, then it will, working through the applicable portfolio
manager, or in conjunction with any applicable Investment Team or
Investment Committee, formulate a recommendation regarding the proposed
order amount for the Regulated Fund.
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\8\ ``Objectives and Strategies'' means (i) with respect to any
Regulated Fund, its investment objectives and strategies, as
described in its most current filings with the Commission under the
Securities Act of 1933 (``Securities Act'') or under the Securities
Exchange Act of 1934, and the Act, and its most current report to
stockholders.
\9\ ``Board-Established Criteria'' means criteria that the Board
of a Regulated Fund may establish from time to time to describe the
characteristics of Potential Co-Investment Transactions regarding
which the Adviser to the Regulated Fund should be notified under
Condition 1. The Board-Established Criteria will be consistent with
the Regulated Fund's Objectives and Strategies. If no Board-
Established Criteria are in effect, then the Regulated Fund's
Adviser will be notified of all Potential Co-Investment Transactions
that fall within the Regulated Fund's then-current Objectives and
Strategies. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as industry/sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve a discretionary
assessment. The Adviser to the Regulated Fund may from time to time
recommend criteria for the Board's consideration, but Board-
Established Criteria will only become effective if approved by a
majority of the Independent Directors. The Independent Directors of
a Regulated Fund may at any time rescind, suspend or qualify their
approval of any Board-Established Criteria, though applicants
anticipate that, under normal circumstances, the Board would not
modify these criteria more often than quarterly.
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8. Applicants state that, for each Regulated Fund and Affiliated
Fund whose Adviser recommends participating in a Potential Co-
Investment Transaction, the Adviser, working through the applicable
portfolio manager, or in conjunction with any applicable Investment
Team or Investment Committee, will approve an investment amount. Prior
to the External Submission (as defined below), each proposed order
amount may be reviewed and adjusted, in accordance with the applicable
Advisers' written allocation policies and procedures, by the Morgan
Stanley Private Credit Allocation Committee, on which senior management
and the Adviser's chief compliance officer participate.\10\ The order
of a Regulated Fund or Affiliated Fund resulting from this process is
referred to as its ``Internal Order.'' The Internal Order will be
submitted for approval by the Required Majority of any participating
Regulated Funds in accordance with the Conditions.\11\
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\10\ The reason for any such adjustment to a proposed order
amount will be documented in writing and preserved in the records of
each Adviser.
\11\ ``Required Majority'' means a required majority, as defined
in section 57(o) of the Act. In the case of a Regulated Fund that is
a registered closed-end fund, the Board members that make up the
Required Majority will be determined as if the Regulated Fund were a
BDC subject to section 57(o).
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9. If the aggregate Internal Orders for a Potential Co-Investment
Transaction do not exceed the size of the investment opportunity
immediately prior to the submission of the orders to the underwriter,
broker, dealer or issuer, as applicable (the ``External Submission''),
then each Internal Order will be fulfilled as placed. If, on the other
hand, the aggregate Internal Orders for a Potential Co-Investment
Transaction exceed the size of the investment opportunity immediately
prior to the External Submission, then the allocation of the
opportunity will be made pro rata on the basis of the size of the
Internal Orders.\12\ If, subsequent to such External Submission, the
size of the opportunity is increased or decreased, or if the terms of
such opportunity, or the facts and circumstances applicable to the
Regulated Funds' or the Affiliated Funds' consideration of the
opportunity, change, the participants will be permitted to submit
revised Internal Orders in accordance with written allocation policies
and procedures that the Advisers will establish, implement and
maintain.\13\
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\12\ The Advisers will maintain records of all proposed order
amounts, Internal Orders and External Submissions in conjunction
with Potential Co-Investment Transactions. Each applicable Adviser
will provide the Eligible Directors with information concerning the
Affiliated Funds' and Regulated Funds' order sizes to assist the
Eligible Directors with their review of the applicable Regulated
Fund's investments for compliance with the Conditions.
``Eligible Directors'' means, with respect to a Regulated Fund
and a Potential Co-Investment Transaction, the members of the
Regulated Fund's Board eligible to vote on that Potential Co-
Investment Transaction under section 57(o) of the Act (treating any
registered investment company or series thereof as a BDC for this
purpose).
\13\ The Board of the Regulated Fund will then either approve or
disapprove of the investment opportunity in accordance with
Condition 2, 6, 7, 8 or 9, as applicable.
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B. Follow-On Investments
10. Applicants state that from time to time the Regulated Funds and
Affiliated Funds may have opportunities to make Follow-On Investments
\14\ in an issuer in which a Regulated Fund and one or more other
Regulated Funds and/or Affiliated Funds previously have invested.
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\14\ ``Follow-On Investment'' means an additional investment in
the same issuer, including, but not limited to, through the exercise
of warrants, conversion privileges or other rights to purchase
securities of the issuer.
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11. Applicants propose that Follow-On Investments would be divided
into two categories depending on whether the prior investment was a Co-
Investment Transaction or a Pre-Boarding Investment.\15\ If the
Regulated
[[Page 46750]]
Funds and Affiliated Funds had previously participated in a Co-
Investment Transaction with respect to the issuer, then the terms and
approval of the Follow-On Investment would be subject to the Standard
Review Follow-Ons described in Condition 8. If the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer but hold a Pre-Boarding
Investment, then the terms and approval of the Follow-On Investment
would be subject to the Enhanced-Review Follow-Ons described in
Condition 9. All Enhanced Review Follow-Ons require the approval of the
Required Majority. For a given issuer, the participating Regulated
Funds and Affiliated Funds would need to comply with the requirements
of Enhanced-Review Follow-Ons only for the first Co-Investment
Transaction. Subsequent Co-Investment Transactions with respect to the
issuer would be governed by the requirements of Standard Review Follow-
Ons.
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\15\ ``Pre-Boarding Investments'' are investments in an issuer
held by a Regulated Fund as well as one or more Affiliated Funds
and/or one or more other Regulated Funds that: (a) Were acquired
prior to participating in any Co-Investment Transaction; (b) were
acquired in transactions in which the only term negotiated by or on
behalf of such funds was price; and (c) were acquired either (i) in
reliance on one of the JT No-Action Letters (defined below); or (ii)
in transactions occurring at least 90 days apart and without
coordination between the Regulated Fund and any Affiliated Fund or
other Regulated Fund.
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12. A Regulated Fund would be permitted to invest in Standard
Review Follow-Ons either with the approval of the Required Majority
under Condition 8(c) or without Board approval under Condition 8(b) if
it is (i) a Pro Rata Follow-On Investment \16\ or (ii) a Non-Negotiated
Follow-On Investment.\17\ Applicants believe that these Pro Rata and
Non-Negotiated Follow-On Investments do not present a significant
opportunity for overreaching on the part of any Adviser and thus do not
warrant the time or the attention of the Board. Pro Rata Follow-On
Investments and Non-Negotiated Follow-On Investments remain subject to
the Board's periodic review in accordance with Condition 10.
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\16\ A ``Pro Rata Follow-On Investment'' is a Follow-On
Investment (i) in which the participation of each Affiliated Fund
and each Regulated Fund is proportionate to its outstanding
investments in the issuer or security, as appropriate, immediately
preceding the Follow-On Investment, and (ii) in the case of a
Regulated Fund, a majority of the Board has approved the Regulated
Fund's participation in the pro rata Follow-On Investments as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Follow-On Investments, in which
case all subsequent Follow-On Investments will be submitted to the
Regulated Fund's Eligible Directors in accordance with Condition
8(c).
\17\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On
Investment in which a Regulated Fund participates together with one
or more Affiliated Funds and/or one or more other Regulated Funds
(i) in which the only term negotiated by or on behalf of the funds
is price and (ii) with respect to which, if the transaction were
considered on its own, the funds would be entitled to rely on one of
the JT No-Action Letters.
``JT No-Action Letters'' means SMC Capital, Inc., SEC No-Action
Letter (pub. avail. Sept. 5, 1995) and Massachusetts Mutual Life
Insurance Company, SEC No-Action Letter (pub. avail. June 7, 2000).
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C. Dispositions
13. Applicants propose that Dispositions \18\ would be divided into
two categories. If the Regulated Funds and Affiliated Funds holding
investments in the issuer had previously participated in a Co-
Investment Transaction with respect to the issuer, then the terms and
approval of the Disposition would be subject to the Standard Review
Dispositions described in Condition 6. If the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer but hold a Pre-Boarding
Investment, then the terms and approval of the Disposition would be
subject to the Enhanced Review Dispositions described in Condition 7.
Subsequent Dispositions with respect to the same issuer would be
governed by Condition 6 under the Standard Review Dispositions.\19\
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\18\ ``Disposition'' means the sale, exchange or other
disposition of an interest in a security of an issuer.
\19\ However, with respect to an issuer, if a Regulated Fund's
first Co-Investment Transaction is an Enhanced Review Disposition,
and the Regulated Fund does not dispose of its entire position in
the Enhanced Review Disposition, then before such Regulated Fund may
complete its first Standard Review Follow-On in such issuer, the
Eligible Directors must review the proposed Follow-On Investment not
only on a stand-alone basis but also in relation to the total
economic exposure in such issuer (i.e., in combination with the
portion of the Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition), and the other terms of the
investments. This additional review would be required because such
findings would not have been required in connection with the prior
Enhanced Review Disposition, but they would have been required had
the first Co-Investment Transaction been an Enhanced Review Follow-
On.
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14. A Regulated Fund may participate in a Standard Review
Disposition either with the approval of the Required Majority under
Condition 6(d) or without Board approval under Condition 6(c) if (i)
the Disposition is a Pro Rata Disposition \20\ or (ii) the securities
are Tradable Securities \21\ and the Disposition meets the other
requirements of Condition 6(c)(ii). Pro Rata Dispositions and
Dispositions of a Tradable Security remain subject to the Board's
periodic review in accordance with Condition 10.
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\20\ A ``Pro Rata Disposition'' is a Disposition (i) in which
the participation of each Affiliated Fund and each Regulated Fund is
proportionate to its outstanding investment in the security subject
to Disposition immediately preceding the Disposition; and (ii) in
the case of a Regulated Fund, a majority of the Board has approved
the Regulated Fund's participation in pro rata Dispositions as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Dispositions, in which case all
subsequent Dispositions will be submitted to the Regulated Fund's
Eligible Directors.
\21\ ``Tradable Security'' means a security that meets the
following criteria at the time of Disposition: (i) It trades on a
national securities exchange or designated offshore securities
market as defined in rule 902(b) under the Securities Act; (ii) it
is not subject to restrictive agreements with the issuer or other
security holders; and (iii) it trades with sufficient volume and
liquidity (findings as to which are documented by the Advisers to
any Regulated Funds holding investments in the issuer and retained
for the life of the Regulated Fund) to allow each Regulated Fund to
dispose of its entire position remaining after the proposed
Disposition within a short period of time not exceeding 30 days at
approximately the value (as defined by section 2(a)(41) of the Act)
at which the Regulated Fund has valued the investment.
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D. Delayed Settlement
15. Applicants represent that under the terms and Conditions of the
application, all Regulated Funds and Affiliated Funds participating in
a Co-Investment Transaction will invest at the same time, for the same
price and with the same terms, conditions, class, registration rights
and any other rights, so that none of them receives terms more
favorable than any other. However, the settlement date for an
Affiliated Fund in a Co-Investment Transaction may occur up to ten
business days after the settlement date for the Regulated Fund, and
vice versa. Nevertheless, in all cases, (i) the date on which the
commitments of the Affiliated Funds and Regulated Funds are made will
be the same even where the settlement date is not and (ii) the earliest
settlement date and the latest settlement date of any Affiliated Fund
or Regulated Fund participating in the transaction will occur within
ten business days of each other.
E. Holders
16. Under Condition 15, if an Adviser, its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its principals, and the Affiliated Funds (collectively, the
``Holders'') own in the aggregate more than 25 percent of the
outstanding voting shares of a Regulated Fund (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
will act independently in evaluating Co-Investment Transactions,
[[Page 46751]]
because the ability of the Adviser or its principals to influence the
Independent Directors by a suggestion, explicit or implied, that the
Independent Directors can be removed will be limited significantly. The
Independent Directors shall evaluate and approve any independent 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
participation by a registered investment company and an affiliated
person in any ``joint enterprise or other joint arrangement or profit-
sharing plan,'' as defined in the rule, without prior approval by the
Commission by order upon application. Section 17(d) of the Act and rule
17d-1 under the Act are applicable to Regulated Funds that are
registered closed-end investment companies.
2. Similarly, with regard to BDCs, section 57(a)(4) of the Act
generally prohibits certain persons specified in section 57(b) from
participating in joint transactions with the BDC or a company
controlled by the BDC 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 transactions
subject to section 57(a)(4). Because the Commission has not adopted any
rules under section 57(a)(4), rule 17d-1 also applies to joint
transactions with Regulated Funds that are BDCs.
3. Co-Investment Transactions are prohibited by either or both of
rule 17d-1 and section 57(a)(4) without a prior exemptive order of the
Commission to the extent that the Affiliated Funds and the Regulated
Funds participating in such transactions fall within the category of
persons described by rule 17d-1 and/or section 57(b), as modified by
rule 57b-1 thereunder, as applicable, vis-[agrave]-vis each
participating Regulated Fund. Because an Adviser will be the investment
adviser (and sub-adviser, if any) to each Affiliated Fund and Regulated
Fund, the Advisers, a Regulated Fund and the Affiliated Funds may be
deemed to be a person related to each other Regulated Fund in a manner
described by section 57(b) (or section 17(d) in the case of Regulated
Funds that are registered under the Act). Thus, each Regulated Fund and
each Affiliated Fund could be deemed to be a person related to a
Regulated Fund, in a manner described by section 57(b) and related to
the other Regulated Funds in a manner described by rule 17d-1; and
therefore the prohibitions of rule 17d-1 and section 57(a)(4) (or
Section 17(d) in the case of Regulated Funds that are registered under
the Act) would apply respectively to prohibit the Affiliated Funds from
participating in Co-Investment Transactions with the Regulated Funds.
Further, because the Wholly-Owned Investment Subs are controlled by the
Regulated Funds, the Wholly-Owned Investment Subs are subject to
section 57(a)(4) (or section 17(d) in the case of Wholly-Owned
Investment Subs controlled by Regulated Funds that are registered under
the Act) and thus also subject to the provisions of rule 17d-1.
4. 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.
5. Applicants state that in the absence of the requested relief, in
many circumstances the Regulated Funds would be limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants state that, as required by rule 17d-1(b), the
Conditions ensure that the terms on which Co-Investment Transactions
may be made will be consistent with the participation of the Regulated
Funds being on a basis that it is neither different from nor less
advantageous than other participants, thus protecting the equity
holders of any participant from being disadvantaged. Applicants further
state that the Conditions ensure that all Co-Investment Transactions
are reasonable and fair to the Regulated Funds and their shareholders
and do not involve overreaching by any person concerned, including the
Advisers. Applicants state that the Regulated Funds' participation in
the Co-Investment Transactions in accordance with the Conditions will
be consistent with the provisions, policies, and purposes of the Act
and would be done in a manner that is not different from, or less
advantageous than, that of other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
Conditions:
1. Identification and Referral of Potential Co-Investment
Transactions.
(a) The Advisers will establish, maintain and implement policies
and procedures reasonably designed to ensure that each Adviser is
promptly notified of all Potential Co-Investment Transactions that fall
within the then-current Objectives and Strategies and Board-Established
Criteria of any Regulated Fund the Adviser manages.
(b) When an Adviser to a Regulated Fund is notified of a Potential
Co-Investment Transaction under Condition 1(a), the Adviser will make
an independent determination of the appropriateness of the investment
for the Regulated Fund in light of the Regulated Fund's then-current
circumstances.
2. Board Approvals of Co-Investment Transactions.
(a) If the Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, it will then determine an appropriate level of investment for the
Regulated Fund.
(b) If the aggregate amount recommended by the Advisers to be
invested in the Potential Co-Investment Transaction by the
participating Regulated Funds and any participating Affiliated Funds,
collectively, exceeds the amount of the investment opportunity, the
investment opportunity will be allocated among them pro rata based on
the size of the Internal Orders, as described in section III.A.1.b. of
the application. Each Adviser to a participating Regulated Fund will
promptly notify and provide the Eligible Directors with information
concerning the Affiliated Funds' and Regulated Funds' order sizes to
assist the Eligible Directors with their review of the applicable
Regulated Fund's investments for compliance with these Conditions.
(c) After making the determinations required in Condition 1(b)
above, each Adviser to a participating Regulated Fund will distribute
written information concerning the Potential Co-Investment Transaction
(including the amount proposed to be invested by each participating
Regulated Fund and each participating Affiliated Fund) to the Eligible
Directors of its participating Regulated Fund(s) for their
consideration. A Regulated Fund will enter into a Co-Investment
Transaction with one or more other Regulated Funds or Affiliated Funds
only if, prior to the Regulated Fund's participation in the Potential
Co-Investment Transaction, a Required Majority concludes that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the Regulated Fund and its equity
holders and do not involve overreaching in respect of the
[[Page 46752]]
Regulated Fund or its equity holders on the part of any person
concerned;
(ii) the transaction is consistent with:
(A) The interests of the Regulated Fund's equity holders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Fund(s) or Affiliated
Fund(s) would not disadvantage the Regulated Fund, and participation by
the Regulated Fund would not be on a basis different from, or less
advantageous than, that of any other Regulated Fund(s) or Affiliated
Fund(s) participating in the transaction; provided that the Required
Majority shall not be prohibited from reaching the conclusions required
by this Condition 2(c)(iii) if:
(A) The settlement date for another Regulated Fund or an Affiliated
Fund in a Co-Investment Transaction is later than the settlement date
for the Regulated Fund by no more than ten business days or earlier
than the settlement date for the Regulated Fund by no more than ten
business days, in either case, so long as: (x) The date on which the
commitments of the Affiliated Funds and Regulated Funds are made is the
same; and (y) the earliest settlement date and the latest settlement
date of any Affiliated Fund or Regulated Fund participating in the
transaction will occur within ten business days of each other; or
(B) any other Regulated Fund or Affiliated Fund, but not the
Regulated Fund itself, gains the right to nominate a director for
election to a portfolio company's board of directors, the right to have
a board observer or any similar right to participate in the governance
or management of the portfolio company so long as: (x) The Eligible
Directors will have the right to ratify the selection of such director
or board observer, if any; (y) the Adviser agrees to, and does, provide
periodic reports to the Regulated Fund's Board 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 (z) any fees or other compensation that any other Regulated Fund or
Affiliated Fund or any affiliated person of any other Regulated Fund or
Affiliated Fund receives in connection with the right of one or more
Regulated Funds or Affiliated Funds 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 any participating Affiliated Funds (who may, in turn, share their
portion with their affiliated persons) and any participating Regulated
Fund(s) in accordance with the amount of each such party's investment;
and
(iv) the proposed investment by the Regulated Fund will not involve
compensation, remuneration or a direct or indirect \22\ financial
benefit to the Advisers, any other Regulated Funds, the Affiliated
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 14, (B) to the extent permitted by section 17(e) or 57(k),
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)(B)(z).
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\22\ For example, procuring the Regulated Fund's investment in a
Potential Co-Investment Transaction to permit an affiliate to
complete or obtain better terms in a separate transaction would
constitute an indirect financial benefit.
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3. Right to Decline. Each Regulated Fund has the right to decline
to participate in any Potential Co-Investment Transaction or to invest
less than the amount proposed.
4. General Limitation. Except for Follow-On Investments made in
accordance with Conditions 8 and 9 below,\23\ a Regulated Fund will not
invest in reliance on the Order in any issuer in which a Related Party
has an investment.\24\
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\23\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
\24\ ``Related Party'' means (i) any Close Affiliate and (ii) in
respect of matters as to which any Adviser has knowledge, any Remote
Affiliate.
``Close Affiliate'' means the Advisers, the Regulated Funds, the
Affiliated Funds and any other person described in section 57(b)
(after giving effect to rule 57b-1) in respect of any Regulated Fund
(treating any registered investment company or series thereof as a
BDC for this purpose) except for limited partners included solely by
reason of the reference in section 57(b) to section 2(a)(3)(D).
``Remote Affiliate'' means any person described in section 57(e)
in respect of any Regulated Fund (treating any registered investment
company or series thereof as a BDC for this purpose) and any limited
partner holding 5% or more of the relevant limited partner interests
that would be a Close Affiliate but for the exclusion in that
definition.
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5. Same Terms and Conditions. A Regulated Fund will not participate
in any Potential Co-Investment Transaction unless (i) the terms,
conditions, price, class of securities to be purchased, date on which
the commitment is entered into and registration rights (if any) will be
the same for each participating Regulated Fund and Affiliated Fund and
(ii) the earliest settlement date and the latest settlement date of any
participating Regulated Fund or Affiliated Fund will occur as close in
time as practicable and in no event more than ten business days apart.
The grant to one or more Regulated Funds or Affiliated Funds, but not
the respective Regulated Fund, 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 5, if Condition
2(c)(iii)(B) is met.
6. Standard Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of an interest in a security and
one or more Regulated Funds and Affiliated Funds have previously
participated in a Co-Investment Transaction with respect to the issuer,
then:
(i) The Adviser to such Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated Fund that holds an investment in
the issuer of the proposed Disposition at the earliest practical time;
and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition.
(b) Same Terms and Conditions. Each Regulated Fund 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 the Affiliated Funds and any other Regulated Funds.
(c) No Board Approval Required. A Regulated Fund may participate in
such a Disposition without obtaining prior approval of the Required
Majority if:
(i) (A) The participation of each Regulated Fund and Affiliated
Fund in such Disposition is proportionate to its then-current holding
of the security (or securities) of the issuer that is (or are) the
subject of the Disposition; \25\ (B) the Board of the Regulated Fund
has approved as being in the best interests of the Regulated Fund the
ability to participate in such Dispositions on a pro rata basis (as
described in greater detail in the application); and (C) the Board of
the Regulated Fund is provided on a quarterly basis with a list of all
[[Page 46753]]
Dispositions made in accordance with this Condition; or
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\25\ In the case of any Disposition, proportionality will be
measured by each participating Regulated Fund's and Affiliated
Fund's outstanding investment in the security in question
immediately preceding the Disposition.
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(ii) each security is a Tradable Security and (A) the Disposition
is not to the issuer or any affiliated person of the issuer; and (B)
the security is sold for cash in a transaction in which the only term
negotiated by or on behalf of the participating Regulated Funds and
Affiliated Funds is price.
(d) Standard Board Approval. In all other cases, the Adviser will
provide its written recommendation as to the Regulated Fund's
participation to the Eligible Directors and the Regulated Fund will
participate in such Disposition solely to the extent that a Required
Majority determines that it is in the Regulated Fund's best interests.
7. Enhanced Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of a Pre-Boarding Investment in a
Potential Co-Investment Transaction and the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer:
(i) The Adviser to such Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated Fund that holds an investment in
the issuer of the proposed Disposition at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition.
(b) Enhanced Board Approval. The Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Disposition
solely to the extent that a Required Majority determines that:
(i) The Disposition complies with Condition 2(c)(i), (ii),
(iii)(A), and (iv); and
(ii) the making and holding of the Pre-Boarding Investments were
not prohibited by section 57 or rule 17d-1, as applicable, and records
the basis for the finding in the Board minutes.
(c) Additional Requirements: The Disposition may only be completed
in reliance on the Order if:
(i) Same Terms and Conditions. Each Regulated Fund has 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 the
Affiliated Funds and any other Regulated Funds;
(ii) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(iii) Advice of counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iv) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial \26\ in
amount, including immaterial relative to the size of the issuer; and
(y) the Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency, or denominations may be treated as the same security; and
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\26\ In determining whether a holding is ``immaterial'' for
purposes of the Order, the Required Majority will consider whether
the nature and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable person would not
believe that the interest affected the determination of whether to
enter into the transaction or arrangement or the terms of the
transaction or arrangement.
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(v) No control. The Affiliated Funds, the other Regulated Funds and
their affiliated persons (within the meaning of section 2(a)(3)(C) of
the Act), individually or in the aggregate, do not control the issuer
of the securities (within the meaning of section 2(a)(9) of the Act).
8. Standard Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer and the Regulated Funds and
Affiliated Funds holding investments in the issuer previously
participated in a Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated Fund that holds securities of
the portfolio company of the proposed transaction at the earliest
practical time; and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund.
(b) No Board Approval Required. A Regulated Fund may participate in
the Follow-On Investment without obtaining prior approval of the
Required Majority if:
(i) (A) The proposed participation of each Regulated Fund and each
Affiliated Fund in such investment is proportionate to its outstanding
investments in the issuer or the security at issue, as appropriate,\27\
immediately preceding the Follow-On Investment; and (B) the Board of
the Regulated Fund has approved as being in the best interests of the
Regulated Fund the ability to participate in Follow-On Investments on a
pro rata basis (as described in greater detail in the application); or
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\27\ To the extent that a Follow-On Investment opportunity is in
a security or arises in respect of a security held by the
participating Regulated Funds and Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the security in question
immediately preceding the Follow-On Investment using the most recent
available valuation thereof. To the extent that a Follow-On
Investment opportunity relates to an opportunity to invest in a
security that is not in respect of any security held by any of the
participating Regulated Funds or Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the issuer immediately
preceding the Follow-On Investment using the most recent available
valuation thereof.
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(ii) it is a Non-Negotiated Follow-On Investment.
(c) Standard Board Approval. In all other cases, the Adviser will
provide its written recommendation as to the Regulated Fund's
participation to the Eligible Directors and the Regulated Fund will
participate in such Follow-On Investment solely to the extent that a
Required Majority makes the determinations set forth in Condition 2(c).
If the only previous Co-Investment Transaction with respect to the
issuer was an Enhanced Review Disposition, the Eligible Directors must
complete this review of the proposed Follow-On
[[Page 46754]]
Investment both on a stand-alone basis and together with the Pre-
Boarding Investments in relation to the total economic exposure and
other terms of the investment.
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds and any participating Affiliated Funds, collectively, exceeds the
amount of the investment opportunity, then the Follow-On Investment
opportunity will be allocated among them pro rata based on the size of
the Internal Orders, as described in section III.A.1.b. of the
application.
(e) Other Conditions. 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. Enhanced Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer that is a Potential Co-
Investment Transaction and the Regulated Funds and Affiliated Funds
holding investments in the issuer have not previously participated in a
Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund, as
applicable, will notify each Regulated Fund that holds securities of
the portfolio company of the proposed transaction at the earliest
practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition.
(b) Enhanced Board Approval. The Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority reviews the
proposed Follow-On Investment both on a stand-alone basis and together
with the Pre-Boarding Investments in relation to the total economic
exposure and other terms and makes the determinations set forth in
Condition 2(c). In addition, the Follow-On Investment may only be
completed in reliance on the Order if the Required Majority of each
participating Regulated Fund determines that the making and holding of
the Pre-Boarding Investments were not prohibited by section 57 (as
modified by rule 57b-1) or rule 17d-1, as applicable. The basis for the
Board's findings will be recorded in its minutes.
(c) Additional Requirements. The Follow-On Investment may only be
completed in reliance on the Order if:
(i) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(ii) Advice of counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iii) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial in amount,
including immaterial relative to the size of the issuer; and (y) the
Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency, or denominations may be treated as the same security; and
(iv) No control. The Affiliated Funds, the other Regulated Funds
and their affiliated persons (within the meaning of section 2(a)(3)(C)
of the Act), individually or in the aggregate, do not control the
issuer of the securities (within the meaning of section 2(a)(9) of the
Act).
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds and any participating Affiliated Funds, collectively, exceeds the
amount of the investment opportunity, then the Follow-On Investment
opportunity will be allocated among them pro rata based on the size of
the Internal Orders, as described in section III.A.1.b. of the
application.
(e) Other Conditions. 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.
10. Board Reporting, Compliance and Annual Re-Approval.
(a) Each Adviser to a Regulated Fund will present to the Board of
each Regulated Fund, on a quarterly basis, and at such other times as
the Board may request, (i) a record of all investments in Potential Co-
Investment Transactions made by any of the other Regulated Funds or any
of the Affiliated Funds during the preceding quarter that fell within
the Regulated Fund's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated
Fund, and an explanation of why such investment opportunities were not
made available to the Regulated Fund; (ii) a record of all Follow-On
Investments in and Dispositions of investments in any issuer in which
the Regulated Fund holds any investments by any Affiliated Fund or
other Regulated Fund during the prior quarter; and (iii) all
information concerning Potential Co-Investment Transactions and Co-
Investment Transactions, including investments made by other Regulated
Funds or Affiliated Funds that the Regulated Fund considered but
declined to participate in, so that the Independent Directors, may
determine whether all Potential Co-Investment Transactions and Co-
Investment Transactions during the preceding quarter, including those
investments that the Regulated Fund considered but declined to
participate in, comply with the Conditions.
[[Page 46755]]
(b) All information presented to the Regulated Fund's Board
pursuant to this Condition will be kept for the life of the Regulated
Fund and at least two years thereafter, and will be subject to
examination by the Commission and its staff.
(c) Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4), will prepare an annual report for its Board each year
that evaluates (and documents the basis of that evaluation) the
Regulated Fund's compliance with the terms and Conditions of the
application and the procedures established to achieve such compliance.
(d) The Independent Directors (including the non-interested members
of each Independent Party) will consider at least annually whether
continued participation in new and existing Co-Investment Transactions
is in the Regulated Fund's best interests.
11. Record Keeping. Each Regulated Fund will maintain the records
required by section 57(f)(3) of the Act as if each of the Regulated
Funds were a BDC and each of the investments permitted under these
Conditions were approved by the Required Majority under section 57(f).
12. Director Independence. No Independent Director (including the
non-interested members of any Independent Party) of a Regulated Fund
will also be a director, general partner, managing member or principal,
or otherwise be an ``affiliated person'' (as defined in the Act) of any
Affiliated Fund.
13. Expenses. 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
Securities Act) will, to the extent not payable by the Advisers under
their respective advisory agreements with the Regulated Funds and the
Affiliated Funds, be shared by the Regulated Funds and the
participating Affiliated Funds in proportion to the relative amounts of
the securities held or being acquired or disposed of, as the case may
be.
14. Transaction Fees.\28\ Any transaction fee (including break-up,
structuring, monitoring or commitment fees but excluding brokerage or
underwriting compensation permitted by section 17(e) or 57(k)) received
in connection with any Co-Investment Transaction will be distributed to
the participants on a pro rata basis based on the amounts they 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 transaction, the fee will be deposited into an account maintained
by the Adviser at a bank or banks having the qualifications prescribed
in section 26(a)(1), and the account will earn a competitive rate of
interest that will also be divided pro rata among the participants.
None of the Advisers, the Affiliated Funds, the other Regulated Funds
or any affiliated person of the Affiliated Funds or the Regulated Funds
will receive any additional compensation or remuneration of any kind as
a result of or in connection with a Co-Investment Transaction other
than (i) in the case of the Regulated Funds and the Affiliated Funds,
the pro rata transaction fees described above and fees or other
compensation described in Condition 2(c)(iii)(B)(z), (ii) brokerage or
underwriting compensation permitted by section 17(e) or 57(k) or (iii)
in the case of the Advisers, investment advisory compensation paid in
accordance with investment advisory agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s) and its Adviser.
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\28\ Applicants are not requesting and the Commission is not
providing any relief for transaction fees received in connection
with any Co-Investment Transaction.
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15. Independence. If the Holders own in the aggregate more than 25
percent of the Shares of a Regulated Fund, 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16830 Filed 7-31-20; 8:45 am]
BILLING CODE 8011-01-P
