[Federal Register Volume 84, Number 106 (Monday, June 3, 2019)]
[Notices]
[Pages 25587-25595]
[FR Doc No: 2019-11426]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33493; 812-14917]

John Hancock GA Mortgage Trust, et al.

May 28, 2019.
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.
Applicants request an order to permit certain closed-end investment
companies and business development companies to co-invest in portfolio
companies with affiliated investment funds.

APPLICANTS: John Hancock GA Mortgage Trust (``Mortgage Trust''), John
Hancock GA Private Placement Trust (``Private Placement Trust''), John
Hancock GA Senior Loan Trust (``Senior Loan Trust''), Hancock Capital
Investment Management, LLC (``HCIM''), John Hancock Life Insurance
Company (U.S.A.), John Hancock Life & Health Insurance Company, John
Hancock Life Insurance Company of New York, John Hancock Funding
Company, LLC, Hancock Mortgage REIT, Inc., and Hancock Mortgage REIT
II, Inc.

FILING DATES: The application was filed on June 8, 2018, and amended on
November 1, 2018, March 22, 2019, and May 22, 2019.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on June 24, 2019, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE, Washington, DC 20549-1090. Applicants: 197 Clarendon Street, C-
03, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Nick Cordell, Senior Counsel, at (202)
551-5496, or Aaron Gilbride, Branch Chief, at<PHONE_NUMBER> (Chief
Counsel's Office, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling<PHONE_NUMBER>.

Introduction

    1. The Applicants request an order of the Commission under Sections
17(d) and 57(i) 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 one or more Regulated
Funds (or its Wholly-Owned Investment Sub) \3\ participated together
with one or more Affiliated Funds and/or one or more other Regulated
Funds 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 without
obtaining and relying on the Order.\4\
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    \1\ ``Regulated Funds'' means Mortgage Trust, Private Placement
Trust, Senior Loan Trust, and any 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 is an Adviser and (c) that
intends to participate in the Co-Investment Program. ``Adviser''
means HCIM together with any future investment adviser that (i)
controls, is controlled by or is under common control with HCIM and
(ii) is registered as an investment adviser under the Investment
Advisers Act of 1940 (the ``Advisers Act''), and (iii) is not a
Regulated Fund or a subsidiary of a Regulated Fund.
    \2\ ``Affiliated Fund'' means any Existing Affiliated Funds, the
MFC Accounts, and any entity (a) whose investment adviser is an
Adviser, (b) that either (x) would be an investment company but for
Section 3(c)(1), 3(c)(3), 3(c)(5)(C) or 3(c)(7) of the Act or (y)
relies on Rule 3a-7 under the Act, and (c) that intends to
participate in the Co-Investment Program. ``Existing Affiliated
Funds'' means Hancock Mortgage REIT, Inc., and Hancock Mortgage REIT
II, Inc. ``MFC Accounts'' means John Hancock Life Insurance Company
(U.S.A.), John Hancock Life & Health Insurance Company, John Hancock
Life Insurance Company of New York, and any future direct or
indirect wholly-owned or majority-owned subsidiaries of Manulife
Financial Corporation (``MFC'') that intend to participate in Co-
Investment Transactions. ``Co-Investment Program'' means the
proposed co-investment program that would permit one or more
Regulated Funds and/or one or more Affiliated Funds to participate
in the same investment opportunities where such participation would
otherwise be prohibited under Section 57(a)(4)and Rule 17d-1 by (a)
co-investing with each other in securities issued by issuers in
private placement transactions in which an Adviser negotiates terms
in addition to price, and (b) making Follow-On Investments (as
defined below). The term ``private placement transactions'' means
transactions in which the offer and sale of securities by the issuer
are exempt from registration under the Securities Act of 1933 (the
``Securities Act'').
    \3\ ``Wholly-Owned Investment Sub'' means an entity (i) that is
wholly-owned by a Regulated Fund (with such Regulated Fund at all
times holding, beneficially and of record, 100% of the voting and
economic interests); (ii) whose sole business purpose is to hold one
or more investments on behalf of such Regulated Fund; (iii) with
respect to which such Regulated Fund's Board (defined below) has the
sole authority to make all determinations with respect to the
entity's participation under the Conditions; and (iv) that would
either (a) be an investment company but for Section 3(c)(1) or
3(c)(7) of the Act, or (b) relied on Rule 3a-7 under the Act.
    \4\ 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. Mortgage Trust is a Delaware statutory trust that will register
with the Commission under the Act as a closed-end, non-diversified
management investment company. All of the investors in Mortgage Trust
will be insurance companies that are wholly-owned by MFC. Mortgage
Trust's Board \5\ will be comprised of a majority of members who are
Independent Directors.\6\
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    \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 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. Private Placement Trust is a Delaware statutory trust that will
register with the Commission under the Act as a closed-end, non-
diversified management investment company. All of the investors in
Private Placement Trust will be insurance companies that are wholly-
owned by MFC. Private Placement Trust's Board will be comprised of a
majority of members who are Independent Directors.
    4. Senior Loan Trust is a Delaware statutory trust that will
register with the Commission under the Act as a closed-end, non-
diversified management investment company. All of the investors in
Senior Loan Trust will be insurance companies that are wholly-owned by
MFC. Senior Loan Trust's Board will be comprised of a majority of
members who are Independent Directors.
    5. HCIM, a Delaware limited liability company that is registered
under the Advisers Act, will serve as the investment adviser to each of
the Existing Regulated Funds and serves as the investment advisers to
the Existing Affiliated Funds, and to certain asset classes of the MFC
Accounts.
    6. The Existing Affiliated Funds are Hancock Mortgage REIT, Inc.,
and Hancock Mortgage REIT II, Inc. Applicants represent that each
Existing Affiliated Fund is a separate and distinct legal entity and
each would be an investment company but for Section 3(c)(5)(C) of the
Act.
    7. Each of the Applicants may be deemed to be directly or
indirectly controlled by MFC, a Canadian corporation. All of the
investors in each Regulated Fund are insurance companies that are
wholly-owned by MFC. Additionally, HCIM is an indirect wholly-owned
subsidiary of MFC. Thus, MFC may be deemed to control the Regulated
Funds and the Affiliated Funds. Applicants state that MFC is a life
insurance company incorporated under the Insurance Company Act (Canada)
and does not currently offer investment advisory services to any person
and is not expected to do so in the future. Applicants state that as a
result, MFC has not been included as an Applicant.
    8. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs. 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. Applicants represent that
this treatment is justified because a Wholly-Owned Investment Sub would
have no purpose other than serving as a holding vehicle for the
Regulated Fund's investments and, therefore, no conflicts of interest
could arise between the parent Regulated Fund and the Wholly-Owned
Investment Sub. The Board of the parent Regulated Fund would make all
relevant determinations under the Conditions with regard to a Wholly-
Owned Investment Sub's participation in a Co-Investment Transaction,
and the Board would be informed of, and take into consideration, any
proposed use of a Wholly-Owned Investment Sub in the Regulated Fund's
place. If the parent Regulated Fund proposes to participate in the same
Co-Investment Transaction with any of its Wholly-Owned Investment Subs,
the Board of the parent Regulated Fund will also be informed of, and
take into consideration, the relative participation of the Regulated
Fund and the Wholly-Owned Investment Sub.

Applicants' Representations

A. Allocation Process

    9. Applicants state that the Adviser is presented with a
substantial number of investment opportunities each year on behalf of
its clients and will determine how to allocate those opportunities in a
manner that, over time, is fair and equitable to all of its clients.
Such investment opportunities may be Potential Co-Investment
Transactions.
    10. Applicants represent that the Adviser has established processes
for

allocating initial investment 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.
    11. Specifically, applicants state that the Adviser is organized
and managed such that the relevant portfolio management teams
(``Investment Teams'') responsible for evaluating investment
opportunities and making investment decisions on behalf of clients are
promptly notified of the opportunities. 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 Adviser to the relevant Regulated Funds are
promptly notified and receive the same information about the
opportunity as any other Adviser 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 \7\ and any Board-Established Criteria \8\ of a Regulated
Fund, the policies and procedures will require that the relevant
Investment Team 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.
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    \7\ ``Objectives and Strategies'' means with respect to any
Regulated Fund, its investment objectives and strategies, as
described in its most current registration statement on Form N-2,
other current filings with the Commission under the Securities Act
of 1933 (the ``Securities Act'') or under the Securities Exchange
Act of 1934, as amended, and its most current report to
stockholders.
    \8\ ``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 its
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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    12. The Adviser to each applicable Regulated Fund 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 formulate a recommendation regarding the
proposed order amount for the Regulated Fund.
    13. Applicants state that, for each Regulated Fund and Affiliated
Fund whose Adviser recommends participating in a Potential Co-
Investment Transaction, the applicable Investment Team will approve the
investment and the investment amount, and will coordinate an order
submission process with a designated representative of each applicable
Investment Team of a Regulated Fund and Affiliated Fund. Applicants
state further that, at this stage, each proposed order amount may be
reviewed and adjusted, in accordance with the applicable Adviser's
written allocation policies and procedures.\9\ The order of a Regulated
Fund or Affiliated Fund resulting from this process is referred to as
its ``Internal Order.'' The final Internal Order will be submitted for
approval by the Required Majority of any participating Regulated Funds
in accordance with the Conditions.\10\
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    \9\ The reason for any such adjustment to a proposed order
amount will be documented in writing and preserved in the records of
the Advisers.
    \10\ ``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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    14. 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.\11\ 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.\12\
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    \11\ 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.
    \12\ However, if the size of the opportunity is decreased such
that the aggregate of the original Internal Orders would exceed the
amount of the remaining investment opportunity, then upon submitting
any revised order amount to the Board of a Regulated Fund for
approval, the Adviser to the Regulated Fund will also notify the
Board promptly of the amount that the Regulated Fund would receive
if the remaining investment opportunity were allocated pro rata on
the basis of the size of the original Internal Orders. 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

    15. Applicants state that from time to time the Regulated Funds and
Affiliated Funds may have opportunities to make Follow-On Investments
\13\ 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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    \13\ ``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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    16. 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.\14\ If the
Regulated

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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    \14\ ``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 were acquired prior to
participating in any Co-Investment Transaction: (i) In transactions
in which the only term negotiated by or on behalf of such funds was
price in reliance on one of the JT No-Action Letters (defined
below); (ii) in transactions occurring at least 90 days apart and
without coordination between the Regulated Fund and any Affiliated
Fund or other Regulated Fund; or (iii) solely with regard to a
Regulated Fund that is directly or indirectly wholly-owned by MFC at
the time of the transfer, in transactions in which one or more
Affiliated Funds transferred assets to the Regulated Fund before the
Regulated Fund elected to be regulated as a BDC or registered as an
investment company.
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    17. 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 \15\ or (ii) a Non-Negotiated
Follow-On Investment.\16\ 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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    \15\ 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).
    \16\ 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

    18. Applicants propose that Dispositions \17\ 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.\18\
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    \17\ ``Disposition'' means the sale, exchange or other
disposition of an interest in a security of an issuer.
    \18\ 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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    19. 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 \19\ or (ii) the securities
are Tradable Securities \20\ 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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    \19\ 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.
    \20\ ``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

    20. 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.\21\ Nevertheless, in all cases, (i) the date on which the
commitment of the Affiliated Funds and Regulated Funds is 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.
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    \21\ Applicants state this may occur for two reasons. First,
when the Affiliated Fund or Regulated Fund is not yet fully funded
because, when the Affiliated Fund or Regulated Fund desires to make
an investment, it must call capital from its investors to obtain the
financing to make the investment, and in these instances, the notice
requirement to call capital could be as much as ten business days.
Second, where, for tax or regulatory reasons, an Affiliated Fund or
Regulated Fund does not purchase new issuances immediately upon
issuance but only after a short seasoning period of up to ten
business days.
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E. Holders

    21. 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 (the ``Shares'') of a Regulated Fund, then the Holders
will vote such Shares as directed by an independent third party when
voting on matters specified in the Condition; provided however, that
Condition 15 will not apply to a Regulated Fund during any time which
the Holders in the aggregate own 100% of the Shares of such Regulated
Fund. Applicants believe that this Condition will ensure that the
Independent Directors will act independently in evaluating Co-
Investment Transactions, 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 applicable,
vis-[agrave]-vis each participating Regulated Fund. Each of the
participating Regulated Funds and Affiliated Funds may be deemed to be
affiliated persons vis-[agrave]-vis a Regulated Fund within the meaning
of section 2(a)(3) by reason of common control because (i) HCIM
manages, and may be deemed to control, each of the Existing Affiliated
Funds and the MFC Accounts; (ii) HCIM is the investment adviser to, and
may be deemed to control the Existing Regulated Funds, and an Adviser
will be the investment adviser to, and may be deemed to control, any
Future Regulated Fund; and (iii) the Advisers are under common control.
Thus, each of the Affiliated Funds could be deemed to be a person
related to the Regulated Funds 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) would apply respectively to prohibit the Affiliated Funds from
participating in Co-Investment Transactions with the Regulated Funds.
    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 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
commitment of the Affiliated Funds and Regulated Funds is 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 Fund, 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 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 Fund.
    (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 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 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 Conditions 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 Fund;
    (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 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

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 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.
    (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 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 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; provided however, that this Condition 15 will not apply to a
Regulated Fund during any time which the Holders in the aggregate own
100% of the Shares of such Regulated Fund.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11426 Filed 5-31-19; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: July 17, 2009 (Volume 74, Number 136)]
[Notices]
[Page 34840-34842]
[DOCID:fr17jy09-128]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60276; File No. SR-NASDAQ-2009-042]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change To Amend Its Limited Liability Agreement
and By-Laws

July 9, 2009.
    On April 29, 2009, The NASDAQ Stock Market LLC (``NASDAQ Exchange''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its Limited Liability Agreement
(``Agreement'') and By-Laws.\3\ The proposed rule change was published
for comment in the Federal Register on May 20, 2009.\4\ The Commission
received no comments regarding the proposal. This order approves the
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Agreement includes and incorporates an exhibit
designated as the By-Laws of the NASDAQ Stock Market LLC.
Accordingly, the By-Laws are part of the Agreement. See Securities
Exchange Act Release No. 59907 (May 12, 2009), 74 FR 23761
(``Notice''), 23761 n.3.
    \4\ See Notice, supra note 3.
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I. Description of the Proposed Rule Change

    Currently, the NASDAQ Exchange board and the board of its parent
company, NASDAQ OMX Group, Inc. (``NASDAQ OMX''), maintain their own
audit committee and management compensation committees. As more fully
discussed in the Notice, the Exchange states that it has found the work
of these committees to overlap substantially.\5\ As a result, the
Exchange proposes to revise its Agreement to allow for the elimination
of its audit and management compensation committees.
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    \5\ See Notice, 74 FR at 23761.
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    The Exchange also proposes to amend the Agreement to allow for the
elimination of its arbitration and mediation committee, provided that
the NASDAQ Exchange's arbitration and mediation program is operated by
the Financial Industry Regulatory Authority (``FINRA''), which the
NASDAQ Exchange states is currently the case.
    In addition, as discussed in the Notice, the Exchange proposes
changes to its rules governing the selection of Member Representative
Directors, as well as to update certain aspects of its Agreement.\6\
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    \6\ Specifically, the Exchange would: reflect the name change of
The Nasdaq Stock Market, Inc. to The NASDAQ OMX Group, Inc.; reflect
the name change of National Association of Securities Dealers, Inc.
to FINRA; correct typographical errors in the definition of
``Industry member'' in Article I of the By-Laws and in Section 6 of
the Agreement; and redesignate the Agreement as the ``Second Amended
Limited Liability Company Agreement of The NASDAQ Stock Market
LLC.''
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II. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\7\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(1) of the Act,\8\ which requires a
national securities exchange to be so organized and have the capacity
to carry out the purposes of the Act and to comply, and to enforce
compliance by its members and persons associated with its members, with
the provisions of the Act. The Commission also finds that the proposed
rule change is consistent with Section 6(b)(3) of the Act,\9\ which
requires that the rules of a national securities exchange assure a fair
representation of its members in the selection of its directors and
administration of its affairs and provide that one or more directors
shall be representative of issuers and investors and not be associated
with a member of the exchange, broker, or dealer. The Commission
further finds that the proposed rule change is consistent with Section
6(b)(5) of the Act,\10\ in that it is designed, among other things, to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest. The
Commission previously approved a structure in which certain committees
of the board of directors of NYSE Euronext, including the audit and
compensation committees, were authorized to perform functions for
various subsidiaries, including the New York Stock Exchange, LLC
(``NYSE'').\11\
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    \7\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78f(b)(3).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Securities Exchange Act Release No. 55293 (February 14,
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
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A. Elimination of the Exchange's Audit and Management Compensation
Committees

    Currently, the NASDAQ Exchange audit committee is primarily charged
with: (1) Oversight of the NASDAQ Exchange's financial reporting; (2)
oversight of the systems of internal controls established by management
and the NASDAQ Exchange board, as well as the legal and compliance
process; (3) selection and evaluation of independent auditors; and (4)
direction and oversight of the internal audit function. The Exchange
states that the responsibilities of the NASDAQ Exchange's audit
committee are fully duplicated \12\ by the

responsibilities of the NASDAQ OMX audit committee.\13\ In addition,
the NASDAQ Exchange states that its regulatory oversight committee has
broad authority to oversee the adequacy and effectiveness of its
regulatory and self-regulatory organization responsibilities, and
therefore is able to maintain oversight over internal controls in
tandem with the NASDAQ OMX audit committee. Further, the NASDAQ
Exchange states that the practice of NASDAQ OMX's Internal Audit
Department (``Department''),\14\ which performs internal audit
functions for all NASDAQ OMX subsidiaries, is to report to the NASDAQ
Exchange regulatory oversight committee on all internal audit matters
relating to the NASDAQ Exchange will be formally reflected in the
Department's written procedures. The Exchange also represents that, to
ensure that its board retains authority to direct the Department's
activities with respect to the NASDAQ Exchange, the Department's
written procedures will be amended to stipulate that the NASDAQ
Exchange regulatory oversight committee may, at any time, direct the
Department to conduct an audit of a matter of concern to it and report
the results of the audit both to the NASDAQ Exchange regulatory
oversight committee and the NASDAQ OMX audit committee.\15\
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    \12\ Specifically the NASDAQ Exchange states the NASDAQ OMX
audit committee, described infra at n.13, has broad authority to
review the financial information that will be provided to
shareholders and others, systems of internal controls, and audit,
financial reporting and legal and compliance processes and, because
NASDAQ OMX's financial statements are prepared on a consolidated
basis that includes the financial results of NASDAQ OMX's
subsidiaries, including the Exchange, the NASDAQ OMX audit
committee's purview necessarily includes these subsidiaries. In
addition, the NASDAQ OMX audit committee currently is charged with
providing oversight over financial reporting and independent auditor
selection for NASDAQ OMX and all of its subsidiaries, including the
Exchange; and the NASDAQ OMX audit committee has general
responsibility for oversight over internal controls and direction
and oversight over the internal audit function for NASDAQ OMX and
all of its subsidiaries. See Notice, 74 FR at 23761, 23762.
    \13\ The NASDAQ OMX audit committee is composed of four or five
directors, all of whom must be independent under the standards
established by Section 10A(m) of the Act and the listing rules of
the NASDAQ Exchange. All committee members must be able to read and
understand financial statements, and at least one member must have
past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background that results in the individual's financial
sophistication.
    \14\ See Notice, 74 FR at 23762.
    \15\ See id.
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    The Exchange also proposes to allow the elimination of its
compensation committee, and to prescribe that the functions of that
committee be performed by the NASDAQ OMX compensation committee or by
the full NASDAQ Exchange board, when required. The NASDAQ OMX By-Laws
provide that its compensation committee considers and recommends
compensation policies, programs, and practices for employees of NASDAQ
OMX. Many employees performing work for the NASDAQ Exchange are also
employees of NASDAQ OMX, and certain senior officers of the NASDAQ
Exchange are also officers of NASDAQ OMX and other NASDAQ OMX
subsidiaries because their responsibilities relate to multiple entities
within the NASDAQ OMX corporate structure.\16\ As a result, NASDAQ OMX
establishes compensation and compensation policy for these employees.
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    \16\ Id.
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    To the extent that policies, programs, and practices must be
established for any NASDAQ Exchange officers or employees who are not
also NASDAQ OMX officers or employees, the Exchange states that its
board will perform such actions without the use of a compensation
committee, subject to recusal by Staff Directors.\17\
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    \17\ See NASDAQ Exchange By-Laws, Article I(j). Staff Directors
are directors of the Exchange that are also serving as officers.
Because the NASDAQ Exchange board would not be responsible for
setting the compensation of any Staff Directors who are also
officers of NASDAQ OMX, these directors would be permitted to
participate in discussions concerning compensation of Exchange
employees, but the Exchange states that they must recuse themselves
from a vote on the subject to allow the determination to be made by
directors that are not officers or employees of the Exchange. The
NASDAQ Exchange also states that, if a Staff Director is not also an
employee of NASDAQ OMX, that Staff Director also must absent himself
or herself from any deliberations regarding his or her compensation.
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    The Commission notes that the proposed elimination of the NASDAQ
Exchange audit and management compensation committees is comparable to
a structure for the NYSE that the Commission previously considered and
approved.\18\ The Commission finds that the proposed elimination of the
NASDAQ Exchange's audit and management compensation committees is
consistent with the Act.
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    \18\ See Securities Exchange Act Release No. 55293 (February 14,
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
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B. Elimination of the NASDAQ Exchange's Arbitration and Mediation
Committee.

    As provided in the Agreement, the arbitration and mediation
committee is to advise the Board on the development and maintenance of
an equitable and efficient system of dispute resolution that will
equally serve the needs of public investors and NASDAQ Exchange
members, to monitor rules and procedures governing the conduct of
dispute resolution, and to have such other powers and authority as are
necessary to effectuate the purposes of the NASDAQ Exchange rules. The
Exchange states that, at this time, there is no meaningful role for
this committee to play because the NASDAQ Exchange's arbitration and
mediation program presently is operated by FINRA. All information
needed by the NASDAQ Exchange board or staff to evaluate the
effectiveness of FINRA's administration of the program is obtained
through the Exchange's oversight of FINRA's performance through its
authority under its regulatory services agreement to obtain reports
from FINRA and to conduct audits.
    The Commission notes that neither the Exchange nor its predecessor
(The Nasdaq Stock Market, Inc.) has ever operated a dispute resolution
program that was not administered by FINRA or its predecessor (the
National Association of Securities Dealers, Inc.).\19\ Therefore, no
ongoing dispute will be affected by the elimination of this committee.
In the addition, the Agreement, as revised, would continue to provide
for the establishment of such a committee in the event that the NASDAQ
Exchange in the future opts to establish an arbitration or mediation
program that is not operated by FINRA in accordance with FINRA rules.
The Commission therefore finds that the proposed rule change is
consistent with the Act, as the Exchange will continue to be organized
and have the capacity to carry out the purposes of the Act and to
comply with and enforce compliance by its members and persons
associated with its members with the provisions of the Act, the rules
and regulations thereunder, and the rules of the Exchange.
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    \19\ See Notice, 72 FR at 23762, n.16.
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C. Selection of Member Representative Directors

    Under the Agreement, 20% of the Exchange's directors are selected
through a process in which the Exchange's member nominating committee
nominates a slate of candidates but members also have the opportunity
to nominate alternative candidates. If no alternative candidates are
nominated by members, the candidates recommended by the member
nominating committee are elected. Alternatively, if alternative
candidates are nominated, there is a ``Contested Election'' in which
members cast ballots in order to determine who fills the vacancies. The
Exchange proposes to prohibit a member, either alone or together with
its affiliates, from

casting votes representing more than 20% of the votes cast for a
candidate, and to provide that any votes cast by the member, either
alone or together with its affiliates in excess of the 20%, limit shall
be disregarded. The Exchange also proposes to amend its By-Laws to
provide that an Election Date is selected by the Exchange's board on an
annual basis, and that members only cast votes on such date if there is
a Contested Election. The Commission finds that these changes are
consistent with the Act, including Section 6(b)(3) of the Act,\20\
which requires that a national securities exchange assure the fair
representation of its members in the selection of its directors and
administration of its affairs. The Commission recently approved similar
changes proposed by NASDAQ OMX BX, Inc.\21\
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    \20\ 15 U.S.C. 78f(b)(3).
    \21\ See Securities Exchange Act Release Nos. 58324 (August 7,
2008), 73 FR 46936, 46940-41 (August 12, 2008) (SR-BSE-2008-02, -23,
-25, SR-BSECC-2001-01) and 58864 (October 27, 2008), 73 FR65430
(November 3, 2009) (SR-BSE-2008-45).
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III. Conclusion
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-NASDAQ-2009-042) be, and it
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\23\
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-17005 Filed 7-16-09; 8:45 am]

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