[Federal Register Volume 80, Number 237 (Thursday, December 10, 2015)]
[Notices]
[Pages 76719-76723]
[FR Doc No: 2015-31070]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31927; File No. 812-14374]

Alcentra Capital Corporation, et al.; Notice of Application

December 4, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: 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.

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SUMMARY:  Applicants request an order to permit business development
companies (``BDCs'') and certain closed-end management investment
companies to co-invest in portfolio companies with each other and with
affiliated investment funds.
    Applicants: Alcentra Capital Corporation (the ``Company''); BNY
Mellon Alcentra Multi-Strategy Credit Fund, Inc. (``BAMSCF,'' and
together with the Company, the ``Existing Regulated Funds''); Alcentra
BDC Equity Holdings, LLC (the ``Subsidiary''); Alcentra Middle Market
Fund IV, L.P. (the ``Existing Co-Investment Affiliate''); Alcentra NY,
LLC (``Alcentra NY''); Alcentra Limited (together with Alcentra NY, the
``Alcentra Advisers''), and The Dreyfus Corporation (``Dreyfus'').

DATES:  Filing Dates: The application was filed on October 16, 2014 and
amended on April 2, 2015 and August 6, 2015.
    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 December 29, 2015, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, 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: Alcentra Capital
Corporation, 200 Park Avenue, 7th Floor, New York, NY 10166.

FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Senior Counsel, or
Melissa R. Harke, 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 Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling<PHONE_NUMBER>.

Applicants' Representations

    1. The Existing Regulated Funds were each organized as a
corporation under the General Corporate Laws of the State of Maryland.
The Company operates as an externally-managed, non-diversified, closed-
end management investment company that has elected to be regulated as a
business development company (``BDC'') under the Act.\1\ BAMSCF is a
non-diversified, closed-end management investment company registered
under the Act. The Company's investment objective is to generate both
current income and capital appreciation primarily by making direct
investments in lower middle-market companies in the form of
subordinated debt and, to a lesser extent, senior debt and minority
equity investments. BAMSCF's investment objective is to seek total
return consisting of capital appreciation and income. A majority of the
board of directors (``Board'') \2\ of the Company are persons who are
not ``interested persons,'' as defined in section 2(a)(19) of the Act
(the ``Independent Directors''). It is anticipated that the BAMSCF
Board will be comprised entirely of Independent Directors.
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
    \2\ ``Board'' refers to the board of directors of any Regulated
Fund (as defined below).
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    2. The Subsidiary is a Wholly-Owned Investment Sub (as defined
below), the sole business purpose of which is to hold one or more
investments on behalf of the Company. The Subsidiary is a Delaware
entity.
    3. The Existing Co-Investment Affiliate is a Delaware limited
partnership. In reliance on the exclusion from the definition of
``investment company'' provided by section 3(c)(1) or 3(c)(7) of the
Act, none of the Co-Investment Affiliates (as defined below) will be
registered under the Act.
    4. Alcentra NY is a Delaware limited liable company that is
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act''). Alcentra NY serves as investment
adviser to the Company pursuant to an investment advisory agreement and
also serves as investment adviser to the Existing Co-Investment
Affiliate. Alcentra Limited is incorporated in the United Kingdom and
Wales and is registered as an investment adviser under the Advisers
Act. Alcentra Limited is proposed to serve as a sub-adviser to BAMSCF.
Dreyfus is a corporation organized under the laws of the State of New
York that is registered as an investment adviser under the Advisers
Act. Dreyfus is proposed to serve as investment manager to BAMSCF.
    5. Applicants seek an order (``Order'') to permit a Regulated Fund
\3\ (or a

Wholly-Owned Investment Sub) (as defined below) and one or more other
Regulated Funds (or a Wholly-Owned Investment Sub) and/or one or more
Co-Investment Affiliates \4\ to participate in the same investment
opportunities through a proposed co-investment program (the ``Co-
Investment Program'') where such participation would otherwise be
prohibited under sections 17(d) and 57(a)(4) and rule 17d-1. ``Co-
Investment Transaction'' means any transaction in which a Regulated
Fund (or a Wholly-Owned Investment Sub) participated together with one
or more other Regulated Funds (or a Wholly-Owned Investment Sub) and/or
one or more Co-Investment Affiliates in reliance on the requested
Order. ``Potential Co-Investment Transaction'' means any investment
opportunity in which a Regulated Fund (or a Wholly-Owned Investment
Sub) could not participate together with one or more other Regulated
Funds (or a Wholly-Owned Investment Sub) and/or one or more Co-
Investment Affiliates without obtaining and relying on the Order.\5\
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    \3\ ``Regulated Funds'' means the Existing Regulated Funds and
any future closed-end investment companies that (a) are registered
under the Act or have elected to be regulated as a BDC under the
Act, (b) will be advised by an Adviser, and (c) that intend to
participate in the Co-Investment Program. ``Adviser'' means (a)
Alcentra NY, Alcentra Limited, or Dreyfus or (b) any other existing
or future investment adviser that controls, is controlled by or is
under common control with Alcentra NY, Alcentra Limited or Dreyfus,
and is registered as an investment adviser under the Advisers Act.
The Alcentra Advisers and Dreyfus are direct or indirect wholly-
owned subsidiaries of The Bank of New York Mellon Corporation (``BNY
Mellon''). All references herein to the term ``Adviser'' include
successors-in-interest to the Adviser. A successor-in-interest is
limited to any entity resulting from a reorganization of the Adviser
into another jurisdiction or a change in the type of business
organization.
    \4\ ``Co-Investment Affiliates'' means the Existing Co-
Investment Affiliate and any Future Co-Investment Affiliate.
``Future Co-Investment Affiliate'' means any entity (i) whose
investment adviser is an Adviser, (ii) that would be an investment
company but for Section 3(c)(1) or 3(c)(7) of the Act and (iii) that
intends to participate in the Co-Investment Program.
    \5\ All existing entities that currently intend to rely on the
Order have been named as applicants. Any other existing or future
entity that relies on the Order in the future will comply with the
terms and conditions of the application.
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    6. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs.\6\ Such a subsidiary
would be prohibited from investing in a Co-Investment Transaction with
any Co-Investment Affiliate or another Regulated Fund because it would
be a company controlled by the Regulated Fund for purposes of sections
17(d) and 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 requested Order, as though the 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 Regulated Fund and the Wholly-Owned Investment Sub. The
Board 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 a Regulated Fund proposes to
participate in the same Co-Investment Transaction with any of its
Wholly-Owned Investment Subs, the Board will also be informed of, and
take into consideration, the relative participation of the Regulated
Fund and the Wholly-Owned Investment Sub.
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    \6\ ``Wholly-Owned Investment Sub'' means an entity (i) that is
wholly-owned by a Regulated Fund (with the 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 the Regulated Fund (and, in the
case of any SBIC Subsidiaries (as defined below), to maintain a
license under the SBA Act (as defined below) and issue debentures
guaranteed by the SBA (as defined below)); (iii) with respect to
which the Board of a Regulated Fund has the sole authority to make
all determinations with respect to the Wholly-Owned Investment Sub's
participation under the conditions to the Application; and (iv) that
would be an investment company but for Section 3(c)(1) or 3(c)(7) of
the Act. ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub
that is licensed by the Small Business Administration (the ``SBA'')
to operate under the Small Business Investment Act of 1958, as
amended, the (``SBA Act'') as a small business investment company
(an ``SBIC'').
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    7. In selecting investments for the Regulated Funds, an Adviser
will consider only the investment objective, investment policies,
investment position, capital available for investment and other factors
relevant to each Regulated Fund. Each of the Co-Investment Affiliates
has or will have investment objectives and strategies that are similar
to or overlap with the Objectives and Strategies \7\ of each Regulated
Fund. To the extent there is an investment opportunity that falls
within the Objectives and Strategies of one or more Regulated Funds and
the investment objectives and strategies of one or more of the Co-
Investment Affiliates, the Advisers would expect such Regulated Funds
and Co-Investment Affiliates to co-invest with each other, with certain
exceptions based on available capital or diversification.\8\
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    \7\ ``Objectives and Strategies,'' with respect to each
Regulated Fund, means the Regulated Fund's investment objectives and
strategies, as described in the Regulated Fund's registration
statement on Form N-2, other filings the Regulated Fund has made
with the Commission under the Securities Act of 1933 (the ``1933
Act''), or under the Securities Exchange Act of 1934 and the
Regulated Fund's report to stockholders.
    \8\ The Regulated Funds, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
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    8. After making the determinations required in conditions 1 and
2(a), other than in the case of pro rata Dispositions (as defined
below) and Follow-On Investments,\9\ as provided in conditions 7 and 8,
the applicable Adviser(s) will present each Potential Co-Investment
Transaction and the proposed allocation to the directors of the Board
that are eligible to vote under section 57(o) of the Act (the
``Eligible Directors''). The ``required majority,'' as defined in
section 57(o) of the Act (``Required Majority''),\10\ of a Regulated
Fund will approve each Co-Investment Transaction prior to any
investment by the Regulated Fund.
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    \9\ ``Follow-On Investment'' means any additional investment in
an existing portfolio company, the exercise of warrants, conversion
privileges or other similar rights to acquire additional securities
of the portfolio company.
    \10\ 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. All subsequent activity, meaning either to (a) sell, exchange,
or otherwise dispose of an investment (collectively, a ``Disposition'')
or (b) complete a Follow-On Investment, in respect of an investment
acquired in a Co-Investment Transaction will also be made in accordance
with the terms and conditions set forth in the application. With
respect to the pro rata Dispositions and Follow-On Investments provided
in conditions 7 and 8, a Regulated Fund may participate in a pro rata
Disposition or Follow-On Investment without obtaining prior approval of
the Required Majority if, among other things: (i) The proposed
participation of each Co-Investment Affiliate and Regulated Fund in
such Disposition or Follow-On Investment is proportionate to its
outstanding investments in the issuer immediately preceding the
Disposition or Follow-On Investment, as the case may be; and (ii) the
Board of the Regulated Fund has approved that Regulated Fund's
participation in pro rata Dispositions and Follow-On Investments as
being in the best interests of the Regulated Fund. If the Board does
not so approve, any such Disposition or Follow-On Investment will be
submitted to the Regulated Fund's Eligible Directors. The Board of

any Regulated Fund may at any time rescind, suspend or qualify its
approval of pro rata Dispositions and Follow-On Investments with the
result that all Dispositions and/or Follow-On Investments must be
submitted to the Eligible Directors.
    10. 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.
    11. Under condition 14, if an Adviser, its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its principals, and the Co-Investment Affiliates
(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 the Co-
Investment Program, 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. Applicants represent that the Independent
Directors will evaluate and approve any such voting trust or proxy
adviser, taking into account its qualifications, reputation for
independence, cost to the Regulated Fund's shareholders, and other
factors that they deem relevant.

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC or a
company controlled by a BDC in contravention of rules as prescribed by
the Commission. Under section 57(b)(2) of the Act, any person who is
directly or indirectly controlling, controlled by, or under common
control with a BDC is subject to section 57(a)(4). Applicants submit
that each of the other Regulated Funds and Co-Investment Affiliates may
be deemed to be a person related to a Regulated Fund in a manner
described by section 57(b) by virtue of being under common control.
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. 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. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
    3. Applicants state that in the absence of the requested relief,
the Regulated Funds would be, in some circumstances, limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated Fund's shareholders
and with the purposes intended by the policies and provisions of the
Act. Applicants state that the Regulated Funds' participation in the
Co-Investment Transactions will be consistent with the provisions,
policies, and purposes of the Act and on a basis that is not different
from or less advantageous than that of other participants.

Applicants' Conditions

    Applicants agree that any Order of the Commission granting the
requested relief will be subject to the following conditions:
    1. Each time an Adviser considers a Potential Co-Investment
Transaction for a Co-Investment Affiliate or another Regulated Fund
that falls within a Regulated Fund's then-current Objectives and
Strategies, the applicable Adviser(s) 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. (a) If the applicable Adviser(s) deems a Regulated Fund's
participation in any Potential Co-Investment Transaction to be
appropriate for the Regulated Fund, the applicable Adviser(s) will then
determine an appropriate level of investment for the Regulated Fund.
    (b) If the aggregate amount recommended by the applicable
Adviser(s) to be invested by the applicable Regulated Fund in the
Potential Co-Investment Transaction, together with the amount proposed
to be invested by the other participating Regulated Funds and Co-
Investment Affiliates, collectively, in the same transaction, exceeds
the amount of the investment opportunity, the amount proposed to be
invested by each such party will be allocated among them pro rata based
on each participating party's capital available for investment in the
asset class being allocated, up to the amount proposed to be invested
by each. The applicable Adviser(s) will provide the Eligible Directors
of each participating Regulated Fund with information concerning each
participating party's available capital to assist the Eligible
Directors with their review of the Regulated Fund's investments for
compliance with these allocation procedures.
    (c) After making the determinations required in conditions 1 and
2(a), the applicable Adviser(s) will distribute written information
concerning the Potential Co-Investment Transaction, including the
amount proposed to be invested by each Regulated Fund and each Co-
Investment Affiliate to the Eligible Directors of each participating
Regulated Fund for their consideration. A Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Co-Investment
Affiliates 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 Potential Co-Investment Transaction, including
the consideration to be paid, are reasonable and fair to the Regulated
Fund and its stockholders and do not involve overreaching in respect of
the Regulated Fund or its stockholders on the part of any person
concerned;
    (ii) the Potential Co-Investment Transaction is consistent with:
    (A) The interests of the Regulated Fund's stockholders; and
    (B) the Regulated Fund's then-current Objectives and Strategies;
    (iii) the investment by the other Regulated Funds or any Co-
Investment Affiliates 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 or Co-
Investment Affiliate; provided that, if any other Regulated Fund or Co-
Investment Affiliate, but not the Regulated Fund itself, gains the
right to nominate a director for election to a

portfolio company's board of directors or the right to have a board
observer or any similar right to participate in the governance or
management of the portfolio company, such event shall not be
interpreted to prohibit the Required Majority from reaching the
conclusions required by this condition 2(c)(iii), if:
    (A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any;
    (B) the applicable Adviser(s) agree to, and do, provide periodic
reports to the Board of the Regulated Fund 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
    (C) any fees or other compensation that any other Regulated Fund,
or any Co-Investment Affiliate, or any affiliated person of either
receives in connection with the right of any other Regulated Fund or a
Co-Investment Affiliate to nominate a director or appoint a board
observer or otherwise to participate in the governance or management of
the portfolio company will be shared proportionately among the
participating Co-Investment Affiliates (which each may, in turn, share
its portion with its affiliated persons) and the participating
Regulated Funds in accordance with the amount of each party's
investment; and
    (iv) the proposed investment by the Regulated Fund will not benefit
the Advisers, the Co-Investment Affiliates, the other Regulated Funds
or any affiliated person of any of them (other than the parties to the
Co-Investment Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by sections 17(e) or 57(k) of
the Act, as applicable, (C) indirectly, as a result of an interest in
the securities issued by one of the parties to the Co-Investment
Transaction, or (D) in the case of fees or other compensation described
in condition 2(c)(iii)(C).
    3. Each Regulated Fund has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
    4. The applicable Adviser(s) will present to the Board of each
Regulated Fund, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any of the other Regulated
Funds and Co-Investment Affiliates during the preceding quarter that
fell within the Regulated Fund's then-current Objectives and Strategies
that were not made available to the Regulated Fund, and an explanation
of why the investment opportunities were not offered to the Regulated
Fund. All information presented to the 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.
    5. Except for Follow-On Investments made in accordance with
condition 8 below,\11\ a Regulated Fund will not invest in reliance on
the Order in any issuer in which another Regulated Fund, Co-Investment
Affiliate, or any affiliated person of another Regulated Fund or Co-
Investment Affiliate is an existing investor.
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    \11\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
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    6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of
securities to be purchased, settlement date, and registration rights
will be the same for each participating Regulated Fund and Co-
Investment Affiliate. The grant to a Co-Investment Affiliate or another
Regulated Fund, but not the 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 6, if
conditions 2(c)(iii)(A), (B) and (C) are met.
    7. (a) If any Co-Investment Affiliate or any Regulated Fund elects
to sell, exchange or otherwise dispose of an interest in a security
that was acquired in a Co-Investment Transaction, the applicable
Adviser(s) will:
    (i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed Disposition at the earliest
practical time; and
    (ii) formulate a recommendation as to participation by each
Regulated Fund in the Disposition.
    (b) 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 any participating Co-
Investment Affiliates and any other Regulated Funds.
    (c) A Regulated Fund may participate in such Disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Co-Investment Affiliate and Regulated Fund in
such Disposition is proportionate to its outstanding investments in the
issuer immediately preceding the Disposition; (ii) 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
(iii) the Board of the Regulated Fund is provided on a quarterly basis
with a list of all Dispositions made in accordance with this condition.
In all other cases, the applicable Adviser(s) will provide its written
recommendation as to the Regulated Fund's participation to the
Regulated Fund's 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.
    (d) Each Co-Investment Affiliate and each Regulated Fund will bear
its own expenses in connection with any such Disposition.
    8. (a) If any Co-Investment Affiliate or any Regulated Fund desires
to make a Follow-On Investment in a portfolio company whose securities
were acquired in a Co-Investment Transaction, the applicable Adviser(s)
will:
    (i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed transaction at the earliest
practical time; and
    (ii) formulate a recommendation as to the proposed participation,
including the amount of the proposed Follow-On Investment, by each
Regulated Fund.
    (b) A Regulated Fund may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Co-Investment Affiliate and each
Regulated Fund in such investment is proportionate to its outstanding
investments in the issuer immediately preceding the Follow-On
Investment; (ii) 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); and (iii) the Board of the Regulated Fund
is provided on a quarterly basis with a list of all Follow-On
Investments made in accordance with this condition. In all other cases,
the applicable Adviser(s) 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 determines that it is in the
Regulated Fund's best interests.

    (c) If, with respect to any Follow-On Investment:
    (i) The amount of the Follow-On Investment is not based on the Co-
Investment Affiliates' and the Regulated Funds' outstanding investments
immediately preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the applicable Adviser(s)
to be invested by each Regulated Fund in the Follow-On Investment,
together with the amount proposed to be invested by the participating
Co-Investment Affiliates in the same transaction, exceeds the amount of
the opportunity, then the amount to be invested by each such party will
be allocated among them pro rata based on each participating party's
capital available for investment in the asset class being allocated, up
to the amount proposed to be invested by each.
    (d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in the
application.
    9. The Independent Directors of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including
investments made by the Co-Investment Affiliates and the other
Regulated Funds that the Regulated Fund considered but declined to
participate in, so that the Independent Directors may determine whether
all investments made during the preceding quarter, including those
investments that the Regulated Fund considered but declined to
participate in, comply with the conditions of the Order. In addition,
the Independent Directors will consider at least annually the continued
appropriateness for the Regulated Fund of participating in new and
existing Co-Investment Transactions.
    10. 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) of the Act.
    11. No Independent Director of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act), of any Co-Investment
Affiliate.
    12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the 1933 Act) will, to the
extent not payable by the Advisers under their respective advisory
agreements with the Co-Investment Affiliates and the Regulated Funds,
be shared by the participating Co-Investment Affiliates and the
participating Regulated Funds in proportion to the relative amounts of
the securities held or being acquired or disposed of, as the case may
be.
    13. Any transaction fee \12\ (including break-up or commitment fees
but excluding broker's fees contemplated by section 17(e) or 57(k) of
the Act, as applicable) received in connection with a Co-Investment
Transaction will be distributed to the participating Co-Investment
Affiliates and Regulated Funds on a pro rata basis based on the amount
they each invested or committed, as the case may be, in such Co-
Investment Transaction. If any transaction fee is to be held by an
Adviser pending consummation of the 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) of the Act,
and the account will earn a competitive rate of interest that will also
be divided pro rata among the participating Co-Investment Affiliates
and Regulated Funds based on the amount each invests in such Co-
Investment Transaction. None of the Co-Investment Affiliates, the
Regulated Funds, the Advisers nor any affiliated person of the
Regulated Funds or Co-Investment Affiliates will receive additional
compensation or remuneration of any kind as a result of or in
connection with a Co-Investment Transaction (other than (a) in the case
of the Co-Investment Affiliates and the Regulated Funds, the pro rata
transaction fees described above and fees or other compensation
described in condition 2(c)(iii)(C), and (b) in the case of the
Advisers, investment advisory fees paid in accordance with their
respective investment advisory agreements with the Regulated Funds and
Co-Investment Affiliates).
---------------------------------------------------------------------------

    \12\ Applicants are not requesting and the staff is not
providing any relief for transaction fees received in connection
with any Co-Investment Transaction.
---------------------------------------------------------------------------

    14. 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 (such as the trustee of a voting
trust or a proxy adviser) when voting on (1) the election of directors;
(2) the removal of one or more directors; or (3) any matters requiring
approval by the vote of a majority of the outstanding voting
securities, as defined in section 2(a)(42) of the Act.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31070 Filed 12-9-15; 8:45 am]
BILLING CODE 8011-01-P


~  a o o l  s o ~ I V D 00 j United States General Accounting Office Washington, DC 20548 B 290021 I Received I flus  g ,2002 Enfmement & Compliance oockt # '

u 8 Information Center July 15,2002 Mr. Robert E. Fabricant General Counsel US. Environmental Protection Agency Subject Federal Civil Penalties Inflation Adiustment Act Dear Mr. Fabricant Earlier this year, GAO initiated a review of the implementation of the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (" Inflation Adjustment Act").' This act generally requires. federal agencies to issue regulations adjusting their covered civil monetary penalties for changes'in the cost of living by October 23,1996, and to make necessary adjustments at least once every & years thereafter. Section 4, 28 U. S. C. $ 2461 note. The statute defines a " cost of living adjustment" as the percentage change in the Consumer Price Index ( CPI) between June of the calendar year indhich the penalty was last set or adjusted and June of the calendar year preceding the adjustment. Section 5,28 U. S. C. $ 2461 note. The statute limited the fistadjustment to 10 percent and includes a mechanism for rounding penalty increases. Sections 5 and 6,28 U. S. C. $ 2461 note. With regard to rounding, the statute sets out penalty ranges, from amounts less than or equal to $ 100 to amounts greater than $ 200,000, and provides different dollar multiples for rounding the increase in each penalty range. Section 5,28 U. S. C. $ 2461 note. The statute provides, for example, that "[ ajny increase shall be rounded to the nearest. . . multiple of $ 10 in the case of Denalties less than or equal to $ 100." Id. ( Emphasis added.)

The Environmental Protection Agency @ PA) made its fist round of civil penalty adjustments under the Inflation Adjustment Act on December 31,1996. 61 Fed. Reg. 69,360: Because all of EPA's covered penalties had been in place for at least 5 years, and the amount of inflation occurring during that period was more than ' The Inflation Adjustmpt Act is codified at 28 U. S. C. $ 2461 note. The 1990 act was amended in 1996 by the Debt Collection Improvement Act, which added the requirement for agencies to adjust their civil penalties by regulation. Pub. L. NO. 104134, $ 31001, 110 Stat. 1321 373 ( 1996). , .1 . .,

10 percent, the agency adjusted all of its penalties by the statutory maximum of 10 percent, and the rounding mechanism did not apply.

On June 18,2002, EPA published a direct final rule implementing a second round of penalty acljustments to account for the 13.6 percent change in the CPI between 1996 and June 2001. 67 Fed. Reg. 41,343 ( June 18,2002). 2 EPA calculated the penalty increase by multiplying the existing penalty amounts by 13.6 percent. EPA then used the size of the penalty increase to determine the category of rounding. However, the statute provides that the category of rounding should be determined by the size of the penalty, not the size of the increase.

In the preamble to the June 2002 direct final rule, EPA noted that the agency's approach of rounding based on the amount of the increase achieves the intent of the Inflation Adjustment Act because it " will result in increase amounts that more closely track the changes in the CPI." 67 Fed. Reg. 41,344. EPA also indicated that calculations based on other rounding approaches " could result in penalty adjustments that are several times the CPI percentage or in no increase at all even with increases in the CPI." Id.

As noted in our informal discussions with your staff, the method of rounding that the EPA proposes in its June 2002 NPRM and direct final rule is inconsistent with the requirements of the statute. The so called " plain meaning" rule of statutory construction dictates that " if the Congress has clearly expressed its intent in the plain language of the statute," then the courts and the agency must give effect to that intent. MississiDDi Poultrv Ass'n. Inc. v. Madigan, 31 F. 3d 293 ( 5" Cir. 1994). The language in the Inflation Adjustment Act makes clear that rounding is based on the dollar amount of the penalty. In this regard, the statute specifically requires the rounding of " the increase," rather than the penalty, and uses the term " penalty" for determining which rounding range should be used to round the increase. Thus, when the statute states that any increase " shall be rounded to the nearest. . . multiple of $ 100 in the case of penalties greater than $ 100 but less than or equal to $ 1,000," you must iirst determine the percent increase, apply it to the current penalty, and then, if the penalty falls in the range of greater than $ 100 but less than or equal to $ 1,000, round the increase to the nearest multiple of $ 100. Nothing in the plain language of the statute, nor in the legislative history, permits an agency to use the size of the increase to determine the appropriate category of rounding.

On that same date, EPA published a notice of proposed rulemaking ( NPRM), 67 Fed. Reg. 41,363, that proposed to similarly adjust the civil monetary penalties for inflation, because, if " EPA receives adverse comment by July 18,2002," the direct final rule " will not take effect." EPA would then address all public comments in a subsequent final rule based on this proposed rule.

Page 2 E290021 Other agencies have used the Same analysis of the statute to reach the Same result as we do. 3 In addition, the Department of the Treasury guidelines issued in 1996, after the Mation Aaustment Act was enacted, state that rounding is based on the amount of the penalty, not the amount of the increase. We also note that Congress used identical language for rounding when it enacted the Consumer Product Safety Improvement Act ( Improvement Act), Pub. L. No. 101 608,104 Stat. 3110 ( 1990). The Improvement Act authorized the Consumer Product Safety Commission to acijust civil penalties for inflation every 5 years. 15 U. S. C. $ 2069 ( 2000). From a reading of the Commission's acijustment regulations, it is clear that the Commission also rounds on the basis of the penalty, and not on the in~ rease.~

While we recognize some advantages to rounding on the basis of the size of the increase rather than the size of the penalty, such a determination does not comport with the language of the statute. Consequently, if EPA wishes to pursue the approach outlined in the Federal Register notices, we respectfully suggest that EPA seek appropriate legislation. If you have any questions regarding this matter, please contact me on 202 512 5400 or Ms. Susan Poling, Managing Associate General Counsel, on 202 512 2667.

Sincerely yours,

 See, u, the National Credit Union Administration's inflation adjustment regulation, 65 Fed. Reg. 57,277, n. 5 ( 2000).

' 59 Fed. Reg. 66,523 ( 1994) and 64 Fed. Reg. 51,963 ( 1999).

Page 3 E290021