[Federal Register Volume 81, Number 61 (Wednesday, March 30, 2016)]
[Notices]
[Pages 17741-17746]
[FR Doc No: 2016-07101]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

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

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

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

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

-----------------------------------------------------------------------

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

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

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

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

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

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

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

Applicants' Representations

    1. NexPoint Capital, a Delaware corporation, is an externally
managed, non-diversified, closed-end management investment company that
has elected to be regulated as a BDC under the Act.\1\ NexPoint
Capital's investment objective is to generate current income and
capital appreciation primarily through investments in middle-market
healthcare companies, middle-market companies in non-healthcare
sectors, syndicated floating rate debt of large nonpublic and public
companies and collateralized loan obligations. NexPoint Capital's board
of directors currently consists of six members, five of whom are not
``interested persons'' of NexPoint Capital within the meaning of
section 2(a)(19) of the Act (the ``Independent Directors'').
---------------------------------------------------------------------------

    \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. NHF, a Delaware statutory trust, is an externally managed, non-
diversified, closed-end management investment company registered under
the Act. NHF's investment objective is to generate current income and
capital appreciation primarily through investments in: (i) Secured and
unsecured floating and fixed rate loans; (ii) bonds and other debt
obligations; (iii) debt obligations of stressed, distressed and
bankrupt issuers; (iv) structured products, including but not limited
to, mortgage-backed and other asset-backed securities and
collateralized debt obligations; and (v) equities. NHF's board of
trustees currently consists of six members, five of whom are not
``interested persons'' of NHF within the meaning of section 2(a)(19) of
the Act (the ``Independent Trustees'').
    3. NexPoint Advisors, a Delaware limited partnership, is registered
under the Investment Advisers Act of 1940 (``Advisers Act'') and is the
investment adviser of NexPoint Capital and NHF.
    4. The Existing Private Funds are entities formed under the laws of
Delaware or under the laws of the Cayman Islands. In reliance on the
exclusion from the definition of ``investment company'' provided by
section 3(c)(1) or 3(c)(7) of the Act, neither of the Existing Private
Funds will be registered under the Act. Highland Capital Management,
L.P., registered as an investment adviser under the Advisers Act,
serves as the investment adviser to HMSCF, and Acis Capital Management,
L.P., registered as an investment adviser under the Advisers Act,
serves as the investment sub-adviser to HMSCF. Highland Capital
Healthcare Advisors, L.P., registered as an investment adviser under
the Advisers Act, serves as the investment adviser to HCHP. NexPoint
Advisors expects that certain portfolio companies that are appropriate
investments for a Private Fund \2\ may also be appropriate for one or
more Investment Companies,\3\ with certain exceptions based on
available capital or diversification.
---------------------------------------------------------------------------

    \2\ ``Private Fund'' means any Existing Private Fund or any
entity (a) whose investment adviser is an Adviser, (b) that would be
an investment company but for section 3(c)(1) or 3(c)(7) of the Act,
and (c) that intends to participate in the Co-Investment Program (as
defined below). ``Adviser'' means (a) NexPoint Advisors, (b) the
Current Advisers to Private Funds, and (c) any future investment
adviser that controls, is controlled by or is under common control
with any of NexPoint Advisors or the Current Advisers to Private
Funds and is registered as an investment adviser under the Advisers
Act.
    \3\ The term ``Investment Company'' means any Existing
Investment Company and any future closed-end investment company that
(a) is registered under the Act or has elected to be regulated as a
BDC under the Act, (b) will be advised by an Adviser, and (c) that
intends to participate in the Co-Investment Program.
---------------------------------------------------------------------------

    5. Applicants seek an order (``Order'') \4\ to allow an Investment
Company to co-invest in the same issuers of securities with one or more
other Investment Companies or Private Funds (the ``Co-Investment
Program'') with which it may be prohibited from co-investing by reason
of section 17(d) or section 57 of the Act. For purposes of the
application, a ``Co-Investment Transaction'' means any transaction in
which an Investment Company (or one of its Wholly Owned Investment
Subsidiaries, as defined below) participates together with one or more
other Investment Companies and/or Private Funds in reliance on the
requested Order. ``Potential Co-Investment Transaction'' means any
investment opportunity in which an Investment Company (or a Wholly
Owned Investment Subsidiary) could not participate together with one or
more other Investment Companies and/or Private Funds without obtaining
and relying on the Order.
---------------------------------------------------------------------------

    \4\ All existing entities that currently intend to rely on the
Order have been named as Applicants and any entities that may rely
on the Order in the future will comply with the terms and conditions
of the application.
---------------------------------------------------------------------------

    6. Each of the Investment Companies may, from time to time and as
applicable, form a special purpose subsidiary (a ``Wholly-Owned
Investment Subsidiary'').\5\ Wholly-Owned Investment Subsidiaries would
be prohibited from investing in a Co-

Investment Transaction with any other Investment Company or Private
Fund because the Wholly-Owned Investment Subsidiary would be a company
controlled by the applicable Investment Company for purposes of section
17(d) and section 57(a)(4) and rule 17d-1. Applicants request that any
Wholly Owned Investment Subsidiary be permitted to participate in Co-
Investment Transactions in lieu of the Investment Company of which it
is a subsidiary and that the participation in any such transaction by
any Wholly Owned Investment Subsidiary be treated, for purposes of the
Order, as though the Investment Company of which it is a subsidiary
were participating directly. Applicants represent that this treatment
is justified because any Wholly Owned Investment Subsidiary would have
no purpose other than serving as a holding and financing vehicle for
the applicable Investment Company's investments and, therefore, no
conflicts of interest could arise between an Investment Company and its
Wholly Owned Investment Subsidiary. The board of directors or board of
trustees, as applicable, of an Investment Company would make all
relevant determinations under the conditions with regard to the
participation of such Investment Company's Wholly Owned Investment
Subsidiary in a Co-Investment Transaction, and the board of directors
or the board of trustees, as applicable, of an Investment Company would
be informed of, and take into consideration, any proposed use of any
Wholly Owned Investment Subsidiary in such Investment Company's place.
If an Investment Company proposes to participate in the same Co-
Investment Transaction with any of its Wholly Owned Investment
Subsidiaries, the board of directors or the board of trustees, as
applicable, of such Investment Company will also be informed of, and
take into consideration, the relative participation of the Investment
Company and the Wholly Owned Investment Subsidiary.
---------------------------------------------------------------------------

    \5\ The term ``Wholly-Owned Investment Subsidiary'' means an
entity (a) whose sole business purpose is to hold one or more
investments and issue debt on behalf of such Investment Company, to
obtain debt financing for those investments and, in the case of a
Wholly Owned Investment Subsidiary organized as a small business
investment company under the Small Business Investment Act of 1958
(``SBA Act''), to maintain a license under the SBA Act and issue
debentures guaranteed by the Small Business Administration; (b) that
is wholly owned by such Investment Company (with the applicable
Investment Company at all times holding directly or indirectly,
beneficially and of record, 100% of the voting and economic
interests); (c) with respect to which the board of directors or
board of trustees, as applicable, of such Investment Company has the
sole authority to make all determinations with respect to the Wholly
Owned Investment Subsidiary's participation under the conditions to
the application; and (d) that is an entity that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act.
---------------------------------------------------------------------------

    7. Applicants represent that the Adviser of another Investment
Company or a Private Fund will refer to the Adviser of an Investment
Company all Potential Co-Investment Transactions within such Investment
Company's Objectives and Strategies \6\ that are considered for such
other Investment Company or Private Fund, and such investment
opportunities may result in a Co-Investment Transaction. For each such
referral, the applicable Adviser will consider the investment
objective, investment policies, investment position, investment
strategies, investment restrictions, regulatory and tax requirements,
capital available for investment and other pertinent factors applicable
to such Investment Company. Likewise, when selecting investments for a
Private Fund, the applicable Adviser to the Private Fund will select
investments separately for the Private Fund, considering the investment
objective, investment policies, investment position, investment
strategies, investment restrictions, regulatory and tax requirements,
capital available for investment and other pertinent factors applicable
to such Private Fund. Each Co-Investment Transaction and the proposed
allocation of such Co-Investment Transaction would be approved prior to
the actual investment by the required majority (within the meaning of
section 57(o) of the Act) (the ``Required Majority'') \7\ of the
Investment Company's board of directors or board of trustees, as
applicable.
---------------------------------------------------------------------------

    \6\ ``Objectives and Strategies'' means the Investment Company's
investment objectives and strategies, as described in its
registration statement on Form N-2 and other filings made with the
Commission by such Investment Company under the Securities Act of
1933, as amended (``1933 Act''), or the Act, any reports filed by
such Investment Company with the Commission under the Securities
Exchange Act of 1934, as amended, or the Act and such Investment
Company's reports to stockholders.
    \7\ In the case of an Investment Company that is a registered
closed-end fund, the directors or trustees that make up the Required
Majority will be determined as if the Investment Company were a BDC
subject to section 57(o).
---------------------------------------------------------------------------

    8. Other than pro rata dispositions and follow-on investments \8\
as provided in conditions 7 and 8, and after making the determinations
required in conditions 1 and 2(a), the applicable Adviser will present
each Potential Co-Investment Transaction and the proposed allocation to
the directors or trustees of the applicable Investment Company who are
eligible to vote under section 57(o) of the Act (``Eligible
Directors''), and the Required Majority will approve each Co-Investment
Transaction prior to any investment by such Investment Company.
---------------------------------------------------------------------------

    \8\ ``Follow-on investment'' means an additional investment in
an existing portfolio company, including through the exercise of
warrants, conversion privileges or other rights to acquire
securities of the portfolio company.
---------------------------------------------------------------------------

    9. With respect to the pro rata dispositions and follow-on
investments provided in conditions 7 and 8, the Investment Companies
may participate in a pro rata disposition or follow-on investment
without obtaining prior approval of the Required Majority if, among
other things: (i) The proposed participation of such Investment Company
and each other Investment Company or Private Fund in such disposition
or follow-on investment is proportionate to its outstanding investments
in the issuer immediately preceding the disposition or follow-on
investment, as the case may be; and (ii) the board of directors or
board of trustees, as applicable, of the Investment Company has
approved such Investment Company's participation in pro rata
dispositions and follow-on investments as being in the best interests
of the Investment Company. If such board does not so approve, any such
disposition or follow-on investment will be submitted to the Investment
Company's Eligible Directors. The board of directors or board of
trustees, as applicable, of an Investment Company may at any time
rescind, suspend or qualify its approval of pro rata dispositions and
follow-on investments, with the result that all dispositions and/or
follow-on investments must be submitted to the Eligible Directors of
such Investment Company.
    10. No Independent Director or Independent Trustee of an Investment
Company will have a financial interest in any Co-Investment
Transaction, other than indirectly through share ownership in the
Investment Company.
    11. Under condition 14, if NexPoint Advisors or its principals, or
any person controlling, controlled by, or under common control with
NexPoint Advisors or its principals, and the Private Funds
(collectively, the ``Holders'') own in the aggregate more than 25
percent of the outstanding voting shares of an Investment Company (the
``Shares''), then the Holders will vote such Shares as directed by an
independent third party when voting on matters specified in the
condition. Applicants believe that this condition will ensure that the
Independent Directors or Independent Trustees will act independently in
evaluating the Co-Investment Program, because the ability of NexPoint
Advisors or its principals to influence the Independent Directors or
Independent Trustees by a suggestion, explicit or implied, that the
Independent Directors or Independent Trustees can be removed will be
limited significantly. Applicants represent that the Independent
Directors or Independent Trustees shall evaluate and approve any
independent third party, taking into account its qualifications,
reputation for independence, cost to the shareholders, and other
factors that they deem relevant.

Applicants' Legal Analysis

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

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

Applicants' Conditions

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

    (C) any fees or other compensation that any other Investment
Company, Private Fund or any affiliated person of another Investment
Company or Private Fund receives in connection with the right of such
other Investment Company or Private Fund to nominate a director or
appoint a board observer or otherwise to participate in the governance
or management of the portfolio company will be shared proportionately
among the participating Private Funds (which each may, in turn, share
their portion with their affiliated persons) and the participating
Investment Companies in accordance with the amount of each party's
investment; and
    (iv) the proposed investment by the Investment Company will not
benefit the other Investment Companies, the Advisers, the Private Funds
or any affiliated person of any of them (other than the parties to the
Co-Investment Transaction), except (A) to the extent permitted by
condition 13; (B) to the extent permitted by sections 17(e) or 57(k) of
the Act, as applicable; (C) indirectly, as a result of an interest in
the securities issued by one of the parties to the Co-Investment
Transaction; or (D) in the case of fees or other compensation described
in condition 2(c)(iii)(C).
    3. Each Investment Company has the right to decline to participate
in any Potential Co-Investment Transaction or to invest less than the
amount proposed.
    4. The applicable Adviser will present to the board of directors or
the board of trustees, as applicable, of each Investment Company, on a
quarterly basis, a record of all investments in Potential Co-Investment
Transactions made by any of the other Investment Companies and the
Private Funds during the preceding quarter that fell within such
Investment Company's then-current Objectives and Strategies that were
not made available to such Investment Company and an explanation of why
the investment opportunities were not offered to such Investment
Company. All information presented to a board pursuant to this
condition will be kept for the life of such Investment Company and at
least two years thereafter, and will be subject to examination by the
Commission and its staff.
    5. Except for follow-on investments made in accordance with
condition 8,\9\ an Investment Company will not invest in reliance on
the Order in any issuer in which any other Investment Company, Private
Fund or any affiliated person of another Investment Company or Private
Fund is an existing investor.
---------------------------------------------------------------------------

    \9\ This exception applies only to follow-on investments by an
Investment Company in issuers in which that Investment Company
already holds investments.
---------------------------------------------------------------------------

    6. An Investment Company will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of
securities to be purchased, settlement date and registration rights
will be the same for each participating Investment Company and Private
Fund. The grant to another participant, but not such Investment
Company, of the right to nominate a director for election to a
portfolio company's board of directors, the right to have an observer
on the board of directors or similar rights to participate in the
governance or management of the portfolio company will not be
interpreted so as to violate this condition 6, if conditions
2(c)(iii)(A), (B) and (C) are met.
    7. (a) If any Investment Company or Private Fund elects to sell,
exchange or otherwise dispose of an interest in a security that was
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Investment Company that participated in the Co-
Investment Transaction of the proposed disposition at the earliest
practical time; and
    (ii) formulate a recommendation as to participation by such
Investment Company in any such disposition.
    (b) Each Investment Company will have the right to participate in
such disposition on a proportionate basis, at the same price and on the
same terms and conditions as those applicable to any participating
Private Funds and other participating Investment Companies.
    (c) An Investment Company may participate in such disposition
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of such Investment Company and of each other
participant in such disposition is proportionate to its outstanding
investment in the issuer immediately preceding the disposition; (ii)
the board of directors or board of trustees, as applicable, of such
Investment Company has approved as being in the best interests of such
Investment Company the ability to participate in such dispositions on a
pro rata basis (as described in greater detail in the application); and
(iii) such board is provided on a quarterly basis with a list of all
dispositions made in accordance with this condition. In all other
cases, the applicable Adviser will provide its written recommendation
as to an Investment Company's participation to the Eligible Directors
of such Investment Company, and the Investment Company will participate
in such disposition solely to the extent that the Required Majority
determines that it is in the Investment Company's best interests.
    (d) Each Investment Company and each other participant will bear
its own expenses in connection with any such disposition.
    8. (a) If any Investment Company or Private Fund desires to make a
follow-on investment in a portfolio company whose securities were
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Investment Company that participated in the Co-
Investment Transaction of the proposed transaction at the earliest
practical time; and
    (ii) formulate a recommendation as to the proposed participation,
including the amount of the proposed follow-on investment, by such
Investment Company.
    (b) Such Investment Company may participate in such follow-on
investment without obtaining prior approval of the Required Majority
if: (i) The proposed participation of each Investment Company and each
Private Fund in such investment is proportionate to its outstanding
investment in the issuer immediately preceding the follow-on
investment; (ii) the board of directors or board of trustees, as
applicable, of such Investment Company has approved as being in the
best interests of such Investment Company the ability to participate in
follow-on investments on a pro rata basis (as described in greater
detail in the application); and (iii) such board is provided on a
quarterly basis with a list of all follow on investments made in
accordance with this condition. In all other cases, the applicable
Adviser will provide its written recommendation as to such Investment
Company's participation to the Eligible Directors, and such Investment
Company will participate in such follow-on investment solely to the
extent that the Required Majority determines that it is in such
Investment Company's best interests.
    (c) If with respect to any follow-on investment:
    (i) The amount of the opportunity is not based on the Investment
Companies' and the Private Funds' outstanding investments immediately
preceding the follow-on investment; and
    (ii) the aggregate amount recommended by the applicable Adviser to
be invested by each Investment Company in the follow-on investment,
together with the amount proposed to be invested by the participating
Private Funds in the same transaction, exceeds the amount of the
opportunity, then the

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

    \10\ 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 an Investment Company, then the Holders will vote such Shares
as directed by an independent third party when voting on (1) the
election of directors; (2) the removal of one or more directors; or (3)
any other matter under either the Act or applicable state law affecting
the Board's composition, size, or manner of election.

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