[Federal Register Volume 61, Number 220 (Wednesday, November 13, 1996)]
[Notices]
[Pages 58261-58266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29037]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22324; 812-10116]


The Alternative Investment Fund and Pacific Corporate Advisors, 
Inc.; Notice of Application

November 6, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: The Alternative Investment Fund (the ``Fund'') and Pacific

[[Page 58262]]

Corporate Advisors, Inc. (the ``Adviser'').\1\

    \1\ Applicants request that any relief granted extend to any 
future registered investment company advised by the Adviser 
(``Subsequent Funds'') (together with the Fund, the ``Funds''). 
Subsequent Funds will be similar to the Fund in terms of structure, 
investment objective, eligible investors, and offering procedures.
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RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
exempting applicants from section 12(d)(1)(A) of the Act and pursuant 
to section 17(d) of the Act and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: The order would permit the Fund, which will be 
a registered closed-end investment company, to invest in unaffiliated 
private investment companies excepted from the definition of investment 
company by section 3(c)(1) of the Act.\2\ The order also would permit 
the Fund to co-invest with other investment vehicles managed by the 
Adviser or its affiliates and/or, under certain circumstances, with the 
Adviser or its affiliates.

    \2\ Applicants represent that the Fund's investments in such 
private investment companies are permitted under the amendments to 
section 3(c)(1) enacted on October 11, 1996 (``Section 3(c)(1) 
Amendments''). However, because the Section 3(c)(1) Amendments 
generally will not become effective until 180 days after the date of 
enactment, applicants submit that it is appropriate to grant the 
requested relief at this time.
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FILING DATES: The application was filed on April 30, 1996. Applicants 
have agreed to file an amendment, the substance of which is 
incorporated herein, during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 3, 
1996, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Brown & Wood LLP, One World Trade Center, New 
York, NY 10048-0557.

FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at 
(202) 942-0571, or Alison E. Baur, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Fund is a Delaware business trust that intends to register 
under the Act as a non-diversified, closed-end management investment 
company. The Fund will offer its shares only to ``accredited 
investors,'' as defined in rule 501 under the Securities Act of 1933 
(``Securities Act''), and the offering will be exempt from registration 
under the Securities Act. Applicants presently contemplate that the 
Fund will have at least four individual trustees (``Trustees''), a 
majority of whom will not be ``interested persons'' of the Fund within 
the meaning of the Act.
    2. The Fund's investment objective will be to achieve long-term 
capital gains through alternative investments. These investments, which 
generally are offered only to institutional investors, include indirect 
investments in limited partnerships and direct investments in 
privately-negotiated transactions with established companies. Indirect 
investments include interests in partnerships targeting opportunities 
in leveraged buyouts, mezzanine capital, venture capital, and project 
finance. Direct investments are expected to consist of structured 
investments in or with established corporations in their core areas of 
business.
    3. Applicants expect that a majority of the Fund's alternative 
investments will constitute indirect investments. The Fund will not 
acquire 10% or more of the outstanding voting securities of any entity 
excepted from the definition of investment company under the Act by 
section 3(c)(1) thereof (``3(c)(1) Entities'') \3\ and does not intend 
to invest more than 15% of its assets in any single investment. 
Indirect investments will be made in entities managed by parties who 
are not ``affiliated persons,'' as defined in section 2(a)(3) of the 
Act, of the Fund. The Fund will not invest in registered investment 
companies.
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    \3\ Section 3(c)(1) of the Act excepts from the definition of 
investment company issuers whose outstanding securities are 
beneficially owned by not more than 100 persons and which is not 
making and does not presently propose to make a public offering.
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    4. The Adviser is registered under the Investment Advisers Act of 
1940 (the ``Advisers Act'') and is a wholly-owned subsidiary of Pacific 
Corporate Group, Inc. The Fund will pay an advisory fee to the Adviser 
based on the net assets or capital of the Fund. This fee may include a 
performance-based component with respect to direct investments of the 
Fund that complies with the requirements of the Advisers Act and the 
rules thereunder. The Adviser will not, however, receive performance-
based compensation with respect to indirect investments.
    5. In addition to serving as the investment adviser to the Fund, 
the Adviser or its affiliates also may serve as investment adviser to 
private accounts on a discretionary basis, and as general partner (or 
equivalent position) and/or investment adviser to other investment 
vehicles that are not required to be registered under the Act pursuant 
to section 3(c)(1). These private accounts and vehciles, along with any 
similar entity created, advised, sponsored or otherwise organized by 
the Adviser or its affiliates in the future, are collectively referred 
to herein as the ``Private Funds.'' To the extent the Adviser acts as 
the general partner of a Private Fund, the Adviser may make a capital 
contribution in connection with the organization of such Private Fund, 
and maintain an interest in items of gain, loss, income, or expense of 
such Private Funds.
    6. Applicants state that the Adviser or its affiliate may be 
required by a placement agent offering shares of the Fund or a 
Subsequent Fund at the time of the offering or by a Private Fund to 
make a commitment to co-invest in all direct investments with the 
relevant entity in an amount equal to 1% of the entity's investment.
    7. Applicants request an order to permit the Fund and any 
Subsequent Funds to invest in unaffiliated 3(c)(1) Entities. Applicants 
also request an order to permit the Fund and any Subsequent Funds to 
make investments of the type described herein, concurrently with one or 
more Subsequent Fund and/or one or more Private Funds, and, under 
certain circumstances, with the Adviser or its affiliates (a ``Co-
Investment''), subject to the conditions set forth below.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) provides that no registered investment 
company may acquire securities of another investment company if such 
securities represent more than 3% of the acquired company's outstanding 
voting stock, more than 5% of the acquiring company's total assets, or 
if such securities, together with the securities of any other acquired 
investment

[[Page 58263]]

companies, represent more than 10% of the acquiring company's total 
assets.
    2. Section 3(c)(1) excepts from the definition of investment 
company issuers whose outstanding securities are beneficially owned by 
not more than 100 persons and which is not making and does not 
presently propose to make a public offering. Under section 3(c)(1)(A), 
if a company owns 10% or more of the shares of a 3(c)(1) Entity, the 
3(c)(1) Entity is deemed to be an investment company for purposes of 
section 12(d)(1). If a 3(c)(1) Entity is deemed to be an investment 
company for purposes of section 12(d)(1), the ability of any registered 
investment company, including the Fund, to acquire securities issued by 
that entity (even if the registered investment company is not itself a 
10 percent owner) is restricted. Applicants believe that it is likely 
that a number of entities in which the Fund will seek to invest may be 
deemed investment companies solely for purposes of section 12(d)(1) by 
virtue of the provisions of section 3(c)(1). Although the Fund does not 
intend to acquire 10% or more of the outstanding voting securities of 
any 3(c)(1) Entity, it cannot similarly limit the investment by other 
investors purchasing interests in the same entity.
    3. The Fund's investments in any 3(c)(1) Entity in which an 
investor owns 10% or more of the vehicle's outstanding voting 
securities become subject to the percentage limitations in section 
12(d)(1)(A), including the overall ceiling of 10% of the Fund's assets 
in such investments in the aggregate. Since the Fund expects to invest 
in indirect alternative investments at the time they are structured, 
the Fund will not know at the time it is considering an investment 
whether the particular entity will have a 10% investor. Consequently, 
as a result of both the limitations contained in section 12(d)(1)(A) 
and the related obstacles in determining whether particular investments 
will be eligible for investment, in the absence of the exemption 
requested in this application, the Fund's ability to operate in 
accordance with its objective would be limited.
    4. Section 6(c) provides that the SEC may exempt persons or 
transactions if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.
    5. Applicants believe that the requested exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicants do not believe that the concerns 
underlying section 12(d)(1) will be present in the case of the Fund. 
Applicants further believe that the terms and conditions of the 
requested order will provide significant protection to investors in the 
Fund.
    6. Applicants state that the restrictions in section 12(d)(1) were 
intended to prevent abuses occurring as a result of pyramiding of 
investment companies. These abuses related primarily to the following: 
(i) unnecessary layering of fees and duplication of costs, (ii) undue 
influence by management of a fund holding company over underlying 
investment companies, (iii) threat of large scale redemptions out of 
the underlying funds, and (iv) investor confusion.
    7. With respect to layering of fees and duplication of costs, 
applicants believe that the fees to be paid by the Fund are distinct 
from those paid by underlying vehicles. Further, the conditions to the 
relief requested require an express finding by the Trustees that the 
advisory fees are not based on services duplicative of those provided 
to entities in which the Fund will invest. The conditions also require 
that investment advisory fees not include performance-related 
components, except with respect to direct investments. Such limitation 
reflects the fact that indirect alternative investments in which the 
Fund invests will typically pay performance-based compensation to an 
advisory entity, and is included so that investors in the Fund do not 
pay duplicative performance compensation. In addition, the conditions 
limit direct and indirect placement fees and sales charges paid by 
investors in the Fund.
    8. Applicants believe that the Fund's method of operation and the 
conditions set forth below address the other concerns underlying 
section 12(d)(1) and provide significant protection to investors. In 
this regard, the Fund will not have the ability to control underlying 
investment companies through the threat of large-scale redemptions 
because the Fund will not acquire 10% or more of a 3(c)(1) Entity and 
will not invest in securities issued by any investment company 
registered under the Act. Further, applicants represent that the Fund 
will not invest for the purpose of obtaining control over underlying 
investment entities.
    9. The Fund will not be confusing to its investors because 
investors in the Fund will be limited to investors qualifying as 
accredited investors within the meaning of the Securities Act. In 
addition, the complexity of the Fund's structure will be limited 
because the conditions require that the Fund will make an investment in 
a particular issuer only if the issuer does not, at the time of the 
Fund's investment, hold securities of another investment company in 
excess of the limits in section 12(d)(1)(A) of the Act, and does not 
intend to invest in securities of other investment companies in excess 
of the section 12(d)(1)(A) limits.

B. Section 17(d)

    1. Section 17(d) makes it unlawful for any affiliated person of a 
registered investment company, acting as principal, to effect any 
transaction in which such company, or a company controlled by such 
company, is a joint or joint and several participant with the 
affiliated person in contravention of SEC rules. Rule 17d-1 provides 
that the SEC may approve a transaction subject to section 17(d) after 
considering whether the participation of such registered company 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. Applicants request 
an order pursuant to section 17(d) and rule 17d-1 thereunder, 
permitting the Fund and any Subsequent Funds to make Co-Investments of 
the type described herein, subject to the conditions set forth below.
    2. Applicants submit that the requested order is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicants further assert that the terms and 
conditions of such relief will ensure that participation by the Fund 
and/or one or more Subsequent Funds in Co-Investments with one or more 
Private Funds, and, under certain circumstances, with the Adviser or 
its affiliates, and/or Subsequent Funds will not be on a basis 
different from or less advantageous than that of the Private Funds, or, 
if applicable, the Adviser or its affiliates, and/or Subsequent Funds, 
and will provide significant protection to investors from the abuses 
that section 17(d) was designed to protect against. Applicants state 
that such relief is in the best interest of investors in that it 
eliminates the concern over whether to allocate a Co-Investment to the 
Fund or to the Private Funds. Applicants also state that the 
participation by the Adviser or its affiliate has been formulated to be 
consistent with the expectations of the market for entities such as the 
Fund and the Private Funds

[[Page 58264]]

and, under the limited ``lock-step'' circumstances contemplated by the 
terms and conditions of the application, does not raise concerns beyond 
those raised by the participation of the Private Funds in Co-
Investments.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. A majority of the Trustees of each Fund will not be ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of the Fund.
    2. Before approving any investment advisory contract under section 
15 of the Act with the Adviser, the Trustees of the Fund, including a 
majority of the Trustees who are not ``interested persons,'' as defined 
in the Act, must find that the advisory fees charged under the contract 
are based on services that are in addition to, rather than duplicative 
of, services provided to entities in which the Fund will invest. This 
finding, and the basis upon which the finding was made, will be 
recorded fully in the minute books of the Fund.
    3. Investment advisory fees received by the Adviser from the Funds 
will be based on each Fund's net assets or capital and will not include 
performance-based compensation with respect to any indirect 
investments, but may include performance-based compensation in respect 
of direct investments to the extent permitted by the Advisers Act and 
the rules thereunder.
    4. A Fund will not acquire 10 percent or more of the outstanding 
voting securities of an entity excepted from the definition of 
investment company under the Act by section 3(c)(1) thereof.
    5. The Funds will not acquire securities issued by any investment 
company registered under the Act.
    6. Any sales charges or placement fees charged with respect to 
securities of the Funds, when aggregated with any sales charge or 
service fees paid by the Funds with respect to securities of the 
underlying entities, will not exceed the limits set forth in section 
2830(d) of the NASD Conduct Rules.
    7. The Fund will not invest in an entity which, at the time of the 
Fund's investment, holds securities of another investment company in 
excess of the limits contained in section 12(d)(1)(A) of the Act 
applicable to such entity. Prior to committing to an investment, the 
Fund will make due inquiry to confirm that the issuer does not intend 
to invest in investment companies (except to the extent it may hold 
underlying investments through intermediary vehicles) in excess of the 
limits contained in section 12(d)(1)(A) of the Act applicable to such 
issuer. The provisions of this condition shall not be applicable to 
purchases of shares of money market funds registered under the Act 
which are acquired by issuers in which the Fund invests and are 
permitted by section 12(d)(1) of the Act.
    8. No Co-Investments (except for follow-on investments made 
pursuant to condition 15 below) will be made pursuant to the requested 
order with respect to portfolio companies in which the Adviser, any 
Fund or Private Fund, or any of their affiliates has previously 
acquired an interest.
    9. The Trustees of each Fund participating in a Co-Investment, 
including a majority of the non-interested Trustees, will approve Co-
Investments in advance. To facilitate the Trustees' determinations, the 
Adviser will provide the Trustees of a Fund with periodic information 
listing all investments made by the other Funds, the Private Funds, 
and/or the Adviser or its affiliate, as applicable, that would be 
suitable for investment by a Fund.
    10. (a) Before making a Co-Investment, the Adviser will make a 
preliminary determination as to whether each particular Co-Investment 
opportunity meets the Fund's investment objective, policies, and 
restrictions. Co-Investment opportunities will be offered to eligible 
Funds and Private Funds in amounts proportionate to capital available 
for investment at the time of such opportunities. The Adviser will 
maintain written records of the factors considered in any preliminary 
determination.
    (b) Following the making of the determination referred to in (a), 
information concerning the proposed Co-Investment will be distributed 
to the Trustees. Such information will be presented in written form and 
will include the name of each Fund and each Private Fund that may 
participate and, if permitted by condition 11 below, the Adviser or its 
affiliate and the maximum amount offered to each entity.
    (c) Information regarding the Adviser's preliminary determinations 
referred to in (a) will be reviewed by the Trustees, including the non-
interested Trustees. The Trustees, including a majority of the non-
interested Trustees, will make an independent decision as to whether to 
participate and the extent of participation in a Co-Investment based on 
such factors as are deemed appropriate under the circumstances. If a 
majority of the non-interested Trustees of the Fund determines that the 
amount proposed to be invested by the Fund is not sufficient to obtain 
an investment position that they consider appropriate under the 
circumstances, the Fund will not participate in the Co-Investment. 
Similarly, the Fund will not participate in a Co-Investment if a 
majority of the non-interested Trustees of the Fund determines that the 
amount proposed to be invested is an amount in excess of that which is 
determined to be appropriate under the circumstances, although the non-
interested Trustees may make a determination that the Fund take other 
than their allotted portion of an investment, pursuant to condition 12 
below. A Fund will only make a Co-Investment if a majority of the non-
interested Trustees of the Fund prior to making the Co-Investment 
conclude, after consideration of all information deemed relevant 
(including the extent to which such participation is on a basis 
different from or less advantageous than that of other participants), 
that the investments by any Private Fund and/or the Adviser or its 
affiliates, as applicable, would not disadvantage the Fund in the 
making of such investment, in maintaining its investment position or in 
disposing of such investment, and that participation by the Fund would 
not be on a basis different from or less advantageous than that of such 
Private Fund and/or the Adviser or its affiliate, as applicable. The 
non-interested Trustees will maintain at the Fund's office written 
records of the factors considered in any decision regarding the 
proposed Co-Investment.
    (d) The non-interested Trustees will, for purposes of reviewing 
each recommendation of the Adviser, request such additional information 
from the Adviser as they deem necessary for the exercise of their 
reasonable business judgment, and they will also employ such experts, 
including lawyers and accountants, as they deem appropriate for the 
reasonable exercise of this oversight function.
    11. The Trustees, including a majority of the non-interested 
Trustees, will make their own decision and have the right to decide not 
to participate in a particular Co-Investment. There will be no 
consideration paid to the Adviser or its affiliates, directly or 
indirectly, including without limitation any type of brokerage 
commission, in connection with a Co-Investment. However, the Adviser 
and its affiliates (i) may seek reimbursement from direct investment 
issuers for documented out-of-pocket expenses approved by the Trustees 
incurred by the Adviser or its affiliates in connection with a direct 
investment, (ii) will continue to receive advisory and other fees from 
the Fund and the Private Funds, and (iii) may participate

[[Page 58265]]

in any Co-Investment that is a direct investment wherein the Adviser or 
its affiliate is required by the placement agent offering shares of the 
Fund or a Subsequent Fund at the time of the offering or by a Private 
Fund to commit to co-invest in all direct investments with such entity 
in the amount of 1% of the investment of each such entity participating 
in the offering.
    12. The Fund will be entitled to purchase a portion of each Co-
Investment equal to the ratio of its capital available for investment 
to the capital available for investment of each other Co-Investment 
participant (including the interest of the Adviser or its affiliate). 
Any Co-Investment participant may determine not to take its full 
allocation, as long as, in the case of a Fund, a majority of the non-
interested Trustees determines that not doing so would be in the best 
interest of the Fund. All follow-on investments (as defined in 
condition 15 below), including the exercise of warrants or other rights 
to purchase securities of the issuer, will be allocated in the same 
manner as initial Co-Investments. If a Fund or Private Fund decides to 
participate in a Co-Investment opportunity to a lesser extent than its 
full allocation, that entity's portion may be allocated to the other 
Co-Investment participants based on their respective capital available 
for investment. If one or more Funds decline to participate in a Co-
Investment opportunity, the remaining Funds and the Private Funds shall 
have the right to pursue such investment independently. Similarly, if 
one or more Private Funds decline to participate in a Co-Investment 
opportunity, the remaining Private Funds and the Funds shall have the 
right to pursue such investment independently.
    13. Co-Investments in securities by a Fund with any other Fund, any 
Private Fund, and/or the Adviser or its affiliate, as applicable, will 
consist of the same class of securities, including the same 
registration rights (if any), and other rights related thereto, 
purchased at the same unit consideration, and the approval of such 
transactions, including the determination of the terms of the 
transactions by the Fund's non-interested Trustees, will be made in the 
same time period.
    14. Except as described below, the Funds, the Private Funds and/or 
the Adviser or its affiliate, as applicable, will participate in the 
disposition of securities held by them as Co-Investments on a 
proportionate basis at the same time and on the same terms and 
conditions (a ``lock-step'' disposition). For this purpose, a 
distribution of securities to the partners or shareholders of a Private 
Fund upon dissolution shall not be deemed a ``disposition'' of 
securities. (However, to the extent that a Private Fund distributes 
securities in dissolution to partners or shareholders who are 
affiliates of the Funds, such partners or shareholders will be bound by 
the lock-step disposition procedures established herein.) If a Fund or 
a Private Fund elects to dispose of a security purchased in a Co-
Investment with one or more Funds or Private Funds, notice of the 
proposed sale will be given to the non-interested Trustees of the 
relevant Fund(s) and to the relevant Private Fund(s) at the earliest 
practical time. The Funds, the Private Funds, and/or the Adviser or its 
affiliate, as applicable, will participate in the disposition of such 
security on a lock-step basis, unless the non-interested Trustees of a 
Fund determine that the Fund should not participate in such sale or not 
participate on a lock-step basis. A Fund need not participate on a 
lock-step basis in the disposition of securities sold by any other Fund 
or a Private Fund if the non-interested Trustees of the Fund find that 
the retention or sale, as the case may be, of the securities is fair to 
the Fund and that the Fund's participation or choice not to participate 
in the sale on a lock-step basis is not the result of overreaching by 
any other Fund, any Private Fund, and/or the Adviser or its affiliate, 
as applicable. If such a finding is not made, then the relevant Fund 
must participate in such sale on the basis of a lock-step disposition. 
Like a Fund, a Private Fund may elect not to participate in a sale of 
securities held as Co-Investments or not to participate on a lock-step 
basis. If at any time the result of a proposed disposition of any 
portfolio security held by a Fund or a Private Fund would alter the 
proportionate holdings of each class of securities held by the other 
Funds, Private Funds, and/or the Adviser or its affiliate, as 
applicable, holding the Co-Investment, then the non-interested Trustees 
of the Fund or Funds involved must determine that such a result is fair 
to the relevant Fund(s) and is not the result of overreaching by any 
other Fund, any Private Fund, and/or the Adviser or its affiliate, as 
applicable. The non-interested Trustees will record in the records of 
the Fund the basis for their decisions as to whether to participate in 
such sale.
    15. If a Fund or a Private Fund determines that it should make a 
``follow-on'' investment (i.e., an additional investment in a portfolio 
company in which a Co-Investment has been made pursuant to the order 
requested hereby) in a particular portfolio company whose securities 
are held by it and one or more Funds, or to exercise warrants or other 
rights to purchase securities of such an issuer, notice of such 
transaction will be provided to such other Fund(s), including its or 
their non-interested Trustees at the earliest practical time. The 
Adviser will formulate a recommendation as to the proposed 
participation by a Fund in a follow-on investment and provide the 
recommendation to the non-interested Trustees of the Fund along with 
notice of the total amount of the follow-on investment. Each Fund's 
non-interested Trustees will make their own determination with respect 
to follow-on investments. Follow-on investments will be entered into on 
the same basis as initial Co-Investments and will be subject to the 
same approval procedure as those required for initial Co-Investments. 
Assuming that the amount of a follow-on investment available to a Fund 
is not based on the amount of the Fund's initial Co-Investment, the 
relative amount of investment by each Fund participating in a follow-on 
investment will be based on a ratio derived by comparing the capital 
available for investment of each participating Fund, Private Fund and/
or the Adviser or its affiliate, as applicable, with the total amount 
of the available follow-on investment. Each Fund will participate in 
such investment if a majority of its non-interested Trustees determines 
that such action is in the best interest of the Fund. The non-
interested Trustees of each Fund will record in their records the 
recommendation of the Adviser and their decision as to whether to 
engage in a follow-on transaction with respect to that portfolio 
company, as well as the basis for such decision.
    16. A decision by the Trustees of a Fund (i) not to participate in 
a Co-Investment, (ii) to take less or more than the Fund's full pro 
rata allocation, or (iii) not to sell, exchange, or otherwise dispose 
of a Co-Investment in the same manner and at the same time as another 
Fund or a Private Fund shall include a finding that such decision is 
fair and reasonable to the Fund and not the result of overreaching of 
the Fund or its securityholders by the Private Funds and/or the Adviser 
or its affiliate, as applicable. The non-interested Trustees of each 
Fund will be provided quarterly for review all information concerning 
Co-Investments made by the Funds, the Private Funds, and/or the Adviser 
or its affiliate, as applicable, including Co-

[[Page 58266]]

Investments in which the Fund declined to participate, so they may 
determine whether all Co-Investments made during the preceding quarter, 
including those Co-Investments they declined, complied with the 
conditions set forth above. In addition, the non-interested Trustees of 
each Fund will consider at least annually the continuing 
appropriateness of the standards established for Co-Investments by the 
Fund, including whether use of such standards continues to be in the 
best interest of the Fund and its securityholders and does not involve 
overreaching of the Fund or its securityholders on the part of any 
party concerned.
    17. No non-interested Trustee of a Fund will be an affiliated 
person of a Private Fund or have had, at any time since the beginning 
of the last two completed fiscal years of any Private Fund, a material 
business or professional relationship with any Private Fund.
    18. A Fund, each Private Fund, and/or the Adviser or its affiliate, 
as applicable, will each bear its own expenses associated with the 
disposition of portfolio securities. The expenses, if any, of 
distributing and registering securities under the Securities Act sold 
by the Fund, one or more Private Funds, and/or the Adviser or its 
affiliate, as applicable, at the same time will be shared by the Fund, 
the selling Private Fund(s), and/or the Adviser or its affiliate, as 
applicable, in proportion to the relative amounts they are selling.
    19. Other than as provided in condition 11, neither the Adviser nor 
any of its affiliates (other than the Private Funds pursuant to any 
order issued on this application) nor any director of the Fund will 
participate in a Co-Investment with the Fund unless a separate 
exemptive order with respect to such Co-Investment has been obtained. 
For this purpose, the term ``participate'' shall not include either the 
existing interests of the Adviser or its affiliates in, or their 
management fee and expense reimbursement arrangements with, Private 
Funds, and the term ``participate'' shall also not include any 
reimbursement from direct investment issuers described in condition 11 
above.
    20. The Fund will maintain all records required of it by the Act, 
and all records referred to or required under these conditions will be 
available for inspection by the SEC. The Fund will also maintain the 
records required by section 57(f)(3) of the Act as if the Fund was a 
business development company and the Co-Investments were approved by 
the non-interested Trustees under section 57(f).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29037 Filed 11-12-96; 8:45 am]
BILLING CODE 8010-01-M