[Federal Register Volume 79, Number 161 (Wednesday, August 20, 2014)]
[Notices]
[Pages 49346-49350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-19706]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31212; File No. 812-14132]


Fifth Street Finance Corp. et al.; Notice of Application

August 14, 2014.
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 of Application:  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: Fifth Street Finance Corp. (``Fifth Street''); Fifth Street 
Senior Floating Rate Corp. (``Fifth Street Senior,'' and together with 
Fifth Street, the ``Existing Regulated Funds''); Fifth Street Mezzanine 
Partners IV, L.P. (``SBIC Subsidiary IV''); Fifth Street Mezzanine 
Partners V, L.P.; (``SBIC Subsidiary V'' and together with SBIC 
Subsidiary IV, the ``SBIC Subsidiaries''); FSMP IV GP, LLC (the ``SBIC 
IV General Partner''); FSMP V GP, LLC (the ``SBIC V General Partner'', 
and together with SBIC IV General Partner, the ``SBIC General 
Partners''); FSFC Holdings, Inc.; Fifth Street Fund of Funds LLC; Fifth 
Street Funding, LLC; Fifth Street Funding II, LLC (together with the 
SBIC Subsidiaries, the ``Fifth Street Subsidiaries''); FS Senior 
Funding LLC (the ``Fifth Street Senior Subsidiary'' and together with 
the Fifth Street Subsidiaries, the ``Subsidiaries''); Fifth Street 
Senior Loan Fund LP; Fifth Street Credit Opportunities Fund, L.P.; 
Fifth Street Senior Loan Fund I Operating Entity, LLC; and Fifth Street 
Senior Loan Fund I, LLC (together, the ``Existing Co-Investment 
Affiliates''); FSCO GP LLC; FSLF GP LLC; and Fifth Street Management 
LLC (the ``BDC Adviser'').

Filing Dates:  The application was filed on March 12, 2013 and amended 
on July 15, 2013, November 26, 2013, April 15, 2014, and August 12, 
2013.

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 September 8, 2014, 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: Fifth Street Finance 
Corp., 10 Bank Street, 12th Floor, White Plains, NY 10606.

FOR FURTHER INFORMATION CONTACT:  Laura J. Riegel, Senior Counsel, at 
(202) 551-6873 or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(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 (202) 551-8090.

Applicants' Representations

    1. Fifth Street and Fifth Street Senior are Delaware corporations 
organized as non-diversified, closed-end management companies that have 
elected to be regulated as BDCs under

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the Act.\1\ Fifth Street's investment objective is to maximize its 
portfolio's total return by generating current income from its debt 
investments and capital appreciation from its equity investments. Fifth 
Street Senior's investment objective is to maximize portfolio total 
return by generating current income from debt investments while seeking 
to preserve capital. A majority of the board of directors (``Board'') 
\2\ of Fifth Street and Fifth Street Senior, respectively, are persons 
who are not ``interested persons,'' as defined in section 2(a)(19) of 
the Act (the ``Independent Directors'') of the respective Regulated 
Fund.
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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\ The term ``Board'' refers to the board of directors of any 
Regulated Fund (as defined below).
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    2. The Subsidiaries are each a Wholly-Owned Investment Sub (as 
defined below) of either Fifth Street or Fifth Street Senior. Each SBIC 
Subsidiary was formed as a Delaware limited partnership and licensed by 
the Small Business Administration (``SBA'') to operate under the Small 
Business Investment Act of 1958 (``SBA Act''), as a small business 
investment company. The SBIC Subsidiaries will not be registered under 
the Act based on the exclusion from the definition of investment 
company contained in section 3(c)(7) of the Act. SBIC IV General 
Partner and SBIC V General Partner were formed as Delaware limited 
liability companies and are general partners of SBIC Subsidiary IV and 
SBIC Subsidiary V, respectively. The SBIC General Partners each own a 
1% interest in their respective SBIC Subsidiary. Fifth Street, which 
directly owns all of the ownership interests in the SBIC General 
Partners, directly owns 99% of the ownership interests in each SBIC 
Subsidiary.
    3. Fifth Street Senior Loan Fund LP, Fifth Street Credit 
Opportunities Fund, L.P., Fifth Street Senior Loan Fund I Operating 
Entity, LLC, and Fifth Street Senior Loan Fund I, LLC, the Existing Co-
Investment Affiliates, are each a Delaware limited partnership or 
Delaware limited liability company that is excluded from the definition 
of investment company under section 3(c)(7) of the Act. FSCO GP LLC and 
FSLF GP LLC are the general partners of Fifth Street Credit 
Opportunities Fund, L.P. and Fifth Street Senior Loan Fund LP, 
respectively.
    4. The BDC Adviser is a Delaware limited liable company that is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''). The BDC Adviser serves as the 
investment adviser to the Existing Regulated Funds and the Existing Co-
Investment Affiliates.
    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 (a) that are registered 
under the Act or have elected to be regulated as BDCs, and (b) whose 
investment adviser is the BDC Adviser or an investment adviser 
controlling, controlled by, or under common control with the BDC 
Adviser (each, an ``Adviser'').
    \4\ ``Co-Investment Affiliates'' means the Existing Co-
Investment Affiliates and any future 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 is not a 
subsidiary of a Regulated Fund.
    \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\ The term ``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 the SBIC Subsidiaries, to maintain a license under the SBA 
Act and issue debentures guaranteed by the SBA); (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.
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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

[[Page 49348]]

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\ The term ``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 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.

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 Regulated Fund's Adviser will make an independent 
determination of the appropriateness of the investment for the 
Regulated Fund in light of the Regulated Fund's then-current 
circumstances.
    2. (a) If the applicable Adviser deems a Regulated Fund's 
participation in any Potential Co-Investment Transaction to be 
appropriate for the Regulated Fund, the Adviser will then determine an 
appropriate level of investment for the Regulated Fund.
    (b) If the aggregate amount recommended by the applicable Adviser 
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 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 will distribute

[[Page 49349]]

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 Adviser agrees to, and does, 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 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 
Advisers 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 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

[[Page 49350]]

Transaction, the applicable Advisers 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 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 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 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 (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).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19706 Filed 8-19-14; 8:45 am]
BILLING CODE 8011-01-P