[Federal Register Volume 82, Number 247 (Wednesday, December 27, 2017)]
[Notices]
[Pages 61341-61351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27825]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32945; File No. 812-14798]


TCG BDC, Inc., et al.

December 20, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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

    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.

Summary of Application: Applicants request an order to permit certain 
business development companies (``BDCs'') and closed-end management 
investment companies to co-invest in portfolio companies with each 
other and with affiliated investment funds and accounts.\1\
---------------------------------------------------------------------------

    \1\ The requested order (``Order'') would supersede an exemptive 
order issued by the Commission on November 22, 2016 (NF Investment 
Corp., et al., Investment Company Act Release Nos. 32340 (Oct. 27, 
2016) (notice) and 32362 (Nov. 22, 2016) (order)) (the ``Prior 
Order''), with the result that no person will continue to rely on 
the Prior Order if the Order is granted.

Applicants: TCG BDC, Inc. (``BDC I''), TCG BDC II, Inc. (``BDC II''), 
TCG BDC

[[Page 61342]]

III, Inc. (``BDC III''), TCG BDC SPV LLC (``BDC I Sub''), Carlyle GMS 
Finance MM CLO 2015-1 LLC (``2015-1 Issuer''), Carlyle GMS Investment 
Management L.L.C. (``CGMSIM''), OC Private Capital, LLC (``OC 
Adviser''), Carlyle CLO Management L.L.C. (``Carlyle CLO Manager''), MC 
UNI LLC, MC UNI Subsidiary LLC, CPC V, LP, CPC V SPV LLC, Carlyle 
Global Market Strategies CLO 2013-1, Ltd., Carlyle Global Market 
Strategies CLO 2013-2, Ltd., Carlyle Global Market Strategies CLO 2013-
3, Ltd., Carlyle Global Market Strategies CLO 2014-1, Ltd., Carlyle 
Global Market Strategies CLO 2014-2, Ltd., Carlyle Global Market 
Strategies CLO 2014-3, Ltd., Carlyle Global Market Strategies CLO 2014-
4, Ltd., Carlyle Global Market Strategies CLO 2014-5, Ltd., Carlyle 
Global Market Strategies CLO 2015-1, Ltd., Carlyle Global Market 
Strategies CLO 2015-2, Ltd., Carlyle Global Market Strategies CLO 2015-
3, Ltd., Carlyle Global Market Strategies CLO 2015-4, Ltd., Carlyle 
Global Market Strategies CLO 2015-5, Ltd., Carlyle Global Market 
Strategies CLO 2016-1, Ltd., Carlyle Global Market Strategies CLO 2016-
2, Ltd., Carlyle Global Market Strategies CLO 2016-3, Ltd., Carlyle US 
CLO 2016-4, Ltd., Carlyle US CLO 2017-1, Ltd., Carlyle US CLO 2017-2, 
Ltd., Carlyle US CLO 2017-3, Ltd., Carlyle US CLO 2017-4, Ltd., Carlyle 
US CLO 2017-5, Ltd., Carlyle Structured Credit Fund, L.P., Carlyle 
Energy Mezzanine Opportunities Fund II, L.P., Carlyle Energy Mezzanine 
Opportunities Fund II-A, L.P., CEMOF II Coinvestment, L.P., CEMOF II 
Master Co-Investment Partners, L.P., CEMOF II Master Co-Investment 
Partners AIV One, L.P., CEMOF II Master Co-Investment Partners AIV, 
L.P., CEMOF-A Coinvestment Partners, L.P., CEMOF II AIV, L.P., CEMOF II 
AIV One, L.P., CEMOF II AIV Two, L.P., CEMOF II-A AIV, L.P., CEMOF II-A 
AIV One, L.P., CEMOF II-A AIV Two, L.P., Carlyle Credit Opportunities 
Fund (Parallel), L.P., Carlyle Credit Opportunities Fund, L.P., CCOF 
Main SPV, L.P., CCOF Master, L.P., CCOF Parallel AIV Investors, L.L.C., 
Carlyle Strategic Partners IV, L.P., CSP IV Coinvestment, L.P., CSP IV 
Coinvestment (Cayman), L.P., CSP IV (Cayman 1), L.P., CSP IV 
Acquisitions, L.P., CSP IV (Cayman 2), L.P., CSP IV (Cayman 3), L.P., 
TCG Securities, L.L.C. (``TCG Securities''), TCG Capital Markets L.L.C. 
(``TCG Capital Markets'') and TCG Senior Funding L.L.C. (``TCG Senior 
---------------------------------------------------------------------------
Funding'') (collectively, ``Applicants'').

Filing Dates: The application was filed on July 10, 2017, and amended 
on November 28, 2017, and December 12, 2017.

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 January 16, 2018, 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: 520 Madison Avenue, 40th 
Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or David J. Marcinkus, 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 website by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Introduction

    1. The Applicants request an order of the Commission under Sections 
17(d) and 57(i) and Rule 17d-1 thereunder to permit, subject to the 
terms and conditions set forth in the application (the ``Conditions''), 
a Regulated Fund \2\ (or any Wholly-Owned Investment Sub (defined 
below) of such Regulated Fund) and one or more other Regulated Funds 
(or any Wholly-Owned Investment Sub of such Regulated Fund), one or 
more Affiliated Funds \3\ and/or one or more Capital Markets Affiliates 
\4\ to enter into Co-Investment Transactions with each other. ``Co-
Investment Transaction'' means any transaction in which a Regulated 
Fund (or its Wholly-Owned Investment Sub) participated together with 
one or more Affiliated Funds, one or more Capital Markets Affiliates, 
and/or one or more other Regulated Funds (or its Wholly-Owned 
Investment Sub) in reliance on

[[Page 61343]]

the Order. ``Potential Co-Investment Transaction'' means any investment 
opportunity in which a Regulated Fund (or its Wholly-Owned Investment 
Sub) could not participate together with one or more Affiliated Funds, 
one or more Capital Markets Affiliates, and/or one or more other 
Regulated Funds (or its Wholly-Owned Investment Sub) without obtaining 
and relying on the Order.\5\
---------------------------------------------------------------------------

    \2\ ``Regulated Funds'' means (a) the Existing Regulated Funds, 
(b) the Future Regulated Funds and (c) the BDC Downstream Funds 
(defined below). ``Existing Regulated Fund'' means (a) BDC I, (b) 
BDC II, and (c) from and after its election to be regulated as a BDC 
under the Act, BDC III. ``Future Regulated Fund'' means a closed-end 
management investment company (a) that is registered under the Act 
or has elected to be regulated as a BDC and (b) whose investment 
adviser or sub-adviser is an Adviser (including the Future RIC 
(defined below)).
    ``Adviser'' means any Existing Adviser and any Future Adviser; 
provided that an Adviser serving as a sub-adviser to an Affiliated 
Fund (defined below) is included in this term only if such Adviser 
controls the entity. The term Adviser does not include any primary 
investment adviser to an Affiliated Fund or a Regulated Fund whose 
sub-adviser is an Adviser, except that such primary investment 
adviser is deemed to be an Adviser for purposes of Conditions 
2(c)(iv), 13 and 14 only. The primary investment adviser to an 
Affiliated Fund or a Regulated Fund whose sub-adviser is an Adviser 
will not source any Potential Co-Investment Transactions under the 
requested Order. ``Existing Adviser'' means CGMSIM, OC Adviser and 
Carlyle CLO Manager. ``Future Adviser'' means any future investment 
adviser that (i) controls, is controlled by or is under common 
control with CGMSIM, (ii) (a) is registered as an investment adviser 
under the Investment Advisers Act of 1940 (the ``Advisers Act'') or 
(b) is a relying adviser of an investment adviser that is registered 
under the Advisers Act and that controls, is controlled by or is 
under common control with CGMSIM, and (iii) is not a Regulated Fund 
or a subsidiary of a Regulated Fund.
    \3\ ``Affiliated Fund'' means (a) any Existing Affiliated Fund 
(identified in Schedule A to the application) and (b) any entity (i) 
whose investment adviser or sub-adviser is an Adviser, (ii) that 
either (x) would be an investment company but for Section 3(c)(1) or 
3(c)(7) of the Act or (y) relies on Rule 3a-7 under the Act and 
(iii) that is not a BDC Downstream Fund (together with each such 
entity's direct and indirect wholly-owned subsidiaries); provided 
that an entity sub-advised by an Adviser is included in this term 
only if such Adviser serving as sub-adviser controls the entity.
    ``BDC Downstream Fund'' means with respect to any Regulated Fund 
that is a BDC, an entity (a) that the BDC directly or indirectly 
controls, (b) that is not controlled by any person other than the 
BDC (except a person that indirectly controls the entity solely 
because it controls the BDC), (c) that would be an investment 
company but for Section 3(c)(1) or 3(c)(7) of the Act, (d) whose 
investment adviser is an Adviser and (e) that is not a Wholly-Owned 
Investment Sub.
    \4\ ``Capital Markets Affiliates'' means any Carlyle Broker-
Dealer Subsidiary and any Carlyle Proprietary Account. Each Capital 
Markets Affiliate may, from time to time, hold various financial 
assets in a principal capacity. ``Carlyle Broker-Dealer Subsidiary'' 
means (a) (i) TCG Securities and from and after its registration 
with the Commission as a broker-dealer under the Exchange Act 
(defined below), TCG Capital Markets (each an ``Existing Carlyle 
Broker-Dealer Subsidiary'') and (ii) any entity that (x) is a 
wholly- or majority-owned subsidiary of Carlyle (defined below) and 
(y) is registered or authorized as a broker-dealer or its foreign 
equivalent, and (b) any entity that is a wholly-owned subsidiary of 
an entity described in the preceding clause (a). ``Carlyle 
Proprietary Account'' means (a) TCG Senior Funding, and (b) any 
entity that (i) is a wholly- or majority-owned subsidiary of 
Carlyle, (ii) is advised by an Adviser and (iii) from time to time, 
may hold various financial assets in a principal capacity.
    \5\ All existing entities that currently intend to rely on the 
Order have been named as Applicants and any existing or future 
entities that may rely on the Order in the future will comply with 
its terms and Conditions set forth in the application.
---------------------------------------------------------------------------

Applicants

    2. Each of BDC I, BDC II and BDC III, is a closed-end management 
investment company incorporated in Maryland that either has elected, 
or, in the case of BDC III, intends to elect, to be regulated as a BDC 
under the Act.\6\ Each of BDC I's Board \7\ and BDC II's Board 
currently consists of five directors, three of whom are Independent 
Directors.\8\ BDC III's Board currently consists of four directors, two 
of whom are Independent Directors.\9\
---------------------------------------------------------------------------

    \6\ 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 Section 55(a)(1) through 
55(a)(3) and makes available significant managerial assistance with 
respect to the issuers of such securities.
    \7\ ``Board'' means (i) with respect to a Regulated Fund other 
than a BDC Downstream Fund, the board of directors (or the 
equivalent) of the Regulated Fund and (ii) with respect to a BDC 
Downstream Fund, the Independent Party of the BDC Downstream Fund.
    ``Independent Party'' means, with respect to a BDC Downstream 
Fund, (i) if the BDC Downstream Fund has a board of directors (or 
the equivalent), the board or (ii) if the BDC Downstream Fund does 
not have a board of directors (or the equivalent), a transaction 
committee or advisory committee of the BDC Downstream Fund.
    \8\ ``Independent Director'' means a member of the Board of any 
relevant entity who is not an ``interested person'' as defined in 
Section 2(a)(19) of the Act. No Independent Director of a Regulated 
Fund (including any non-interested member of an Independent Party) 
will have a financial interest in any Co-Investment Transaction, 
other than indirectly through share ownership in one of the 
Regulated Funds.
    \9\ The BDC III Board intends to elect an additional Independent 
Director to the BDC III Board to fill a vacancy so that the BDC III 
Board will be comprised of a majority of Independent Directors prior 
to BDC III's election to be regulated as a BDC under the Act.
---------------------------------------------------------------------------

    3. CGMSIM, a Delaware limited liability company that is registered 
as an investment adviser under the Advisers Act, serves as the 
investment adviser to BDC I, BDC II, BDC III, certain Existing 
Affiliated Funds (as identified in Schedule A to the application) and 
will serve as a sub-adviser to a Future Regulated Fund that will be a 
closed-end management investment company (the ``Future RIC''). OC 
Adviser, a Delaware limited liability company that is registered as an 
investment adviser under the Advisers Act, is under common control with 
CGMSIM, and will serve as the investment adviser to the Future RIC that 
will be sub-advised by CGMSIM.\10\ Carlyle CLO Manager, a Delaware 
limited liability company, that is a wholly-owned subsidiary and a 
relying adviser of CIM, manages the Structured Credit Existing CLOs (as 
identified in Schedule A to the application).
---------------------------------------------------------------------------

    \10\ OC Adviser is 51% owned by OFI Global Institutional, Inc. 
and 49% owned by Carlyle Investment Management L.L.C. (``CIM''). 
CIM, a registered investment adviser under the Advisers Act, is a 
subsidiary of and controlled by The Carlyle Group L.P. 
(``Carlyle''). OC Adviser will be an Adviser for purposes of the 
relief requested.
---------------------------------------------------------------------------

    4. Each Existing Affiliated Fund is a separate and distinct legal 
entity and each would either be an investment company but for Section 
3(c)(1) or 3(c)(7) of the Act or relies on Rule 3a-7 under the Act. A 
complete list of the Existing Affiliated Funds is included in Schedule 
A to the application.
    5. Each of BDC I Sub and 2015-1 Issuer, is a wholly-owned 
subsidiary of BDC I (the ``Existing Wholly-Owned Investment Subs''), 
formed for the purpose of procuring financing or otherwise holding 
investments.
    6. TCG Securities, a Delaware limited liability company and a 
wholly-owned subsidiary of Carlyle, is registered with the Commission 
as a broker-dealer under the Securities Exchange Act of 1934, as 
amended (the ``Exchange Act''). TCG Capital Markets, a Delaware limited 
liability company and a majority-owned subsidiary of Carlyle, intends 
to register with the Commission as a broker-dealer under the Exchange 
Act. TCG Senior Funding, a Delaware limited liability company and a 
majority-owned subsidiary of Carlyle, was formed to originate and sell 
loans and will be advised by CGMSIM.
    7. Each Applicant is directly or indirectly controlled by Carlyle, 
a publicly traded company. Carlyle owns controlling interests in the 
Advisers and, thus, may be deemed to control the Regulated Funds and 
the Affiliated Funds. Applicants state that Carlyle is a holding 
company and does not currently offer investment advisory services to 
any person and is not expected to do so in the future. Applicants state 
that as a result, Carlyle has not been included as an Applicant.
    8. Applicants state that an Existing Regulated Fund or a Future 
Regulated Fund may, from time to time, form one or more Wholly-Owned 
Investment Subs.\11\ Such a subsidiary may be prohibited from investing 
in a Co-Investment Transaction with a Regulated Fund (other than its 
parent) or any Affiliated Fund or Capital Markets Affiliate because it 
would be a company controlled by its parent Regulated Fund for purposes 
of Section 57(a)(4) and Rule 17d-1. Applicants request that each 
Wholly-Owned Investment Sub be permitted to participate in Co-
Investment Transactions in lieu of the Regulated Entity that owns it 
and that the Wholly-Owned Investment Sub's participation in any such 
transaction be treated, for purposes of the Order, as though the parent 
Regulated Fund were participating directly. Applicants represent that 
this treatment is justified because a Wholly-Owned Investment Sub would 
have no purpose other than serving as a holding vehicle for the 
Regulated Fund's investments and issuing debt and, therefore, no 
conflicts of interest could arise between the parent Regulated Fund and 
the Wholly-Owned Investment Sub. The Board of the parent Regulated Fund 
would make all relevant determinations under the Conditions with regard 
to a Wholly-Owned Investment Sub's participation in a Co-Investment 
Transaction, and the Board would be informed of, and take into 
consideration, any proposed use of a Wholly-Owned Investment Sub in the 
Regulated Fund's place. If the parent Regulated Fund proposes to 
participate in the same Co-Investment Transaction with any of its 
Wholly-Owned Investment Subs, the Board of the parent Regulated Fund 
will also be informed of, and take into consideration, the relative 
participation of the Regulated Fund and the Wholly-Owned Investment 
Sub.
---------------------------------------------------------------------------

    \11\ ``Wholly-Owned Investment Sub'' means any Existing Wholly-
Owned Investment Subs or an entity (i) that is wholly-owned by an 
Existing Regulated Fund or a Future Regulated Fund (with such 
Regulated Fund at all times holding, beneficially and of record, 
100% of the voting and economic interests); (ii) whose sole business 
purpose is to hold one or more investments and issue debt on behalf 
or in lieu of such Regulated Fund (and, in the case of an SBIC 
Subsidiary, maintain a license under the Small Business 
Administration Act (``SBA Act'') and issue debentures guaranteed by 
the Small Business Administration (``SBA'')); (iii) with respect to 
which such Regulated Fund's Board has the sole authority to make all 
determinations with respect to the entity's participation under the 
Conditions to the application; and (iv) that either (a) would be an 
investment company but for Section 3(c)(1) or 3(c)(7) of the Act or 
(b) relies on Rule 3a-7 under the Act. ``SBIC Subsidiary'' means a 
Wholly-Owned Investment Sub that is licensed by the SBA to operate 
under the SBA Act, as a small business investment company.
---------------------------------------------------------------------------

Applicants' Representations

A. Allocation Process

    9. Applicants state that each of CGMSIM and Carlyle CLO Manager is,

[[Page 61344]]

and OC Adviser and the Future Advisers will be presented with many 
investment opportunities each year on behalf of their clients and must 
determine how to allocate those opportunities in a manner that, over 
time, is fair and equitable to all of their clients. Such investment 
opportunities may be Potential Co-Investment Transactions.
    10. Applicants represent that they have established processes for 
allocating initial investment opportunities, opportunities for 
subsequent investments in an issuer and dispositions of securities 
holdings reasonably designed to treat all clients fairly and equitably. 
Further, Applicants represent that these processes will be extended and 
modified in a manner reasonably designed to ensure that the additional 
transactions permitted under the Order will both (i) be fair and 
equitable to the Regulated Funds and the Affiliated Funds and (ii) 
comply with the Conditions.
    11. Specifically, applicants state that each of CGMSIM and Carlyle 
CLO Manager is, and each of OC Adviser and the Future Advisers will be, 
organized and managed such that the individual portfolio managers, as 
well as the teams and committees of portfolio managers, analysts and 
senior management (``Investment Teams'' and ``Investment Committees''), 
responsible for evaluating investment opportunities and making 
investment decisions on behalf of clients are promptly notified of the 
opportunities. If the requested Order is granted, the Advisers will 
establish, maintain and implement policies and procedures reasonably 
designed to ensure that, when such opportunities arise, the Advisers to 
the relevant Regulated Funds are promptly notified and receive the same 
information about the opportunity as any other Advisers considering the 
opportunity for their clients or as any Capital Markets Affiliates 
considering the opportunity for themselves. In particular, consistent 
with Condition 1, if a Potential Co-Investment Transaction falls within 
the then-current Objectives and Strategies \12\ and any Board-
Established Criteria \13\ of a Regulated Fund, the policies and 
procedures will require that the relevant portfolio managers, 
Investment Teams and Investment Committees responsible for that 
Regulated Fund receive sufficient information to allow the Regulated 
Fund's Adviser to make its independent determination and 
recommendations under the Conditions.
---------------------------------------------------------------------------

    \12\ ``Objectives and Strategies'' means (i) with respect to any 
Regulated Fund other than a BDC Downstream Fund, its investment 
objectives and strategies, as described in its most current filings 
with the Commission under the Securities Act of 1933, as amended 
(the ``Securities Act''), the Exchange Act, and the Act, and its 
most current report to stockholders, and (ii) with respect to any 
BDC Downstream Fund, those investment objectives and strategies 
described in its disclosure documents (including private placement 
memoranda and reports to equity holders) and organizational 
documents (including operating agreements).
    \13\ ``Board-Established Criteria'' means criteria that the 
Board of a Regulated Fund may establish from time to time to 
describe the characteristics of Potential Co-Investment Transactions 
regarding which the Adviser to the Regulated Fund should be notified 
under Condition 1. The Board-Established Criteria will be consistent 
with the Regulated Fund's Objectives and Strategies. If no Board-
Established Criteria are in effect, then the Regulated Fund's 
Adviser will be notified of all Potential Co-Investment Transactions 
that fall within the Regulated Fund's then-current Objectives and 
Strategies. Board-Established Criteria will be objective and 
testable, meaning that they will be based on observable information, 
such as industry/sector of the issuer, minimum earnings before 
interest, taxes, depreciation and amortization (``EBITDA'') of the 
issuer, asset class of the investment opportunity or required 
commitment size, and not on characteristics that involve a 
discretionary assessment. The Adviser to the Regulated Fund may from 
time to time recommend criteria for the Board's consideration, but 
Board-Established Criteria will only become effective if approved by 
a majority of the Independent Directors. The Independent Directors 
of a Regulated Fund may at any time rescind, suspend or qualify its 
approval of any Board-Established Criteria, though Applicants 
anticipate that, under normal circumstances, the Board would not 
modify these criteria more often than quarterly.
---------------------------------------------------------------------------

    12. The Adviser to each applicable Regulated Fund will then make an 
independent determination of the appropriateness of the investment for 
the Regulated Fund in light of the Regulated Fund's then-current 
circumstances. If the Adviser to a Regulated Fund deems the Regulated 
Fund's participation in such Potential Co-Investment Transaction to be 
appropriate, then it will formulate a recommendation regarding the 
proposed order amount for the Regulated Fund.
    13. Applicants state that, for each Regulated Fund and Affiliated 
Fund whose Adviser recommends participating in a Potential Co-
Investment Transaction, the Adviser will submit a proposed order amount 
to the pre-trade compliance system, which will be reviewed by the Chief 
Risk Officer of each Regulated Fund. Applicants state further that each 
proposed order amount may be reviewed and adjusted, in accordance with 
the Advisers' written allocation policies and procedures, by a credit 
opportunity allocation committee to be established by the Advisers on 
which senior management and at least one legal/compliance person 
participate.\14\ The order of a Regulated Fund or Affiliated Fund 
resulting from this process is referred to as its ``Internal Order.'' 
The Internal Order will be submitted for approval by the Required 
Majority of any participating Regulated Funds in accordance with the 
Conditions.\15\
---------------------------------------------------------------------------

    \14\ The reason for any such adjustment to a proposed order 
amount will be documented in writing and preserved in the records of 
the Advisers.
    \15\ ``Required Majority'' means a required majority, as defined 
in Section 57(o) of the Act. In the case of a Regulated Fund that is 
a registered closed-end fund, the Board members that make up the 
Required Majority will be determined as if the Regulated Fund were a 
BDC subject to Section 57(o). In the case of a BDC Downstream Fund 
with a board of directors (or the equivalent), the members that make 
up the Required Majority will be determined as if the BDC Downstream 
Fund were a BDC subject to Section 57(o). In the case of a BDC 
Downstream Fund with a transaction committee or advisory committee, 
the committee members that make up the Required Majority will be 
determined as if the BDC Downstream Fund were a BDC subject to 
Section 57(o) and as if the committee members were directors of the 
fund.
---------------------------------------------------------------------------

    14. If the aggregate Internal Orders for a Potential Co-Investment 
Transaction do not exceed the size of the investment opportunity 
immediately prior to the submission of the orders to the underwriter, 
broker, dealer or issuer, as applicable (the ``External Submission''), 
then each Internal Order will be fulfilled as placed. If, on the other 
hand, the aggregate Internal Orders for a Potential Co-Investment 
Transaction exceed the size of the investment opportunity immediately 
prior to the External Submission, then the allocation of the 
opportunity will be made pro rata on the basis of the size of the 
Internal Orders.\16\ If, subsequent to such External Submission, the 
size of the opportunity is increased or decreased, or if the terms of 
such opportunity, or the facts and circumstances applicable to the 
Regulated Funds' or the Affiliated Funds' consideration of the 
opportunity, change, the participants will be permitted to submit 
revised Internal Orders in accordance with written allocation policies 
and procedures that the Advisers will establish, implement and 
maintain.\17\ If the aggregate Internal

[[Page 61345]]

Orders for a Potential Co-Investment Transaction are less than the 
amount of the investment opportunity, a Capital Markets Affiliate will 
then have the opportunity to participate in the Potential Co-Investment 
Transaction in a principal capacity.
---------------------------------------------------------------------------

    \16\ The Advisers will maintain records of all proposed order 
amounts, Internal Orders and External Submissions in conjunction 
with Potential Co-Investment Transactions. Each applicable Adviser 
will provide the Eligible Directors with information concerning the 
Affiliated Funds' and Regulated Funds' order sizes to assist the 
Eligible Directors with their review of the applicable Regulated 
Fund's investments for compliance with the Conditions.
    ``Eligible Directors'' means, with respect to a Regulated Fund 
and a Potential Co-Investment Transaction, the members of the 
Regulated Fund's Board eligible to vote on that Potential Co-
Investment Transaction under Section 57(o) of the Act.
    \17\ However, if the size of the opportunity is decreased such 
that the aggregate of the original Internal Orders would exceed the 
amount of the remaining investment opportunity, then upon submitting 
any revised order amount to the Board of a Regulated Fund for 
approval, the Adviser to the Regulated Fund will also notify the 
Board promptly of the amount that the Regulated Fund would receive 
if the remaining investment opportunity were allocated pro rata on 
the basis of the size of the original Internal Orders. The Board of 
the Regulated Fund will then either approve or disapprove of the 
investment opportunity in accordance with condition 2, 6, 7, 8 or 9, 
as applicable.
---------------------------------------------------------------------------

B. Follow-On Investments

    15. Applicants state that from time to time the Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates may have opportunities 
to make Follow-On Investments\18\ in an issuer in which a Regulated 
Fund and one or more other Regulated Funds, one or more Affiliated 
Funds and/or one or more Capital Markets Affiliates previously have 
invested.
---------------------------------------------------------------------------

    \18\ ``Follow-On Investment'' means an additional investment in 
the same issuer, including, but not limited to, through the exercise 
of warrants, conversion privileges or other rights to purchase 
securities of the issuer.
---------------------------------------------------------------------------

    16. Applicants propose that Follow-On Investments would be divided 
into two categories depending on whether the prior investment was a Co-
Investment Transaction or a Pre-Boarding Investment.\19\ If the 
Regulated Funds and Affiliated Funds (and potentially Capital Markets 
Affiliates) had previously participated in a Co-Investment Transaction 
with respect to the issuer, then the terms and approval of the Follow-
On Investment would be subject to the Standard Review Follow-Ons 
described in Condition 8. If the Regulated Funds and Affiliated Funds 
(and potentially Capital Markets Affiliates) have not previously 
participated in a Co-Investment Transaction with respect to the issuer 
but hold a Pre-Boarding Investment, then the terms and approval of the 
Follow-On Investment would be subject to the Enhanced-Review Follow-Ons 
described in Condition 9. All Enhanced Review Follow-Ons require the 
approval of the Required Majority. For a given issuer, the 
participating Regulated Funds, Affiliated Funds and Capital Markets 
Affiliates would need to comply with the requirements of Enhanced-
Review Follow-Ons only for the first Co-Investment Transaction. 
Subsequent Co-Investment Transactions with respect to the issuer would 
be governed by the requirements of Standard Review Follow-Ons.
---------------------------------------------------------------------------

    \19\ ``Pre-Boarding Investments'' are investments in an issuer 
held by a Regulated Fund as well as one or more Affiliated Funds, 
one or more Capital Markets Affiliates and/or one or more other 
Regulated Funds that: (i) Were acquired prior to participating in 
any Co-Investment Transaction; (ii) were acquired in transactions in 
which the only term negotiated by or on behalf of such funds was 
price; and (iii) were acquired either: (A) in reliance on one of the 
JT No-Action Letters (defined below); or (B) in transactions 
occurring at least 90 days apart and without coordination between 
the Regulated Fund and any Affiliated Fund or other Regulated Fund.
---------------------------------------------------------------------------

    17. A Regulated Fund would be permitted to invest in Standard 
Review Follow-Ons either with the approval of the Required Majority 
under Condition 8(c) or without Board approval under Condition 8(b) if 
it is (i) a Pro Rata Follow-On Investment \20\ or (ii) a Non-Negotiated 
Follow-On Investment.\21\ Applicants believe that these Pro Rata and 
Non-Negotiated Follow-On Investments do not present a significant 
opportunity for overreaching on the part of any Adviser and thus do not 
warrant the time or the attention of the Board. Pro Rata Follow-On 
Investments and Non-Negotiated Follow-On Investments remain subject to 
the Board's periodic review in accordance with Condition 10.
---------------------------------------------------------------------------

    \20\ A ``Pro Rata Follow-On Investment'' is a Follow-On 
Investment (i) in which the participation of each Affiliated Fund, 
each Regulated Fund and each Capital Markets Affiliate is 
proportionate to its outstanding investments in the issuer or 
security, as appropriate, immediately preceding the Follow-On 
Investment, and (ii) in the case of a Regulated Fund, a majority of 
the Board has approved the Regulated Fund's participation in the pro 
rata Follow-On Investments as being in the best interests of the 
Regulated Fund. The Regulated Fund's Board may refuse to approve, or 
at any time rescind, suspend or qualify, its approval of Pro Rata 
Follow-On Investments, in which case all subsequent Follow-On 
Investments will be submitted to the Regulated Fund's Eligible 
Directors in accordance with Condition 8(c).
    \21\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On 
Investment in which a Regulated Fund participates together with one 
or more Affiliated Funds, one or more Capital Markets Affiliates 
and/or one or more other Regulated Funds (i) in which the only term 
negotiated by or on behalf of the funds is price and (ii) with 
respect to which, if the transaction were considered on its own, the 
funds would be entitled to rely on one of the JT No-Action Letters.
    ``JT No-Action Letters'' means SMC Capital, Inc., SEC No-Action 
Letter (pub. avail. Sept. 5, 1995) and Massachusetts Mutual Life 
Insurance Company, SEC No-Action Letter (pub. avail. June 7, 2000).
---------------------------------------------------------------------------

C. Dispositions

    18. Applicants propose that Dispositions \22\ would be divided into 
two categories. If the Regulated Funds and Affiliated Funds (and 
potentially Capital Markets Affiliates) holding investments in the 
issuer had previously participated in a Co-Investment Transaction with 
respect to the issuer, then the terms and approval of the Disposition 
would be subject to the Standard Review Dispositions described in 
Condition 6. If the Regulated Funds and Affiliated Funds have not 
previously participated in a Co-Investment Transaction with respect to 
the issuer but hold a Pre-Boarding Investment, then the terms and 
approval of the Disposition would be subject to the Enhanced Review 
Dispositions described in Condition 7. Subsequent Dispositions with 
respect to the same issuer would be governed by Condition 6 under the 
Standard Review Dispositions.\23\
---------------------------------------------------------------------------

    \22\ ``Disposition'' means the sale, exchange or other 
disposition of an interest in a security of an issuer.
    \23\ However, with respect to an issuer, if a Regulated Fund's 
first Co-Investment Transaction is an Enhanced Review Disposition, 
and the Regulated Fund does not dispose of its entire position in 
the Enhanced Review Disposition, then before such Regulated Fund may 
complete its first Standard Review Follow-On in such issuer, the 
Eligible Directors must review the proposed Follow-On Investment not 
only on a stand-alone basis but also in relation to the total 
economic exposure in such issuer (i.e., in combination with the 
portion of the Pre-Boarding Investment not disposed of in the 
Enhanced Review Disposition), and the other terms of the 
investments. This additional review would be required because such 
findings would not have been required in connection with the prior 
Enhanced Review Disposition, but they would have been required had 
the first Co-Investment Transaction been an Enhanced Review Follow-
On.
---------------------------------------------------------------------------

    19. A Regulated Fund may participate in a Standard Review 
Disposition either with the approval of the Required Majority under 
Condition 6(d) or without Board approval under Condition 6(c) if (i) 
the Disposition is a Pro Rata Disposition \24\ or (ii) the securities 
are Tradable Securities \25\ and

[[Page 61346]]

the Disposition meets the other requirements of Condition 6(c)(ii). Pro 
Rata Dispositions and Dispositions of a Tradable Security remain 
subject to the Board's periodic review in accordance with Condition 10.
---------------------------------------------------------------------------

    \24\ A ``Pro Rata Disposition'' is a Disposition (i) in which 
the participation of each Affiliated Fund, each Regulated Fund and 
each Capital Markets Affiliate is proportionate to its outstanding 
investment in the security subject to Disposition immediately 
preceding the Disposition; and (ii) in the case of a Regulated Fund, 
a majority of the Board has approved the Regulated Fund's 
participation in pro rata Dispositions as being in the best 
interests of the Regulated Fund. The Regulated Fund's Board may 
refuse to approve, or at any time rescind, suspend or qualify, its 
approval of Pro Rata Dispositions, in which case all subsequent 
Dispositions will be submitted to the Regulated Fund's Eligible 
Directors.
    \25\ ``Tradable Security'' means a security that meets the 
following criteria at the time of Disposition: (i) It trades on a 
national securities exchange or designated offshore securities 
market as defined in rule 902(b) under the Securities Act; (ii) it 
is not subject to restrictive agreements with the issuer or other 
security holders; and (iii) it trades with sufficient volume and 
liquidity (findings as to which are documented by the Advisers to 
any Regulated Funds holding investments in the issuer and retained 
for the life of the Regulated Fund) to allow each Regulated Fund to 
dispose of its entire position remaining after the proposed 
Disposition within a short period of time not exceeding 30 days at 
approximately the value (as defined by Section 2(a)(41) of the Act) 
at which the Regulated Fund has valued the investment.
---------------------------------------------------------------------------

D. Delayed Settlement

    20. Applicants represent that under the terms and Conditions of the 
Application, all Regulated Funds and Affiliated Funds participating in 
a Co-Investment Transaction will invest at the same time, for the same 
price and with the same terms, conditions, class, registration rights 
and any other rights, so that none of them receives terms more 
favorable than any other. However, the settlement date for an 
Affiliated Fund in a Co-Investment Transaction may occur up to ten 
business days after the settlement date for the Regulated Fund, and 
vice versa.\26\ Nevertheless, in all cases, (i) the date on which the 
commitment of the Affiliated Funds and Regulated Funds is made will be 
the same even where the settlement date is not and (ii) the earliest 
settlement date and the latest settlement date of any Affiliated Fund 
or Regulated Fund participating in the transaction will occur within 
ten business days of each other.
---------------------------------------------------------------------------

    \26\ Applicants state this may occur for two reasons. First, 
when the Affiliated Fund or Regulated Fund is not yet fully funded 
because, when the Affiliated Fund or Regulated Fund desires to make 
an investment, it must call capital from its investors to obtain the 
financing to make the investment, and in these instances, the notice 
requirement to call capital could be as much as ten business days. 
Second, where, for tax or regulatory reasons, an Affiliated Fund or 
Regulated Fund does not purchase new issuances immediately upon 
issuance but only after a short seasoning period of up to ten 
business days.
---------------------------------------------------------------------------

E. Holders

    21. Under Condition 15, if an Adviser, its principals, or any 
person controlling, controlled by, or under common control with the 
Adviser or its principals, and the Affiliated Funds (collectively, the 
``Holders'') own in the aggregate more than 25 percent of the 
outstanding voting shares of a Regulated Fund (the ``Shares''), then 
the Holders will vote such Shares as directed by an independent third 
party when voting on matters specified in the Condition. Applicants 
believe that this Condition will ensure that the Independent Directors 
will act independently in evaluating Co-Investment Transactions, 
because the ability of the Adviser or its principals to influence the 
Independent Directors by a suggestion, explicit or implied, that the 
Independent Directors can be removed will be limited significantly. The 
Independent Directors shall evaluate and approve any independent party, 
taking into account its qualifications, reputation for independence, 
cost to the shareholders, and other factors that they deem relevant.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and Rule 17d-1 under the Act prohibit 
participation by a registered investment company and an affiliated 
person in any ``joint enterprise or other joint arrangement or profit-
sharing plan,'' as defined in the rule, without prior approval by the 
Commission by order upon application. Section 17(d) of the Act and Rule 
17d-1 under the Act are applicable to Regulated Funds that are 
registered closed-end investment companies.
    2. Similarly, with regard to BDCs, Section 57(a)(4) of the Act 
generally prohibits certain persons specified in Section 57(b) from 
participating in joint transactions with the BDC or a company 
controlled by the BDC in contravention of Rules as prescribed by the 
Commission. Section 57(i) of the Act provides that, until the 
Commission prescribes rules under Section 57(a)(4), the Commission's 
rules under Section 17(d) of the Act applicable to registered closed-
end investment companies will be deemed to apply to transactions 
subject to Section 57(a)(4). Because the Commission has not adopted any 
rules under Section 57(a)(4), Rule 17d-1 also applies to joint 
transactions with Regulated Funds that are BDCs.
    3. Co-Investment Transactions are prohibited by either or both of 
Rule 17d-1 and Section 57(a)(4) without a prior exemptive order of the 
Commission to the extent that the Affiliated Funds, Capital Markets 
Affiliates and the Regulated Funds participating in such transactions 
fall within the category of persons described by Rule 17d-1 and/or 
Section 57(b), as applicable, vis-[agrave]-vis each participating 
Regulated Fund. Each of the participating Regulated Funds, Affiliated 
Funds and Capital Markets Affiliates may be deemed to be affiliated 
persons vis-[agrave]-vis a Regulated Fund within the meaning of Section 
2(a)(3) by reason of common control because (i) CGMSIM controls BDC I, 
BDC II and BDC III and Carlyle CLO Manager and OC Adviser are, and any 
other Advisers will be, controlling, controlled by or under common 
control with CGMSIM and may be deemed to be a person related to a 
Regulated Fund, (ii) BDC Downstream Funds and Wholly-Owned Investment 
Subs are controlled by the Regulated Funds; and (iii) TCG Securities 
and any other Capital Markets Affiliate, as wholly- or majority-owned 
subsidiaries of Carlyle, and the Carlyle Proprietary Accounts are 
entities advised by the Advisers, which are or will be controlling, 
controlled by or under common control with CGMSIM. Thus, the Advisers 
and the entities they advise and Capital Markets Affiliates could be 
deemed to be a person related to the Regulated Funds in a manner 
described by Section 57(b) and related to the other Regulated Funds in 
a manner described by Rule 17d-1; and therefore the prohibitions of 
Rule 17d-1 and Section 57(a)(4) would apply respectively to prohibit 
the Affiliated Funds and Capital Markets Affiliates from participating 
in Co-Investment Transactions with the Regulated Funds.
    4. In passing upon applications under Rule 17d-1, the Commission 
considers whether the company's participation in the joint transaction 
is consistent with the provisions, policies, and purposes of the Act 
and the extent to which such participation is on a basis different from 
or less advantageous than that of other participants.
    5. Applicants state that in the absence of the requested relief, in 
many circumstances the Regulated Funds would be limited in their 
ability to participate in attractive and appropriate investment 
opportunities. Applicants state that, as required by Rule 17d-1(b), the 
Conditions ensure that the terms on which Co-Investment Transactions 
may be made will be consistent with the participation of the Regulated 
Funds being on a basis that it is neither different from nor less 
advantageous than other participants, thus protecting the equity 
holders of any participant from being disadvantaged. Applicants further 
state that the Conditions ensure that all Co-Investment Transactions 
are reasonable and fair to the Regulated Funds and their shareholders 
and do not involve overreaching by any person concerned, including the 
Advisers. Applicants state that the Regulated Funds' participation in 
the Co-Investment Transactions in accordance with the Conditions will 
be consistent with the provisions, policies, and purposes of the Act 
and would be done in a manner that is not different from, or less 
advantageous than, that of other participants.

Applicants' Conditions

    Applicants agree that the Order will be subject to the following 
Conditions:
    1. Identification and Referral of Potential Co-Investment 
Transactions.
    (a) The Advisers will establish, maintain and implement policies 
and procedures reasonably designed to ensure that each Adviser is 
promptly

[[Page 61347]]

notified of all Potential Co-Investment Transactions that fall within 
the then-current Objectives and Strategies and Board-Established 
Criteria of any Regulated Fund the Adviser manages.
    (b) When an Adviser to a Regulated Fund is notified of a Potential 
Co-Investment Transaction under Condition 1(a), the Adviser will make 
an independent determination of the appropriateness of the investment 
for the Regulated Fund in light of the Regulated Fund's then-current 
circumstances.
    2. Board Approvals of Co-Investment Transactions.
    (a) If the Adviser deems a Regulated Fund's participation in any 
Potential Co-Investment Transaction to be appropriate for the Regulated 
Fund, it will then determine an appropriate level of investment for the 
Regulated Fund.
    (b) If the aggregate amount recommended by the Advisers to be 
invested in the Potential Co-Investment Transaction by the 
participating Regulated Funds and any participating Affiliated Funds, 
collectively, exceeds the amount of the investment opportunity, the 
investment opportunity will be allocated among them pro rata based on 
the size of the Internal Orders, as described in Section III.A.1.b. of 
the application. Each Adviser to a participating Regulated Fund will 
promptly notify and provide the Eligible Directors with information 
concerning the Affiliated Funds' and Regulated Funds' order sizes to 
assist the Eligible Directors with their review of the applicable 
Regulated Fund's investments for compliance with these Conditions.
    (c) After making the determinations required in Condition 1(b) 
above, each Adviser to a participating Regulated Fund will distribute 
written information concerning the Potential Co-Investment Transaction 
(including the amount proposed to be invested by each participating 
Regulated Fund, each participating Affiliated Fund and each 
participating Capital Markets Affiliate) to the Eligible Directors of 
its participating Regulated Fund(s) for their consideration. A 
Regulated Fund will enter into a Co-Investment Transaction with one or 
more other Regulated Funds, Affiliated Fund, or Capital Markets 
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 transaction, including the consideration to be 
paid, are reasonable and fair to the Regulated Fund and its equity 
holders and do not involve overreaching in respect of the Regulated 
Fund or its equity holders on the part of any person concerned;
    (ii) the transaction is consistent with:
    (A) The interests of the Regulated Fund's equity holders; and
    (B) the Regulated Fund's then-current Objectives and Strategies;
    (iii) the investment by any other Regulated Fund(s), Affiliated 
Fund(s) or Capital Markets Affiliate(s) would not disadvantage the 
Regulated Fund, and participation by the Regulated Fund would not be on 
a basis different from, or less advantageous than, that of any other 
Regulated Fund(s), Affiliated Fund(s) or Capital Markets Affiliate(s) 
participating in the transaction; provided that the Required Majority 
shall not be prohibited from reaching the conclusions required by this 
Condition 2(c)(iii) if:
    (A) The settlement date for another Regulated Fund or an Affiliated 
Fund in a Co-Investment Transaction is later than the settlement date 
for the Regulated Fund by no more than ten business days or earlier 
than the settlement date for the Regulated Fund by no more than ten 
business days, in either case, so long as: (x) The date on which the 
commitments of the Affiliated Funds and Regulated Funds are made is the 
same; and (y) the earliest settlement date and the latest settlement 
date of any Affiliated Fund or Regulated Fund participating in the 
transaction will occur within ten business days of each other; or
    (B) any other Regulated Fund or Affiliated Fund, but not the 
Regulated Fund itself, gains the right to nominate a director for 
election to a portfolio company's board of directors, the right to have 
a board observer or any similar right to participate in the governance 
or management of the portfolio company so long as: (x) The Eligible 
Directors will have the right to ratify the selection of such director 
or board observer, if any; (y) the Adviser agrees to, and does, provide 
periodic reports to the Regulated Fund's Board with respect to the 
actions of such director or the information received by such board 
observer or obtained through the exercise of any similar right to 
participate in the governance or management of the portfolio company; 
and (z) any fees or other compensation that any other Regulated Fund or 
Affiliated Fund or any affiliated person of any other Regulated Fund or 
Affiliated Fund receives in connection with the right of one or more 
Regulated Funds or Affiliated Funds to nominate a director or appoint a 
board observer or otherwise to participate in the governance or 
management of the portfolio company will be shared proportionately 
among any participating Affiliated Funds and Capital Markets Affiliates 
(who may, in turn, share their portion with their affiliated persons) 
and any participating Regulated Fund(s) in accordance with the amount 
of each such party's investment; and
    (iv) the proposed investment by the Regulated Fund will not involve 
compensation, remuneration or a direct or indirect \27\ financial 
benefit to the Advisers, any other Regulated Fund, the Affiliated 
Funds, the Capital Markets Affiliates or any affiliated person of any 
of them (other than the parties to the Co-Investment Transaction), 
except (A) to the extent permitted by Condition 14, (B) to the extent 
permitted by Section 17(e) or 57(k), as applicable, (C) indirectly, as 
a result of an interest in the securities issued by one of the parties 
to the Co-Investment Transaction, or (D) in the case of fees or other 
compensation described in Condition 2(c)(iii)(B)(z).
---------------------------------------------------------------------------

    \27\ For example, procuring the Regulated Fund's investment in a 
Potential Co-Investment Transaction to permit an affiliate to 
complete or obtain better terms in a separate transaction would 
constitute an indirect financial benefit.
---------------------------------------------------------------------------

    3. Right to Decline. Each Regulated Fund has the right to decline 
to participate in any Potential Co-Investment Transaction or to invest 
less than the amount proposed.
    4. General Limitation. Except for Follow-On Investments made in 
accordance with Conditions 8 and 9 below,\28\ a Regulated Fund will not 
invest in reliance on the Order in any issuer in which a Related Party 
has an investment.\29\
---------------------------------------------------------------------------

    \28\ This exception applies only to Follow-On Investments by a 
Regulated Fund in issuers in which that Regulated Fund already holds 
investments.
    \29\ ``Related Party'' means (i) any Close Affiliate and (ii) in 
respect of matters as to which any Adviser has knowledge, any Remote 
Affiliate.
    ``Close Affiliate'' means the Advisers, the Regulated Funds, the 
Affiliated Funds, the Capital Markets Affiliates and any other 
person described in Section 57(b) (after giving effect to Rule 57b-
1) in respect of any Regulated Fund (treating any registered 
investment company or series thereof as a BDC for this purpose) 
except for limited partners included solely by reason of the 
reference in Section 57(b) to Section 2(a)(3)(D).
    ``Remote Affiliate'' means any person described in Section 57(e) 
in respect of any Regulated Fund (treating any registered investment 
company or series thereof as a BDC for this purpose) and any limited 
partner holding 5% or more of the relevant limited partner interests 
that would be a Close Affiliate but for the exclusion in that 
definition.
---------------------------------------------------------------------------

    5. Same Terms and Conditions. A Regulated Fund will not participate 
in any Potential Co-Investment Transaction unless (i) the terms, 
conditions, price, class of securities to be purchased, date on which 
the commitment is entered into and registration rights (if any) will be 
the

[[Page 61348]]

same for each participating Regulated Fund, Affiliated Fund and Capital 
Markets Affiliate and (ii) the earliest settlement date and the latest 
settlement date of any participating Regulated Fund or Affiliated Fund 
will occur as close in time as practicable and in no event more than 
ten business days apart. The grant to one or more Regulated Funds or 
Affiliated Funds, but not the respective Regulated Fund, of the right 
to nominate a director for election to a portfolio company's board of 
directors, the right to have an observer on the board of directors or 
similar rights to participate in the governance or management of the 
portfolio company will not be interpreted so as to violate this 
Condition 5, if Condition 2(c)(iii)(B) is met.
    6. Standard Review Dispositions.
    (a) General. If any Regulated Fund, Affiliated Fund or Capital 
Markets Affiliate elects to sell, exchange or otherwise dispose of an 
interest in a security and one or more Regulated Funds, Affiliated 
Funds and Capital Markets Affiliates have previously participated in a 
Co-Investment Transaction with respect to the issuer:
    (i) The Adviser to such Regulated Fund, Affiliated Fund or Carlyle 
Proprietary Account, or such Carlyle Broker-Dealer Subsidiary, as 
applicable, will notify each Regulated Fund that holds an investment in 
the issuer of the proposed Disposition at the earliest practical time; 
and
    (ii) the Adviser to each Regulated Fund that holds an investment in 
the issuer will formulate a recommendation as to participation by such 
Regulated Fund in the Disposition.
    (b) Same Terms and Conditions. Each Regulated Fund will have the 
right to participate in such Disposition on a proportionate basis, at 
the same price and on the same terms and conditions as those applicable 
to the Affiliated Funds, Capital Markets Affiliates and any other 
Regulated Funds.
    (c) No Board Approval Required. A Regulated Fund may participate in 
such a Disposition without obtaining prior approval of the Required 
Majority if:
    (i)(A) The participation of each Regulated Fund, Affiliated Fund 
and Capital Markets Affiliate in such Disposition is proportionate to 
its then-current holding of the security (or securities) of the issuer 
that is (or are) the subject of the Disposition;\30\ (B) the Board of 
the Regulated Fund has approved as being in the best interests of the 
Regulated Fund the ability to participate in such Dispositions on a pro 
rata basis (as described in greater detail in the application); and (C) 
the Board of the Regulated Fund is provided on a quarterly basis with a 
list of all Dispositions made in accordance with this Condition; or
---------------------------------------------------------------------------

    \30\ In the case of any Disposition, proportionality will be 
measured by each participating Regulated Fund's, Affiliated Fund's 
and Capital Markets Affiliates' outstanding investment in the 
security in question immediately preceding the Disposition.
---------------------------------------------------------------------------

    (ii) each security is a Tradable Security and (A) the Disposition 
is not to the issuer or any affiliated person of the issuer; and (B) 
the security is sold for cash in a transaction in which the only term 
negotiated by or on behalf of the participating Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates is price.
    (d) Standard Board Approval. In all other cases, the Adviser will 
provide its written recommendation as to the Regulated Fund's 
participation to the Eligible Directors and the Regulated Fund will 
participate in such Disposition solely to the extent that a Required 
Majority determines that it is in the Regulated Fund's best interests.
    7. Enhanced Review Dispositions.
    (a) General. If any Regulated Fund, Affiliated Fund or Capital 
Markets Affiliate elects to sell, exchange or otherwise dispose of a 
Pre-Boarding Investment in a Potential Co-Investment Transaction and 
the Regulated Funds, Affiliated Funds and Capital Markets Affiliates 
have not previously participated in a Co-Investment Transaction with 
respect to the issuer:
    (i) The Adviser to such Regulated Fund, Affiliated Fund or Carlyle 
Proprietary Account, or such Carlyle Broker-Dealer Subsidiary, as 
applicable, will notify each Regulated Fund that holds an investment in 
the issuer of the proposed Disposition at the earliest practical time;
    (ii) the Adviser to each Regulated Fund that holds an investment in 
the issuer will formulate a recommendation as to participation by such 
Regulated Fund in the Disposition; and
    (iii) the Advisers will provide to the Board of each Regulated Fund 
that holds an investment in the issuer all information relating to the 
existing investments in the issuer of the Regulated Funds, Affiliated 
Funds and Capital Markets Affiliates, including the terms of such 
investments and how they were made, that is necessary for the Required 
Majority to make the findings required by this Condition.
    (b) Enhanced Board Approval. The Adviser will provide its written 
recommendation as to the Regulated Fund's participation to the Eligible 
Directors, and the Regulated Fund will participate in such Disposition 
solely to the extent that a Required Majority determines that:
    (i) The Disposition complies with Conditions 2(c)(i), (ii), 
(iii)(A), and (iv).
    (ii) the making and holding of the Pre-Boarding Investments were 
not prohibited by Section 57 or Rule 17d-1, as applicable, and records 
the basis for the finding in the Board minutes.
    (c) Additional Requirements. The Disposition may only be completed 
in reliance on the Order if:
    (i) Same Terms and Conditions. Each Regulated Fund has the right to 
participate in such Disposition on a proportionate basis, at the same 
price and on the same terms and conditions as those applicable to the 
Affiliated Funds, the Capital Markets Affiliates and any other 
Regulated Funds;
    (ii) Original Investments. All of the Affiliated Funds', Regulated 
Funds' and Capital Markets Affiliates' investments in the issuer are 
Pre-Boarding Investments;
    (iii) Advice of counsel. Independent counsel to the Board advises 
that the making and holding of the investments in the Pre-Boarding 
Investments were not prohibited by Section 57 (as modified by Rule 57b-
1) or Rule 17d-1, as applicable;
    (iv) Multiple Classes of Securities. All Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates that hold Pre-Boarding 
Investments in the issuer immediately before the time of completion of 
the Co-Investment Transaction hold the same security or securities of 
the issuer. For the purpose of determining whether the Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates hold the same security 
or securities, they may disregard any security held by some but not all 
of them if, prior to relying on the Order, the Required Majority is 
presented with all information necessary to make a finding, and finds, 
that: (x) any Regulated Fund's, Affiliated Fund's or Capital Market 
Affiliates' holding of a different class of securities (including for 
this purpose a security with a different maturity date) is immaterial 
\31\ in amount, including immaterial relative to the size of the 
issuer; and (y) the Board records the basis for any such finding in its 
minutes. In addition, securities that differ only in respect of 
issuance date,

[[Page 61349]]

currency, or denominations may be treated as the same security; and
---------------------------------------------------------------------------

    \31\ In determining whether a holding is ``immaterial'' for 
purposes of the Order, the Required Majority will consider whether 
the nature and extent of the interest in the transaction or 
arrangement is sufficiently small that a reasonable person would not 
believe that the interest affected the determination of whether to 
enter into the transaction or arrangement or the terms of the 
transaction or arrangement.
---------------------------------------------------------------------------

    (v) No control. The Affiliated Funds, the Capital Markets 
Affiliates, the other Regulated Funds and their affiliated persons 
(within the meaning of Section 2(a)(3)(C) of the Act), individually or 
in the aggregate, do not control the issuer of the securities (within 
the meaning of Section 2(a)(9) of the Act).
    8. Standard Review Follow-Ons.
    (a) General. If any Regulated Fund, Affiliated Fund or Capital 
Markets Affiliate desires to make a Follow-On Investment in an issuer 
and the Regulated Funds, Affiliated Funds and Capital Markets 
Affiliates holding investments in the issuer previously participated in 
a Co-Investment Transaction with respect to the issuer:
    (i) The Adviser to each such Regulated Fund, Affiliated Fund or 
Carlyle Proprietary Account, or such Carlyle Broker-Dealer Subsidiary, 
as applicable, will notify each Regulated Fund that holds securities of 
the portfolio company of the proposed transaction at the earliest 
practical time; and
    (ii) the Adviser to each Regulated Fund that holds an investment in 
the issuer will formulate a recommendation as to the proposed 
participation, including the amount of the proposed investment, by such 
Regulated Fund.
    (b) No Board Approval Required. A Regulated Fund may participate in 
the Follow-On Investment without obtaining prior approval of the 
Required Majority if:
    (i)(A) The proposed participation of each Regulated Fund, each 
Affiliated Fund and each Capital Markets Affiliate in such investment 
is proportionate to its outstanding investments in the issuer or the 
security at issue, as appropriate,\32\ immediately preceding the 
Follow-On Investment; and (B) the Board of the Regulated Fund has 
approved as being in the best interests of the Regulated Fund the 
ability to participate in Follow-On Investments on a pro rata basis (as 
described in greater detail in the Application); or
---------------------------------------------------------------------------

    \32\ To the extent that a Follow-On Investment opportunity is in 
a security or arises in respect of a security held by the 
participating Regulated Funds, Affiliated Funds and Capital Markets 
Affiliates, proportionality will be measured by each participating 
Regulated Fund's, Affiliated Fund's and Capital Markets Affiliate's 
outstanding investment in the security in question immediately 
preceding the Follow-On Investment using the most recent available 
valuation thereof. To the extent that a Follow-On Investment 
opportunity relates to an opportunity to invest in a security that 
is not in respect of any security held by any of the participating 
Regulated Funds, Affiliated Funds or Capital Markets Affiliates, 
proportionality will be measured by each participating Regulated 
Fund's, Affiliated Fund's and Capital Markets Affiliate's 
outstanding investment in the issuer immediately preceding the 
Follow-On Investment using the most recent available valuation 
thereof.
---------------------------------------------------------------------------

    (ii) it is a Non-Negotiated Follow-On Investment.
    (c) Standard Board Approval. In all other cases, the Adviser will 
provide its written recommendation as to the Regulated Fund's 
participation to the Eligible Directors and the Regulated Fund will 
participate in such Follow-On Investment solely to the extent that a 
Required Majority makes the determinations set forth in Condition 2(c). 
If the only previous Co-Investment Transaction with respect to the 
issuer was an Enhanced Review Disposition, the Eligible Directors must 
complete this review of the proposed Follow-On Investment both on a 
stand-alone basis and together with the Pre-Boarding Investments in 
relation to the total economic exposure and other terms of the 
investment.
    (d) Allocation. If, with respect to any such Follow-On Investment:
    (i) The amount of the opportunity proposed to be made available to 
any Regulated Fund is not based on the Regulated Funds', the Affiliated 
Funds' and the Capital Markets Affiliates' outstanding investments in 
the issuer or the security at issue, as appropriate, immediately 
preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the Advisers to be 
invested in the Follow-On Investment by the participating Regulated 
Funds and any participating Affiliated Funds and Carlyle Proprietary 
Accounts and the amount proposed to be invested in the Follow-On 
Investment by any participating Carlyle Broker-Dealer Subsidiaries, 
collectively, exceeds the amount of the investment opportunity, then 
the Follow-On Investment opportunity will be allocated among them pro 
rata based on the size of the Internal Orders, as described in Section 
III.A.1.b. of the application.
    (e) Other Conditions. The acquisition of Follow-On Investments as 
permitted by this Condition will be considered a Co-Investment 
Transaction for all purposes and subject to the other Conditions set 
forth in the application.
    9. Enhanced Review Follow-Ons.
    (a) General. If any Regulated Fund, Affiliated Fund or Capital 
Markets Affiliate desires to make a Follow-On Investment in an issuer 
that is a Potential Co-Investment Transaction and the Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates holding investments in 
the issuer have not previously participated in a Co-Investment 
Transaction with respect to the issuer:
    (i) The Adviser to each such Regulated Fund, Affiliated Fund or 
Carlyle Proprietary Account, or such Carlyle Broker-Dealer Subsidiary, 
as applicable, will notify each Regulated Fund that holds securities of 
the portfolio company of the proposed transaction at the earliest 
practical time;
    (ii) the Adviser to each Regulated Fund that holds an investment in 
the issuer will formulate a recommendation as to the proposed 
participation, including the amount of the proposed investment, by such 
Regulated Fund; and
    (iii) the Advisers will provide to the Board of each Regulated Fund 
that holds an investment in the issuer all information relating to the 
existing investments in the issuer of the Regulated Funds, Affiliated 
Funds and Capital Markets Affiliates, including the terms of such 
investments and how they were made, that is necessary for the Required 
Majority to make the findings required by this Condition.
    (b) Enhanced Board Approval. The Adviser will provide its written 
recommendation as to the Regulated Fund's participation to the Eligible 
Directors, and the Regulated Fund will participate in such Follow-On 
Investment solely to the extent that a Required Majority reviews the 
proposed Follow-On Investment both on a stand-alone basis and together 
with the Pre-Boarding Investments in relation to the total economic 
exposure and other terms and makes the determinations set forth in 
Condition 2(c). In addition, the Follow-On Investment may only be 
completed in reliance on the Order if the Required Majority of each 
participating Regulated Fund determines that the making and holding of 
the Pre-Boarding Investments were not prohibited by Section 57 (as 
modified by Rule 57b-1) or Rule 17d-1, as applicable. The basis for the 
Board's findings will be recorded in its minutes.
    (c) Additional Requirements. The Follow-On Investment may only be 
completed in reliance on the Order if:
    (i) Original Investments. All of the Affiliated Funds', Regulated 
Funds' and Capital Markets Affiliates' investments in the issuer are 
Pre-Boarding Investments;
    (ii) Advice of counsel. Independent counsel to the Board advises 
that the making and holding of the investments in the Pre-Boarding 
Investments were not prohibited by Section 57 (as modified by Rule 57b-
1) or Rule 17d-1, as applicable;
    (iii) Multiple Classes of Securities. All Regulated Funds, 
Affiliated Funds and Capital Markets Affiliates that hold Pre-

[[Page 61350]]

Boarding Investments in the issuer immediately before the time of 
completion of the Co-Investment Transaction hold the same security or 
securities of the issuer. For the purpose of determining whether the 
Regulated Funds, Affiliated Funds and Capital Markets Affiliates hold 
the same security or securities, they may disregard any security held 
by some but not all of them if, prior to relying on the Order, the 
Required Majority is presented with all information necessary to make a 
finding, and finds, that: (x) any Regulated Fund's, Affiliated Fund's 
or Capital Markets Affiliate's holding of a different class of 
securities (including for this purpose a security with a different 
maturity date) is immaterial in amount, including immaterial relative 
to the size of the issuer; and (y) the Board records the basis for any 
such finding in its minutes. In addition, securities that differ only 
in respect of issuance date, currency, or denominations may be treated 
as the same security; and
    (iv) No control. The Affiliated Funds, the Capital Markets 
Affiliates, the other Regulated Funds and their affiliated persons 
(within the meaning of Section 2(a)(3)(C) of the Act), individually or 
in the aggregate, do not control the issuer of the securities (within 
the meaning of Section 2(a)(9) of the Act).
    (d) Allocation. If, with respect to any such Follow-On Investment:
    (i) The amount of the opportunity proposed to be made available to 
any Regulated Fund is not based on the Regulated Funds', the Affiliated 
Funds' and the Capital Markets Affiliates' outstanding investments in 
the issuer or the security at issue, as appropriate, immediately 
preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the Advisers to be 
invested in the Follow-On Investment by the participating Regulated 
Funds and any participating Affiliated Funds and Carlyle Proprietary 
Accounts and the amount proposed to be invested in the Follow-On 
Investment by any participating Carlyle Broker-Dealer
    Subsidiaries, collectively, exceeds the amount of the investment 
opportunity, then the Follow-On Investment opportunity will be 
allocated among them pro rata based on the size of the Internal Orders, 
as described in Section III.A.1.b. of the application.
    (e) Other Conditions. The acquisition of Follow-On Investments as 
permitted by this Condition will be considered a Co-Investment 
Transaction for all purposes and subject to the other Conditions set 
forth in the application.
    10. Board Reporting, Compliance and Annual Re-Approval.
    (a) Each Adviser to a Regulated Fund will present to the Board of 
each Regulated Fund, on a quarterly basis, and at such other times as 
the Board may request, (i) a record of all investments in Potential Co-
Investment Transactions made by any of the other Regulated Funds or any 
of the Affiliated Funds or Capital Markets Affiliates during the 
preceding quarter that fell within the Regulated Fund's then-current 
Objectives and Strategies and Board-Established Criteria that were not 
made available to the Regulated Fund, and an explanation of why such 
investment opportunities were not made available to the Regulated Fund; 
(ii) a record of all Follow-On Investments in and Dispositions of 
investments in any issuer in which the Regulated Fund holds any 
investments by any Affiliated Fund or Capital Markets Affiliate or 
other Regulated Fund during the prior quarter; and (iii) all 
information concerning Potential Co-Investment Transactions and Co-
Investment Transactions, including investments made by other Regulated 
Funds, Affiliated Funds or Capital Markets Affiliates that the 
Regulated Fund considered but declined to participate in, so that the 
Independent Directors, may determine whether all Potential Co-
Investment Transactions and Co-Investment Transactions during the 
preceding quarter, including those investments that the Regulated Fund 
considered but declined to participate in, comply with the Conditions.
    (b) All information presented to the Regulated Fund's Board 
pursuant to this Condition will be kept for the life of the Regulated 
Fund and at least two years thereafter, and will be subject to 
examination by the Commission and its staff.
    (c) Each Regulated Fund's chief compliance officer, as defined in 
Rule 38a-1(a)(4), will prepare an annual report for its Board each year 
that evaluates (and documents the basis of that evaluation) the 
Regulated Fund's compliance with the terms and Conditions of the 
application and the procedures established to achieve such compliance. 
In the case of a BDC Downstream Fund that does not have a chief 
compliance officer, the chief compliance officer of the BDC that 
controls the BDC Downstream Fund will prepare the report for the 
relevant Independent Party.
    (d) The Independent Directors (including the non-interested members 
of each Independent Party) will consider at least annually whether 
continued participation in new and existing Co-Investment Transactions 
is in the Regulated Fund's best interests.
    11. Record Keeping. Each Regulated Fund will maintain the records 
required by Section 57(f)(3) of the Act as if each of the Regulated 
Funds were a BDC and each of the investments permitted under these 
Conditions were approved by the Required Majority under Section 57(f).
    12. Director Independence. No Independent Director (including the 
non-interested members of any Independent Party) of a Regulated Fund 
will also be a director, general partner, managing member or principal, 
or otherwise be an ``affiliated person'' (as defined in the Act) of any 
Affiliated Fund or Capital Markets Affiliate.
    13. Expenses. The expenses, if any, associated with acquiring, 
holding or disposing of any securities acquired in a Co-Investment 
Transaction (including, without limitation, the expenses of the 
distribution of any such securities registered for sale under the 
Securities Act) will, to the extent not payable by the Advisers under 
their respective advisory agreements with the Regulated Funds and the 
Affiliated Funds, be shared by the Regulated Funds and the 
participating Affiliated Funds and Capital Markets Affiliates in 
proportion to the relative amounts of the securities held or being 
acquired or disposed of, as the case may be.
    14. Transaction Fees. \33\ Any transaction fee (including break-up, 
structuring, monitoring or commitment fees but excluding brokerage or 
underwriting compensation permitted by Section 17(e) or 57(k)) received 
in connection with any Co-Investment Transaction will be distributed to 
the participants on a pro rata basis based on the amounts they invested 
or committed, as the case may be, in such Co-Investment Transaction. If 
any transaction fee is to be held by an Adviser pending consummation of 
the transaction, the fee will be deposited into an account maintained 
by the Adviser at a bank or banks having the qualifications prescribed 
in Section 26(a)(1), and the account will earn a competitive rate of 
interest that will also be divided pro rata among the participants. 
None of the Advisers, the Affiliated Funds, the Capital Markets 
Affiliates, the other Regulated Funds or any affiliated person of the 
Affiliated Funds, the Capital Markets Affiliates or the Regulated Funds 
will receive any additional compensation or remuneration of any kind as 
a result of

[[Page 61351]]

or in connection with a Co-Investment Transaction other than (i) in the 
case of the Regulated Funds, the Affiliated Funds and the Capital 
Markets Affiliates, the pro rata transaction fees described above and 
fees or other compensation described in Condition 2(c)(iii)(B)(z), (ii) 
brokerage or underwriting compensation permitted by Section 17(e) or 
57(k) or (iii) in the case of the Advisers, investment advisory 
compensation paid in accordance with investment advisory agreements 
between the applicable Regulated Fund(s) or Affiliated Fund(s) and its 
Adviser.
---------------------------------------------------------------------------

    \33\ Applicants are not requesting and the Commission is not 
providing any relief for transaction fees received in connection 
with any Co-Investment Transaction.
---------------------------------------------------------------------------

    15. Independence. If the Holders own in the aggregate more than 25 
percent of the Shares of a Regulated Fund, then the Holders will vote 
such Shares as directed by an independent third party when voting on 
(1) the election of directors; (2) the removal of one or more 
directors; or (3) any other matter under either the Act or applicable 
State law affecting the Board's composition, size or manner of 
election.
    16. Capital Markets Affiliates. The Capital Markets Affiliates will 
not be permitted to invest in a Potential Co-Investment Transaction 
except to the extent the aggregate Internal Orders for a Potential Co-
Investment Transaction, as described in Section III.A.1.b. of the 
application, are less than the total investment opportunity.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27825 Filed 12-26-17; 8:45 am]
 BILLING CODE 8011-01-P