No. 812-14581
Before the
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
In the Matter of the Application of:
NORTHSTAR REAL ESTATE CAPITAL INCOME
MASTER FUND
,
C
NI RECF ADVISORS, LLC, CLNC
Manager, LLC, Colony NorthStar, Inc., Colony Capital Operating Company, LLC, CREDIT RE OPERATING COMPANY, LLC, COLONY DISTRESSED
CREDIT AND SPECIAL SITUATIONS FUND IV, L.P., AND CDCF IV Investment Advisor, LLC
515 South Flower St., 44th Floor
Los Angeles, CA 90071
(310) 282-8820
THIRD AMENDED AND RESTATED APPLICATION FOR
AN ORDER UNDER SECTIONS 17(d) AND 57(i) OF THE INVESTMENT COMPANY ACT OF 1940 AND RULE 17d-1 UNDER THE INVESTMENT COMPANY ACT OF
1940 PERMITTING CERTAIN JOINT TRANSACTIONS OTHERWISE PROHIBITED BY SECTIONS 17(d) OR 57(a)(4) OF THE INVESTMENT COMPANY ACT OF
1940
All Communications, Notices and Orders to:
Sandra M. Forman, Esq.
Chief Compliance Officer, General Counsel and Secretary
NorthStar Real Estate Capital Income
Master Fund
590 Madison Avenue, 34th Floor
New York, New York 10022
(212) 547-2600
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Steven B. Boehm, Esq.
Anne G. Oberndorf, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street, NW
Washington, D.C. 20001
(202) 383-0100
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March 9, 2018
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
In the Matter of:
NORTHSTAR REAL ESTATE CAPITAL INCOME MASTER FUND
,
C
NI RECF ADVISORS, LLC, CLNC Manager, LLC, Colony NorthStar, Inc., Colony Capital
Operating Company, LLC, CREDIT RE OPERATING COMPANY, LLC, COLONY DISTRESSED CREDIT AND SPECIAL SITUATIONS FUND IV, L.P., AND CDCF
IV Investment Advisor, LLC
515 South Flower St., 44th Floor
Los Angeles, CA 90071
(310) 282-8820
File No. 812-14581
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Third Amended and Restated Application for an Order under Sections 17(d) and 57(i) of the Investment Company Act of 1940 and Rule 17d-1 under the Investment Company Act of 1940 Permitting Certain Joint Transactions Otherwise Prohibited by Sections 17(d) or 57(a)(4) of the Investment Company Act of 1940 and Rule 17d-1 under the Investment Company Act of 1940.
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I. Summary
of Application
The following entities hereby request an order (the “
Order
”)
of the U.S. Securities and Exchange Commission (the “
Commission
”) pursuant to Sections 17(d) and
57(i) of the Investment Company Act of 1940, as amended (the “
1940 Act
”), and Rule 17d-l promulgated
under the 1940 Act, authorizing certain joint transactions that otherwise may be prohibited by either or both of Sections 17(d) and
57(a)(4), as modified by the exemptive rules adopted by the Commission under the 1940 Act:
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NorthStar Real Estate Capital Income Master Fund (“
NorthStar Master Fund
”)
1
,
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·
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CNI RECF Advisors, LLC (“
CNI Adviser
”), the investment adviser to NorthStar Master Fund,
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·
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The investment advisers to the Existing Affiliated Funds (defined below) that are identified in Exhibit A (“
Existing
Affiliated Advisers
”), each of which is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the “
Advisers Act
”),
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·
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Colony NorthStar, Inc. (“
Colony NorthStar
”) and Colony Capital Operating Company, LLC, Colony NorthStar’s
direct majority-owned subsidiary (together, with Colony Northstar, the “
Colony Companies
”). The Colony
Companies, from time to time, may hold various financial assets in a principal capacity (together, in such capacity, the “
Existing
Colony Proprietary Accounts
”) and, together which any Future Colony Proprietary Account (as defined below), the “
Colony
Proprietary Accounts
”),
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·
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Colony Distressed Credit and Special Situations Fund IV, L.P. (“
CDCF IV
”),
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Credit RE Operating Company, LLC (“
RE Operating Company
” and collectively with CDCF IV, the “
Existing
Affiliated Funds
”
2
and, together with NorthStar Master Fund, CNI Adviser, the Existing Affiliated Advisers and the Existing Colony Proprietary Accounts,
the “
Applicants
”).
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1
NorthStar Master Fund is part of a master/feeder structure, pursuant to which NorthStar Real Estate Capital Income
Fund, NorthStar Real Estate Capital Income Fund-T, NorthStar Real Estate Capital Income Fund-ADV, NorthStar Real Estate Capital
Income Fund-C and NorthStar Real Estate Capital Income Fund-T2 (the “
Existing Feeder Funds
”) invest
all or substantially all of their assets in NorthStar Master Fund. The Existing Feeder Funds are each closed-end investment companies
that are registered under the 1940 Act and that have the same investment objective and strategies as NorthStar Master Fund. Any
future closed-end investment company that is registered under the 1940 Act and that invests all or substantially all of its assets
in NorthStar Master Fund (each, a “
Future Feeder Fund
,” and together with the Existing Feeder Funds,
the
“Feeder Funds”
) will also have the same investment objective and strategies as NorthStar Master
Fund. All investments will be made at the NorthStar Master Fund level and, therefore, the investment results of the Feeder Funds
will correspond directly to the investment results of NorthStar Master Fund. As a result of this structure, the Feeder Funds are
not included as Applicants because they will not directly participate in Co-Investment Transactions (defined below).
2
The term “Affiliated Funds” means the Existing Colony Proprietary Accounts, the Existing Affiliated Funds, any Future
Colony Proprietary Accounts and any Future Affiliated Funds. “
Future Colony Proprietary Account
” means
any direct or indirect, wholly- or majority-owned subsidiary of Colony NorthStar that is
formed in the future and, from time to time, may hold various financial assets in a principal capacity
. “
Future
Affiliated Fund
” means any entity (a) whose investment adviser is an Adviser (as defined below), (b) that would be
an investment company but for Sections 3(c)(1), 3(c)(5)(C), or 3(c)(7) of the 1940 Act or is not an investment company
as defined in Section 3(a)(1)(C) of the 1940 Act, and (c) that intends to participate in the Co-Investment Program. Applicants
do not believe that allowing any Affiliated Fund that would be an investment company but for Section 3(c)(5)(C) of the 1940 Act
(each, a “
Section 3(c)(5)(C) Fund
”) or that is not an investment company as defined in Section 3(a)(1)(C)
of the 1940 Act (each, a “
Section 3(a)(1)(C) Fund
”) to participate in Co-Investment Transactions as an
Affiliated Fund raises any additional legal or policy concerns not otherwise raised by allowing a Regulated Fund to co-invest with
one or more Affiliated Funds that would be an investment company but for Sections 3(c)(1) or 3(c)(7) of the 1940 Act, because each
Section 3(c)(5)(C) Fund and Section 3(a)(1)(C) Fund, respectively, is advised by the Adviser the same way that Affiliated Funds
relying on Section 3(c)(1) or 3(c)(7) are advised by the Adviser. Accordingly, Applicants request that the Section 3(c)(5)(C) Funds
and the Section 3(a)(1)(C) Funds be permitted to participate in Co-investment Transactions as Affiliated Funds.
In particular, the relief requested in this application (the
“
Application
”) would permit a Regulated Fund,
3
on the one hand, and one or more other Regulated Funds and/or one or more Affiliated Funds, on the other hand, 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 Section 57(a)(4) and Rule 17d-1 by (a) co-investing
with each other in securities issued by issuers in private placement transactions in which an Adviser negotiates terms in addition
to price (“
Private Placement Securities
”);
4
and (b) making additional investments in securities of such issuers, including through the exercise of warrants, conversion
privileges, and other rights to purchase securities of the issuers (“
Follow-On Investments
”). “
Co-Investment
Transaction
” means any transaction in which a Regulated Fund (or its Wholly-Owned Investment Sub (as defined below))
participated together with one or more other Regulated Funds and/or one or more Affiliated Funds in reliance on the requested Order.
5
“
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 and/or one or more other Regulated
Funds without obtaining and relying on the Order.
Any of the Regulated Funds may, from time to time, form a special
purpose subsidiary (a “
Wholly-Owned Investment Sub
”) (i) that is a wholly-owned subsidiary
6
of 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; (iii) with
respect to which the Regulated Fund’s board of directors, board of managers, board of trustees, or equivalent governing body
(a “
Board
”) has the sole authority to make all determinations with respect to the entity’s participation
under the conditions to this Application; and (iv)
(A) that would be an investment company
but for Section 3(c)(1), 3(c)(5)(C), or 3(c)(7) of the 1940 Act, or (B) that qualifies as a real estate investment
trust (“
REIT
”) within the meaning of Section 856 of the Internal Revenue Code (“
Code
”)
because substantially all of its assets would consist of real properties.
All existing entities that currently intend to rely upon the
requested Order have been named as Applicants. Any other existing or future entity that subsequently relies on the Order will
comply with the terms and conditions of the Application. Applicants do not seek relief for transactions that would be permitted
under other regulatory or interpretive guidance, including, for example, transactions effected consistent with Commission staff
no-action positions.
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3
“
Regulated Fund
” means NorthStar Master Fund and any Future Regulated Fund. “
Future
Regulated Fund
” means any closed-end management investment company (a) that is registered under the 1940 Act
or has elected to be regulated as a BDC (as defined below), (b) whose investment adviser is an Adviser, and (c) that
intends to participate in the Co-Investment Program. The term “
Adviser
” means (a) CNI Adviser,
(b) the Existing Affiliated Advisers, and (c) any future investment adviser that controls, is controlled by or is under common
control with CNI Adviser and is registered as an investment adviser under the Advisers Act. The term “
BDC
”
refers to a business development company, which is defined by Section 2(a)(48) 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) of the 1940 Act and makes available
significant managerial assistance with respect to the issuers of such securities.
4
The term “private placement transactions” means transactions in which the offer and sale of securities by the issuer
are exempt from registration under the Securities Act of 1933, as amended (the “
1933 Act
”).
5
No Non-Interested Director (as defined below) 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.
6
A “wholly-owned subsidiary” of a person is as defined in Section 2(a)(43)
of the 1940 Act and means a company 95% or more of the outstanding voting securities of which are owned by such person.
7
See, e.g., Massachusetts Mutual Life Insurance Co. (pub. avail. June 7, 2000), Massachusetts Mutual Life Insurance Co.
(pub. avail. July 28, 2000) and SMC Capital, Inc. (pub. avail. Sept. 5, 1995).
II. Background
NorthStar Master Fund was organized under the Delaware Statutory
Trust Act on October 2, 2015 for the purpose of operating as an externally-managed, non-diversified, closed-end management investment
company registered under the 1940 Act. In addition, NorthStar Master Fund intends to elect to be treated for tax purposes as a
regulated investment company (“
RIC
”) under Subchapter M of the Code, and intends to continue to make
such election in the future. NorthStar Master Fund’s principal place of business is 590 Madison Avenue, 34
th
Floor,
New York, New York 10022.
As discussed above, NorthStar Master Fund is part of a master/feeder
structure, pursuant to which the Existing Feeder Funds invest all or substantially all of their assets in NorthStar Master Fund.
NorthStar Master Fund’s Objectives and Strategies
8
are the same as those of the Existing Feeder Funds, to generate attractive and consistent income through cash distributions and
preserve and protect shareholder’s capital, as well as capital appreciation. NorthStar Master Fund intends to invest primarily
in a diversified portfolio of real estate and real estate-related investments, which, under normal circumstances, will represent
at least 80% of NorthStar Master Fund’s net assets (plus the amount of leverage for investment purposes) including: (i) commercial
real estate (“
CRE
”) debt, including first mortgage loans, subordinate mortgage and mezzanine loans, participations
in such loans and preferred equity interests; (ii) CRE equity investments, including direct CRE ownership and indirect ownership
through private equity investments or other joint ventures; and (iii) CRE securities, such as commercial mortgage-backed securities,
unsecured debt of publicly-traded REITs, and collateralized debt obligation (“
CDO
”) notes. Certain direct
and indirect equity investments in CRE may be made through NorthStar Master Fund’s private REIT (the “
REIT Subsidiary
”),
which intends to invest through wholly-owned special purpose vehicles (“
Special Purpose Vehicles
”) in
properties with a focus on consistent income and quality locations.
NorthStar Master
Fund is advised by CNI Adviser pursuant to an investment advisory agreement (the “
NorthStar Master Fund Advisory Agreement
”).
NorthStar Master Fund
’s
business and affairs are managed under the direction of a board
of trustees (the “
NorthStar Board
”).
The NorthStar Board currently consists of four members, three of whom are not “interested persons” of NorthStar Master
Fund as defined in Section 2(a)(19) (the “
Non-Interested Directors
”). Kevin P. Traenkle serves
as a trustee on the NorthStar Board and is an “interested person” of NorthStar Master Fund as defined in Section 2(a)(19)
because he is a member of CNI Adviser’s management team. Mr. Traenkle will not participate individually in any Co-Investment
Transaction. The NorthStar Board delegates daily management and investment authority to CNI Adviser pursuant to the NorthStar
Master Fund Advisory Agreement.
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“
Objectives and Strategies
” means, with respect to a Regulated Fund, the 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 1933 Act, or under the Securities Exchange Act of 1934, as amended (the “
1934 Act
”),
and the Regulated Fund’s reports to shareholders. With respect to the Affiliated Funds, their investment objectives and strategies
will be described in such Affiliated Fund’s private placement memorandum or offering circular.
The REIT Subsidiary is a Wholly-Owned Investment Sub of NorthStar
Master Fund. The REIT Subsidiary would be an investment company but for Section 3(c)(5)(C). NorthStar Master Fund holds 100% of
the outstanding common (voting) stock of the REIT Subsidiary. The rest of the outstanding equity is in the form of preferred
stock that will be held by 101 persons solely for the purpose of meeting the requirement for the favorable treatment available
for real estate investment trusts under the Code that the equity of the entity be held by at least 100 persons. The class
of holders of the preferred stock is expected to remain static and to not include any affiliates of CNI Adviser. The preferred
stock will have no voting or other governance rights. NorthStar Master Fund will at all times hold, beneficially and of record,
95% or more of the voting and economic interests of the REIT Subsidiary.
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B.
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The Existing Affiliated Funds
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Each of the Existing Affiliated Funds, described in more detail
below, has investment objectives and strategies that are similar to or that overlap with NorthStar Master Fund’s Objectives
and Strategies. To the extent there is an investment that falls within the Objectives and Strategies of one or more Regulated Funds
and the investment objectives and strategies of one or more Affiliated Funds, it is expected that a Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Affiliated Funds.
RE Operating Company does not come within the definition of
an investment company in Section 3(a)(1)(C) of the 1940 Act as it operates through a holding company structure, conducting its
business through majority-owned subsidiaries that are not themselves investment companies.
Securities
issued by RE Operating Company’s subsidiaries that rely on the exception from the definition of investment company in Section
3(c)(1) or 3(c)(7), together with any other “investment securities” within the meaning of Section 3(a)(2) that RE Operating
Company may own directly, will not have a combined value in excess of 40% of the value of RE Operating Company’s total assets
on an unconsolidated basis.
Most of the subsidiaries of RE Operating Company will rely on the exception from the definition
of an investment company under Section 3(c)(5)(C).
Each of the Existing Affiliated Funds is managed by an Existing
Affiliated Adviser, each of which is controlled by Colony NorthStar, Inc. (“
Colony NorthStar
”). Each
of the Existing Affiliated Funds and the corresponding Existing Affiliated Advisers are set forth in Exhibit A hereto. Each of
the Existing Affiliated Advisers is registered with the Commission as an investment adviser. As described below, the investment
strategies of the Existing Affiliated Funds are similar to those of NorthStar Master Fund.
On January 31, 2018, Colony NorthStar,
NorthStar
Real Estate Income Trust, Inc. (“
NorthStar Income
”) and
NorthStar
Real Estate Income II, Inc. (“
NorthStar Income II
”) completed a combination. Pursuant to that
transaction, a select portfolio of Colony Northstar assets and liabilities was combined with NorthStar Income and NorthStar Income
II in an all-stock combination transaction that created a commercial real estate credit REIT with approximately $5.5 billion in
assets and $3.4 billion in equity value, Colony Northstar Credit Real Estate, Inc. (“
CLNS Credit
”).
CLNS Credit through RE
Operating Company will primarily invest in senior mortgage loans, mezzanine loans, preferred equity, debt securities and net leased
properties predominantly in the United States. Its investment objective is to preserve and protect shareholder capital, while producing
attractive risk-adjusted returns and a secondary objective of capital appreciation. RE Operating Company, which is the operating
partnership of CLNS Credit, was formed on August 23, 2017 as a Delaware limited liability company.
RE Operating Company
is expected to invest in assets similar to those in which NorthStar Master Fund will be investing.
CDCF IV is a Delaware limited partnership that was formed on
May 5, 2015. CDCF IV primarily seeks to invest in assets that provide direct or indirect exposure to debt or preferred equity instruments
secured by real estate or issued by real estate-related entities, and real estate assets being divested directly or indirectly
by government institutions, commercial banks, other financial entities or distressed sellers or through bankruptcy, foreclosure,
short sales or similar proceedings. In connection with making such primary investments, CDCF IV may also acquire (i) “equity
kickers”, (ii) equity in holding, operating or intermediate entities and special purpose vehicles, (iii) warrants, (iv) equity
in exchange for debt instruments or as proceeds from a debt instrument, (v) follow-on investments in equity of issuers in which
CDCF IV holds an investment, (vi) equity investments which are part of a portfolio of debt instruments, and (vii) other similar
equity or equity related instruments. A meaningful portion of CDCF IV’s portfolio is currently expected to consist of European-based
assets. CDCF IV would be an investment company but for the exclusion from the definition of investment company provided by Section 3(c)(7)
of the 1940 Act.
CNI Adviser (formerly NSAM B-RECF, Ltd.) is an adviser controlled
by Colony NorthStar and serves as the investment adviser to NorthStar Master Fund. CNI Adviser is a Delaware limited liability
company that is registered under the Advisers Act. The principal office of CNI Adviser is located at c/o Colony NorthStar, Inc.,
515 South Flower St., 44th Floor, Los Angeles, CA 90071.
9
9
CNI Adviser was previously named NSAM B-RECF, Ltd., a Bermuda exempt company that was domesticated in Delaware as a limited liability
company on January 31, 2017 and was renamed CNI RECF Advisors, LLC.
Pursuant to the NorthStar Master Fund Advisory Agreement, CNI
Adviser oversees the management of NorthStar Master Fund’s activities, including investment strategies, investment goals,
asset allocation, leverage limitations and other guidelines in addition to the general monitoring of NorthStar Master Fund, subject
to the oversight of the NorthStar Board.
Colony NorthStar (NYSE:CLNS) is a leading global real estate
and investment management firm with approximately $43 billion in assets under management as of December 31, 2017. Colony NorthStar
provides investment management services and manages private funds, non-traded and traded real estate investment trusts and registered
investment companies on behalf of a diverse set of institutional and individual investors and is supported by an experienced staff
of over 500 employees located in offices across 18 cities in 10 countries.
Colony NorthStar is the parent company of CNI Adviser and the
Existing Affiliated Advisers. Colony Capital Operating Company, LLC is the operating partnership of Colony NorthStar. The Colony
Proprietary Accounts hold various financial assets in a principal capacity. Colony NorthStar has various business lines that
it operates through its wholly- or majority-owned subsidiaries, and the subsidiaries that exist and currently intend to participate
in the Co-Investment Program have been included as Applicants herein.
III. Order
Requested
Applicants request the Order of the Commission under Sections
17(d) and 57(i) under the 1940 Act, and Rule 17d-1 under the 1940 Act to permit, subject to the terms and conditions
set forth below in this Application (the “
Conditions
”), a Regulated Fund to be able to participate in
Co-Investment Transactions with one or more other Regulated Funds and/or one or more Affiliated Funds.
The Regulated Funds and the Affiliated Funds seek relief to
invest in Co-Investment Transactions because such Co-Investment Transactions would otherwise be prohibited by Sections 17(d) and
57(a)(4) of the 1940 Act and Rule 17d-1 under the 1940 Act. This Application seeks relief in order to (i) enable
the Regulated Funds and the Affiliated Funds to avoid the practical difficulties of trying to structure, negotiate and persuade
counterparties to enter into transactions while awaiting the granting of the relief requested in individual applications with respect
to each Co-Investment Transaction that arise in the future and (ii) enable the Regulated Funds and the Affiliated Funds to
avoid the significant legal and other expenses that would be incurred in preparing such individual applications.
A. Section 17(d) and
Section 57(a)(4)
Section 17(d) of the 1940 Act generally prohibits
an affiliated person (as defined in Section 2(a)(3) of the 1940 Act), or an affiliated person of such affiliated person,
of a registered closed-end investment company acting as principal, from effecting any transaction in which the registered closed-end
investment company is a joint or a joint and several participant, in contravention of such rules as the Commission may prescribe
for the purpose of limiting or preventing participation by the registered closed-end investment company on a basis different from
or less advantageous than that of such other participant. Rule 17d-1 under the 1940 Act generally prohibits participation
by a registered investment company and an affiliated person (as defined in Section 2(a)(3) of the 1940 Act) or principal
underwriter for that investment company, or an affiliated person of such affiliated person or principal underwriter, 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.
Similarly, with regard to BDCs, Section 57(a)(4) of
the 1940 Act prohibits certain persons specified in Section 57(b) of the 1940 Act from participating in a joint transaction
with a BDC or a company controlled by a BDC in contravention of rules as prescribed by the Commission. In particular Section 57(a)(4) of
the 1940 Act applies to:
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Any director, officer, employee, or member of an advisory board of a BDC, or any person (other than the BDC itself) who is
an affiliated person of the foregoing pursuant to Section 2(a)(3)(C) of the 1940 Act; or
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Any investment adviser or promoter of, general partner in, principal underwriter for, or person directly or indirectly either
controlling, controlled by, or under common control with, a BDC,
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or
any person who is an affiliated person of any of the foregoing within the meaning of Section 2(a)(3)(C) or (D) of
the 1940 Act.
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Section 2(a)(3)(C) of the 1940 Act defines an “affiliated
person” of another person to include any person directly or indirectly controlling, controlled by, or under common control
with, such other person. Section 2(a)(9) of the 1940 Act defines “control” as the power to exercise
a controlling influence over the management or policies of a company, unless such power is solely the result of an official position
with that company. Under Section 2(a)(9) of the 1940 Act, a person who beneficially owns, either directly or through
one or more controlled companies, more than 25% of the voting securities of a company is presumed to control such company.
The Commission and its staff have indicated on a number of occasions their belief that an investment adviser controls the fund
that it advises, absent compelling evidence to the contrary.
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CNI Adviser is the investment adviser to NorthStar Master Fund,
and an Adviser will be the investment adviser to each of the Future Regulated Funds. CNI Adviser may be deemed to control NorthStar
Master Fund, and any other Adviser will be controlling, controlled by, or under common control with CNI Adviser. In addition,
an Adviser is, or will be, the investment adviser to each Affiliated Fund. The Regulated Funds may be deemed to be under common
control, and thus affiliated persons of each other under Section 2(a)(3)(C) of the 1940 Act. In addition, the
Affiliated Funds may be deemed to be under common control with the Regulated Funds, and thus affiliated persons of each Regulated
Fund under Section 2(a)(3)(C) of the 1940 Act, because (i) the Existing Affiliated Advisers advise and may be deemed
to control the Existing Affiliated Funds and any Future Affiliated Funds will be advised and may be deemed to be controlled by
an Adviser, (ii) an Adviser advises and may be deemed to control NorthStar Master Fund and any future Regulated Fund will be advised
and may be deemed to be controlled by an Adviser, and (iii) the Advisers are controlled by the same persons. As a result, these
relationships might cause a Regulated Fund and one or more other Regulated Funds and/or one or more Affiliated Funds participating
in Co-Investment Transactions to be subject to Sections 17(d) or 57(a)(4) of the 1940 Act, and thus subject to the provisions
of Rule 17d-1 of the 1940 Act. In addition, because the Colony Proprietary Accounts are controlled by Colony NorthStar and,
therefore, may be under common control with the Regulated Funds, the Advisers and any Future Regulated Funds, the Colony Proprietary
Accounts could be deemed to be persons related to the Regulated Funds (or a company controlled by the Regulated Funds) in a manner
described by Section 57(b) and also prohibited from participating in the Co-Investment Program.
10
Excluded from this category are the BDC itself and any person who, if it were not directly or indirectly controlled by the BDC,
would not otherwise be under common control with the BDC.
11
See, e.g., In re Investment Company Mergers, SEC Rel. No. IC-25259 (Nov. 8, 2001); In re Steadman Security
Corp., 46 S.E.C. 896, 920 n.81 (1977) (“[T]he investment adviser almost always controls the fund. Only in the very rare case
where the adviser’s role is simply that of advising others who may or may not elect to be guided by his advice…can
the adviser realistically be deemed not in control.”)
The Applicants acknowledge that some of the Affiliated Funds
may not be funds advised by an Existing Affiliated Adviser because they are Colony Proprietary Accounts (i.e., a Colony Company
investing in a principal capacity). The Applicants further acknowledge that almost all previously ordered exemptive applications
seeking similar co-investment relief have been limited to co-investment transactions between a BDC and its affiliated funds only.
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The
Applicants do not believe these Colony Proprietary Accounts should raise issues under the Conditions of this Application because
the allocation policies and procedures of the account owners provide that investment opportunities will be offered to client accounts
before they are offered to Colony Proprietary Accounts. The Applicants do not believe that the participation of Colony Proprietary
Accounts in the Co-Investment Program would raise any regulatory or mechanical concerns different from those discussed with respect
to the Affiliated Funds that are advised by an Existing Affiliated Adviser. In accordance with the allocation policies and procedures,
Potential Co-Investment Transactions will be offered to, and allocated among, the Affiliated Funds (other than the Colony Proprietary
Accounts) and Regulated Funds based on each client’s particular Objectives and Strategies and in accordance with the Conditions.
If the aggregate amount recommended by the applicable Advisers to be invested by the Affiliated Funds (other than the Colony Proprietary
Accounts) and the Regulated Funds in a Potential Co-Investment Transaction were equal to or more than the amount of the investment
opportunity, a Colony Proprietary Account would not participate in the investment opportunity. If the aggregate amount recommended
by the applicable Advisers to be invested by the Affiliated Funds (other than the Colony Proprietary Accounts) and the Regulated
Funds in a Potential Co-Investment Transaction were less than the amount of the investment opportunity, a Colony Proprietary Account
would then have the opportunity to participate in the Potential Co-Investment Transaction in a principal capacity, up to the excess
amount of the investment opportunity.
12
See
Medley Capital Corporation, et al.
(File No. 812-14778) Investment Company Act Rel. Nos. 32809 (September 8, 2017) (notice)
and 32850 (October 4, 2017) (order);
Corporate Capital Trust, Inc. et. al.
(File No. 812-13844) Release No. IC-30009
(May 21, 2013) (order), Release No. IC-30494 (April 25, 2013) (notice);
Harvest Capital Credit Corporation, et al.
(File
No. 812-14365), Release No. IC- 31930 (December 10, 2015) (order), Release No. IC-31860 (October 5, 2015) (notice);
NF
Investment Corp., et al.
(File No. 812-14472) Release No. IC-32362 (November 22, 2015) (order), Release No. IC-32340
(October 27, 2016) (notice), all of which included relief for proprietary accounts.
B. Rule 17d-1
Rule 17d-1 under the 1940 Act generally prohibits participation
by a registered investment company and an affiliated person (as defined in Section 2(a)(3) of the 1940 Act) or principal
underwriter for that investment company, or an affiliated person of such affiliated person or principal underwriter, 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.
Rule 17d-1 was promulgated by the Commission pursuant to
Section 17(d) of the 1940 Act and made applicable to BDCs by Section 57(i) of the 1940 Act. Section 57(i) of
the 1940 Act provides that, until the Commission prescribes rules under Section 57(a)(4) of the 1940 Act, the Commission’s
rules under Section 17(d) of the 1940 Act applicable to registered closed-end investment companies will be deemed
to apply. Because the Commission has not adopted any rules under Section 57(a)(4) of the 1940 Act, Rule 17d-1
under the 1940 Act applies.
Applicants seek relief pursuant to Rule 17d-1 under the
1940 Act, which permits the Commission to authorize joint transactions upon application. In passing upon applications filed pursuant
to Rule 17d-1 under the 1940 Act, the Commission is directed by Rule 17d-1(b) under the 1940 Act to consider whether
the participation of a registered investment company or controlled company thereof in the joint enterprise or joint arrangement
under scrutiny is consistent with provisions, policies and purposes of the 1940 Act and the extent to which such participation
is on a basis different from or less advantageous than that of other participants.
The Commission has stated that Section 17(d) of the
1940 Act, upon which Rule 17d-1 under the 1940 Act is based, and upon which Section 57(a)(4) of the 1940 Act was
modeled, was designed to protect investment companies from self-dealing and overreaching by insiders. The Commission has also taken
notice that there may be transactions subject to these prohibitions that do not present the dangers of overreaching. See Protecting
Investors: A Half-Century of Investment Company Regulation, 1504 Fed. Sec. L. Rep., Extra Edition (May 29, 1992) at 488 et
seq. The Court of Appeals for the Second Circuit has enunciated a like rationale for the purpose behind Section 17(d):
“The objective of [Section] 17(d) . . . is to prevent . . . injuring the interest of stockholders of registered investment
companies by causing the company to participate on a basis different from or less advantageous than that of such other participants.” Securities
and Exchange Commission v. Talley Industries, Inc., 399 F.2d 396, 405 (2d Cir. 1968), cert. denied, 393 U.S. 1015 (1969).
Furthermore, Congress acknowledged that the protective system established by the enactment of Section 57 is “similar
to that applicable to registered investment companies under Section 17 of the 1940 Act, and rules thereunder, but is modified
to address concerns relating to unique characteristics presented by business development companies.” H.Rep. No. 96-1341,
96th Cong., 2d Sess. 45 (1980) reprinted in 1980 U.S.C.C.A.N. 4827.
Applicants believe that the Conditions of this Application would
ensure that the conflicts of interest that Section 17(d) and Section 57(a)(4) of the 1940 Act were designed
to prevent would be addressed and the standards for an order under Rule 17d-1 under the 1940 Act are met.
C. Protection
Provided by the Proposed Conditions
Applicants believe that the proposed Conditions, as discussed
more fully in Section III.D. of this Application, will ensure the protection of shareholders of the Regulated Funds and compliance
with the purposes and policies of the 1940 Act with respect to the Co-Investment Transactions. In particular, the Conditions,
as outlined below, would ensure that each Regulated Fund would only invest in investments that are appropriate to the interests
of shareholders and the investment needs and abilities of that Regulated Fund. In addition, each Regulated Fund would
be able to invest on equal footing with each other Regulated Fund and any Affiliated Funds, including identical terms, conditions,
price, class of securities purchased, settlement date, and registration rights. Each Regulated Fund would have the ability
to engage in Follow-On Investments in a fair manner consistent with the protections of the other Conditions. Each Regulated Fund
would have the ability to participate on a proportionate basis, at the same price and on the same terms and conditions in any sale
of a security purchased in a Co-Investment Transaction. Fees and expenses of Co-Investment Transactions would be borne by the applicable
Adviser, or shared pro-rata among the Regulated Funds and Affiliated Funds who participate in the Co-Investment Transactions. The
Conditions would also prevent a Regulated Fund from investing in any current investments of an affiliated person, which eliminates
the possibility of a Regulated Fund from being forced to invest in a manner that would benefit an affiliated person’s existing
investment. Also, sufficient records of the transactions would be maintained to permit the examination staff of the
Commission to monitor compliance with the terms of the requested order.
From time to time, Regulated Funds and Affiliated Funds may
participate in Co-Investment Transactions through various Special Purpose Vehicles. To the extent they do so, none of the Regulated
Funds will participate on a basis different from, or less advantageous than, that of any other Regulated Funds and/or Affiliated
Funds participating in such Co-Investment Transaction. Any Co-Investment Transaction involving one or more Special Purpose Vehicles
will be effected pursuant to, and in compliance with, the Conditions.
The Conditions impose a variety of duties on the Advisers with
respect to Co-Investment Transactions and Potential Co-Investment Transactions by the Regulated Funds. These duties
include determinations regarding investment appropriateness, the appropriate level of investment, and the provision of information
to the Board of any Regulated Fund. In addition, when considering Potential Co-Investment Transactions for any Regulated Fund,
the applicable Adviser will consider only the Objectives and Strategies,
Board-Established
Criteria,
13
investment policies,
investment positions, capital available for investment, and other pertinent factors applicable to that Regulated Fund. Each
Adviser, as applicable, undertakes to perform these duties consistently for each Regulated Fund, as applicable, regardless of
which of them serves as investment adviser to these entities. The participation of a Regulated Fund in a Potential Co-Investment
Transaction may only be approved by a required majority, as defined in Section 57(o) (a “
Required Majority
”),
of the directors of the Board eligible to vote on that Co-Investment Transaction under Section 57(o) (the “
Eligible
Directors
”).
14
13
The term “
Board-Established Criteria
” means criteria that the Board
of the applicable Regulated Fund may establish from time to time to describe the characteristics of Potential Co-Investment Transactions
which would be within the Regulated Fund’s then-current Objectives and Strategies that the Adviser should consider as appropriate
for the Regulated Fund. If no Board-Established Criteria are in effect for a Regulated Fund, then the Adviser will consider all
Potential Co-Investment Transactions that fall within the then-current Objectives and Strategies for that Regulated Fund. 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 EBITDA of the issuer, asset class of the investment opportunity or required commitment size, and not on characteristics
that involve discretionary assessment. The Adviser may from time to time recommend criteria for the applicable Board’s consideration,
but Board-Established Criteria will only become effective if approved by a majority of the Non-Interested Directors. The Non-Interested
Directors of a Regulated Fund may at any time rescind, suspend or qualify its approval of any Board-Established Criterion, though
Applicants anticipate that, under normal circumstances, the Board would not modify these criteria more often than quarterly.
14
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).
Applicants believe that
the use of Board-Established Criteria for each Regulated Fund is appropriate based on the size and scope of the Adviser’s
advisory business. The Adviser considers a large number of investment opportunities, many of which would not be appropriate for
one or more Regulated Funds. By using the Board-Established Criteria for a Regulated Fund, the Adviser will be able to limit the
Potential Co-Investment Transaction opportunities it considers for the Regulated Fund to objective, verifiable, and testable criteria
established by the Regulated Fund’s Board. In addition to the other protections offered by the conditions to the application,
using Board-Established Criteria in the allocation of Potential Co-Investment Transactions will further reduce the risk of subjectivity
in the Adviser’s determination of whether an investment opportunity is appropriate for a Regulated Fund. In connection
with the Board’s annual review of the continued appropriateness of any Board-Established Criteria under condition 9, the
Regulated Fund’s Adviser will provide information regarding any Co-Investment Transaction (including, but not limited to
Follow-On Investments) effected by the Regulated Fund that did not fit within the then-current Board-Established Criteria.
The amount of each Regulated Fund’s capital available
for investment will be determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted
leverage level, targeted asset mix and other investment policies and restrictions set from time to time by the Board of the applicable
Regulated Fund or imposed by applicable laws, rules, regulations or interpretations. Likewise, an Affiliated Fund’s capital
available for investment will be determined based on the amount of cash on hand, existing commitments and reserves, if any, the
targeted leverage level, targeted asset mix and other investment policies and restrictions set by the Affiliated Fund’s directors,
general partners or adviser or imposed by applicable laws, rules, regulations or interpretations.
If the Advisers, the principals of the Advisers (the “
Principals
”),
or any person controlling, controlled by, or under common control with the Advisers or the Principals, and the Affiliated Funds
(collectively, the “
Holders
”) own in the aggregate more than 25% of the outstanding voting shares of
a Regulated Fund (the “
Shares
”), then the Holders will vote such Shares as required under Condition 14.
None of the Principals currently hold any economic or voting interests in any of the Affiliated Funds.
Applicants believe this condition will ensure that the Non-Interested
Directors will act independently in evaluating the Co-Investment Program, because the ability of the Advisers or the Principals
to influence the Non-Interested Directors by a suggestion, explicit or implied, that the Non-Interested Directors can be removed
will be limited significantly. The Non-Interested Directors shall evaluate and approve any such independent
third party, as required by the condition, taking into account its qualifications, reputation for independence, cost to the
shareholders, and other factors that they deem relevant.
In sum, Applicants believe that the proposed Conditions would
ensure that each Regulated Fund that participates in a Co-Investment Transaction does not participate on a basis different from,
or less advantageous than, that of such other participants. As a result, Applicants believe that the participation of
the Regulated Funds in Co-Investment Transactions done in accordance with the Conditions would be consistent with the provisions,
policies, and purposes of the 1940 Act, and would be done in a manner that was not different from, or less advantageous than, the
other participants.
With respect to each Wholly-Owned Investment Sub, such a subsidiary
would be prohibited from investing in a Co-Investment Transaction with any Affiliated Fund or Regulated Fund because it would be
a company controlled by its parent Regulated Fund for purposes of Section 57(a)(4) of the 1940 Act and Rule 17d-1
under the 1940 Act. Applicants request that each Wholly-Owned Investment Sub be permitted to participate in Co-Investment Transactions
in lieu of its parent Regulated Fund 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, therefore, no conflicts of interest could arise between the Regulated Fund and
the Wholly-Owned Investment Sub. The Regulated Fund’s 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 Regulated Fund’s 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 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.
D. Proposed
Conditions
Applicants agree that any Order granting the requested relief
shall be subject to the following Conditions:
1.
(a) The Adviser will
establish, maintain and implement policies and procedures reasonably designed to ensure that the Adviser identifies for each
Regulated Fund all Potential Co-Investment Transactions that (i) the Adviser considers for any other Regulated Fund or
Affiliated Fund and (ii) fall within the Regulated Fund’s then-current Objectives and Strategies and Board-Established
Criteria.
(b) When
the Adviser identifies a Potential Co-Investment Transaction for a Regulated Fund 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. (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 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 Affiliated Funds,
collectively, in the same transaction, exceeds the amount of the investment opportunity, the investment opportunity will be allocated
among them pro rata based on each participant’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 written information concerning
the Potential Co-Investment Transaction (including the amount proposed to be invested by each participating Regulated Fund and
Affiliated Fund) 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 Affiliated Funds 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 shareholders and do not involve overreaching in respect of the Regulated Fund or its shareholders on the part of any
person concerned;
(ii) the
Potential Co-Investment Transaction is consistent with:
(A) the interests of the shareholders of the
Regulated Fund; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the
investment by any other Regulated Funds or Affiliated Funds 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 other Regulated Funds or Affiliated Funds; provided
that, if 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 or the right to have a board observer or any similar right to participate
in the governance or management of the portfolio company, such event shall not be interpreted to prohibit the Required Majority
from reaching the conclusions required by this Condition (2)(c)(iii), if:
|
(A)
|
the Eligible Directors will have the right to ratify
the selection of such director or board observer, if any;
|
|
(B)
|
the applicable Adviser 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
|
|
(C)
|
any fees or other compensation that any Affiliated
Fund or any Regulated Fund or any affiliated person of any Affiliated Fund or any Regulated Fund receives in connection with the
right of an Affiliated Fund or a Regulated Fund to nominate a director or appoint a board observer or otherwise to participate
in the governance or management of the portfolio company will be shared proportionately among the participating Affiliated Funds
(who 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 Affiliated Funds or 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 Section 17(e) or 57(k) of the 1940 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
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 other Regulated Fund or Affiliated Fund 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 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,
15
a Regulated Fund will not invest in reliance on the Order in any issuer in which another Regulated Fund, Affiliated Fund, or any
affiliated person of another Regulated Fund or Affiliated Fund is an existing investor.
15
This exception applies only to Follow-On Investments by a Regulated Fund in issuers in which that Regulated Fund already holds
investments.
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 Affiliated
Fund. The grant to an Affiliated Fund 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 Affiliated Fund 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 the participating Affiliated Funds and 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 Regulated Fund and each Affiliated 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 this 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 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.
(d) Each
Affiliated Fund and each Regulated Fund will bear its own expenses in connection with any such disposition.
8.
(a) If any Affiliated Fund or any Regulated Fund desires to
make a Follow-On Investment in a portfolio company whose securities were acquired in a Co-Investment Transaction, the
applicable Advisers will:
(i) notify
each Regulated Fund that participated in the Co-Investment Transaction of the proposed transaction at the earliest practicable
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 Regulated Fund and each Affiliated Fund in such investment is proportionate to its outstanding investments
in the issuer immediately preceding the Follow-On Investment; and (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 this application). 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 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 opportunity is not based on the Regulated Funds’ and the Affiliated Funds’ outstanding investments immediately
preceding the Follow-On Investment; and
(ii) the
aggregate amount recommended by the Adviser to be invested by each Regulated Fund in the Follow-On Investment, together with the
amount proposed to be invested by the participating Affiliated Funds in the same transaction, exceeds the amount of the opportunity;
then the amount invested by each such party will be allocated among them pro rata based on each participant’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 this application.
9. The
Non-Interested Directors of each Regulated Fund will be provided quarterly for review all information concerning Potential Co-Investment
Transactions
that fell within the Regulated Fund’s then-current Objectives and Strategies
and Board-Established Criteria
, including
investments in Potential Co-Investment Transactions
made by other Regulated Funds and Affiliated Funds, that the Regulated Fund considered but declined to participate in, and concerning
Co-Investment Transactions in which the Regulated Fund participated, so that the Non-Interested Directors may determine whether
all Potential Co-Investment Transactions and Co-Investment Transactions during the preceding quarter, including those Potential
Co-Investment Transactions which the Regulated Fund considered but declined to participate in, comply with the conditions of the
Order. In addition, the Non-Interested Directors will consider at least annually (a) the continued appropriateness for the Regulated
Fund of participating in new and existing Co-Investment Transactions and (b) the continued appropriateness of any Board-Established
Criteria.
10. Each
Regulated Fund will maintain the records required by Section 57(f)(3) of the 1940 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 1940 Act.
11. No
Non-Interested 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 1940 Act) of an Affiliated Fund.
12. The
expenses, if any, associated with acquiring, holding or disposing of any securities acquired in a Co-Investment Transaction (including,
without limitation, the expenses of the distribution of any such securities registered for sale under the 1933 Act) will,
to the extent not payable by the Advisers under their respective investment advisory agreements with Affiliated Funds and the Regulated
Funds, be shared by the Regulated Funds and the Affiliated Funds in proportion to the relative amounts of the securities held or
to be 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 1940 Act, as applicable), received in connection with a Co-Investment Transaction will be distributed to the
participating Regulated Funds and Affiliated Funds 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
16
is to be held by an Adviser pending consummation of the transaction, the fee will be deposited into an account maintained by such
Adviser at a bank or banks having the qualifications prescribed in Section 26(a)(1) of the 1940 Act, and the account
will earn a competitive rate of interest that will also be divided pro rata among the participating Regulated Funds and Affiliated
Funds based on the amounts they invest in such Co-Investment Transaction. None of the Affiliated Funds, the Advisers, the
other Regulated Funds or any affiliated person of the Regulated Funds or Affiliated Funds will receive additional compensation
or remuneration of any kind as a result of or in connection with a Co-Investment Transaction other than (a) in the case of
the Regulated Funds and the Affiliated 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 an Adviser, investment advisory fees paid in accordance with the agreement
between the Adviser and the Regulated Fund or Affiliated Fund.
14. If
the Holders own in the aggregate more than 25% of the Shares, 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) all other matters under
either the 1940 Act or applicable State law affecting the Board’s composition, size or manner of election.
15.
Each
Regulated Fund’s chief compliance officer, as defined in Rule 38a-1(a)(4), will prepare an annual report for its
Board 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.
16
Applicants are not requesting and the staff is not providing any relief for transaction fees received in connection with any Co-Investment
Transaction.
IV. Statement
in Support of Relief Requested
Applicants submit that allowing the Co-Investment Transactions
described by this Application is justified on the basis of (i) the potential benefits to the Regulated Funds and the shareholders
thereof and (ii) the protections found in the Conditions set forth in this Application.
A. Potential
Benefits
In the absence of the relief sought hereby, in some circumstances
the Regulated Funds would be limited in their ability to participate in attractive and appropriate investment opportunities. Section 17(d) and
Section 57(a)(4) of the 1940 Act and Rule 17d-1 under the 1940 Act should not prevent BDCs and registered closed-end
investment companies from making investments that are in the best interests of their shareholders.
In cases where the Advisers identify investment opportunities
requiring larger capital commitments, they must seek the participation of other entities with similar investment styles.
The ability to participate in Co-Investment Transactions that involve committing larger amounts of financing would enable each
Regulated Fund to participate with one or more of the Affiliated Funds and the other Regulated Funds in larger financing commitments,
which would, in turn, be expected to obtain discounted prices and increase income, expand investment opportunities and provide
better access to due diligence information for the Regulated Funds. Indeed, each Regulated Fund’s inability to co-invest
with one or more of the Affiliated Funds and the other Regulated Funds could potentially result in the loss of beneficial investment
opportunities for such Regulated Fund and, in turn, adversely affect such Regulated Fund’s shareholders. For example, a Regulated
Fund may lose investment opportunities if the Adviser cannot provide “one-stop” financing to a potential portfolio
company. Portfolio companies may reject an offer of funding arranged by an Adviser due to a Regulated Fund’s inability to
commit the full amount of financing required by the portfolio company in a timely manner (i.e., without the delay that typically
would be associated with obtaining single-transaction exemptive relief from the Commission). The Regulated Funds’ Advisers
expect that any portfolio company that is an appropriate investment for a Regulated Fund should also be an appropriate investment
for one or more other Regulated Funds and/or one or more Affiliated Funds, with certain exceptions based on available capital or
diversification. The Regulated Funds, however, will not be obligated to invest, or co-invest, when investment opportunities are
referred to them.
Each Regulated Fund and its shareholders will benefit from
the ability to participate in Co-Investment Transactions. The Board of each Regulated Fund, including the Non-Interested Directors, has
determined, or will have determined, that it is in the best interests of the Regulated Fund to participate in Co-Investment Transactions
because, among other matters, (i) the Regulated Fund will be able to participate in a larger number and greater variety of
transactions; (ii) the Regulated Fund will be able to participate in larger transactions; (iii) the Regulated Fund will
be able to participate in all opportunities approved by a Required Majority or otherwise permissible under the Order rather than
risk underperformance through rotational allocation of opportunities among the Regulated Funds; (iv) the Regulated Fund and
any other Regulated Funds participating in the proposed investment will have greater bargaining power, more control over the investment
and less need to bring in other external investors or structure investments to satisfy the different needs of external investors;
(v) the Regulated Fund will be able to obtain greater attention and better deal flow from investment bankers and others who
act as sources of investments; and (vi) the general terms and Conditions of the proposed Order are fair to the Regulated
Funds and their shareholders. The NorthStar Board, including the Non-Interested Directors, has also determined that it is in the
best interests of NorthStar Master Fund and its shareholders to obtain the Order at the earliest possible time. For these reasons,
the NorthStar Board has determined that is proper and desirable for NorthStar Master Fund to participate in Co-Investment Transactions
with the other Regulated Funds and/or one more Affiliated Funds.
B. Protective
Representations and Conditions
The Conditions set forth in this application ensure that the
proposed 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 1940 Act. Specifically, the Conditions incorporate the following critical
protections: (i) in each Co-Investment Transaction, all Regulated Funds and Affiliated Funds participating in the Co-Investment
Transactions 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; (ii) a Required Majority of each Regulated
Fund must approve various investment decisions with respect to such Regulated Fund in accordance with the Conditions; and (iii) the
Regulated Funds are required to retain and maintain certain records.
Other than pro rata dispositions and Follow-On Investments as
provided in Conditions 7 and 8, and after making the determinations required in Conditions 1 and 2(a), the Adviser will present
each Potential Co-Investment Transaction and the proposed allocation to the Eligible Directors, and the Required Majority will
approve each Co-Investment Transaction prior to any investment by the participating Regulated Fund. 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 Regulated Fund and Affiliated Fund in such disposition 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.
Applicants believe that participation by the Regulated Funds
in pro rata dispositions and Follow-On Investments, as provided in Conditions 7 and 8, is consistent with the provisions, policies
and purposes of the 1940 Act and will not be made on a basis different from or less advantageous than that of other participants.
A formulaic approach, such as pro rata dispositions and Follow-On Investments, eliminates the discretionary ability to make allocation
determinations, and in turn eliminates the possibility for overreaching and promotes fairness. Applicants note that
the Commission has adopted a similar pro rata approach in the context of Rule 23c-2 under the 1940 Act, which relates to
the redemption by a closed-end investment company of less than all of a class of its securities, indicating the general fairness
and lack of overreaching that such approach provides.
The foregoing analysis applies equally where a Wholly-Owned
Investment Sub is involved in a Co-Investment Transaction as each Wholly-Owned Investment Sub will be treated as one company with
its parent for purposes of this Application.
V. Precedents
The Commission previously has issued orders permitting certain
investment companies subject to regulation under the 1940 Act and their affiliated persons to co-invest in Private Placement Securities.
See
TCG BDC, Inc., et al.
(File No. 812-14798) Investment Company Act Rel. Nos. 32945 (December 20, 2017) and 32969
(January 17, 2018);
BlackRock Capital Investment Corporation, et al.
(File No. 812-14852) Investment Company Act Rel. Nos.
32943 (December 19, 2017) and 32968 (January 16, 2018);
New Mountain Finance Corporation, et al.
(File No. 812-14799) Investment
Company Act Rel. Nos. 32900 (November 20, 2017) (notice) and 32941 (December 18, 2017) (order);
Horizon Technology Finance Corporation,
et al.
(File No. 812-14738) Investment Company Act Rel. Nos. 32888 (October 30, 2017) (notice) and 32923 (November 27, 2017)
(order);
Oaktree Strategic Income, LLC, et al.
(File No. 812-14758) Investment Company Act Rel. Nos. 32831 (September 22,
2017) (notice) and 32862 (October 18, 2017) (order);
Medley Capital Corporation, et al.
(File No. 812-14778) Investment
Company Act Rel. Nos. 32809 (September 8, 2017) (notice) and 32850 (October 4, 2017) (order);
MVC Capital, Inc., et al.
(File No. 812-14720) Investment Company Act Rel. Nos. 32769 (August 1, 2017) (notice) and 32797 (August 28, 2017) (order);
1889
BDC, Inc., et al.
(File No. 812-14682) Investment Company Act Rel. Nos. 32687 (June 21, 2017) (notice) and 32735 (July 18,
2017) (order);
Corporate Capital Trust, Inc., et al.
(File No. 812-14408) Investment Company Act Rel. Nos. 32642 (May 22,
2017) (notice) and 32683 (June 19, 2017) (order).
Applicants note, in particular,
that the co-investment protocol to be followed by Applicants here is substantially similar to the protocol followed by
Terra
Income Fund 6, Inc.
and its affiliates, for which an order was granted on November 1, 2016.
See
Terra Income Fund 6, Inc., et al.
(File No. 812-14452) Investment Company Act Rel. Nos. 32303 (October
4, 2016) (notice) and 32349 (November 1, 2016) (order)
. In addition, the definition of Board-Established
Criteria is substantially similar to that used in the application submitted by Goldman Sachs BDC, Inc. and its affiliates, for
which an order was granted on January 4, 2017.
See
Goldman Sachs BDC, Inc., et al.
(File No. 812-14219) Investment
Company Act Rel. Nos. 32382 (December 7, 2016) (notice) and 32409 (January 4, 2017) (order)
.
The Commission also has
issued orders extending co-investment relief to proprietary accounts.
See
Barings Corporate Investors, et al.
(File No. 812-14689) Investment Company Act Rel. Nos. 32822 (September 20, 2017) (notice) and 32864 (October 19, 2017) (order);
Medley Capital Corporation, et al.
(File No. 812-14778) Investment Company Act Rel. Nos. 32809 (September 8, 2017)
(notice) and 32850 (October 4, 2017) (order);
Corporate Capital Trust, Inc., et al.
Inv. Co. Act Rel. Nos. 32642
(May 22, 2017) (notice) and 32683 (June 19, 2017) (order);
Corporate Capital Trust, Inc. et. al.
(File No. 812-13844)
Investment Company Act Rel.
No. 30494 (April 25, 2013) (notice) and 30009 (May 21, 2013) (order);
Harvest Capital
Credit Corporation, et al.
(File No. 812-14365) Investment Company Act Rel. No. 31860 (October 5, 2015) (notice)
and 31930 (December 10, 2015) (order); and
NF Investment Corp., et al.
(File No. 812-14472) Investment Company
Act Rel. No. 32340 (October 27, 2016) (notice) and 32362 (November 22, 2015) (order).
VI. Procedural
Matters
Pursuant to Rule 0-2(f) under the 1940 Act, each Applicant
states that its address is as indicated below:
NorthStar Real Estate Capital Income Master Fund
CNI RECF Advisors, LLC
CLNC Manager, LLC
Colony NorthStar, Inc.
Colony Capital Operating Company, LLC
Credit RE Operating Company, LLC
Colony Distressed Credit and Special Situations Fund IV, L.P.
CDCF IV Investment Advisor, LLC
c/o Colony NorthStar, Inc.
515 South Flower St., 44th Floor
Los Angeles, CA, 90071
Attention: Sandra M. Forman
(310) 282-8820
Applicants further state that all written or oral communications
concerning this Application should be directed to each of the following:
Steven B. Boehm, Esq.
Anne G. Oberndorf, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street, NW
Washington, DC 20001
Tel: (202) 383-0100
Fax: (202) 637-3593
Applicants desire that the Commission issue an Order pursuant
to Rule 0-5 under the 1940 Act without conducting a hearing.
The verifications required by Rule 0-2(d) of the 1940
Act are attached hereto as Exhibit B.
Pursuant to Rule 0-2 under the 1940 Act, each Applicant
declares that this Application for a Commission order is signed by an authorized person of each Applicant pursuant to the general
authority vested in him as such by the Certificate of Incorporation and By-laws or Certificate of Formation and Limited Liability
Company Agreement of each Applicant, or pursuant to the resolutions attached hereto as Exhibit C.
Applicants request that any questions regarding this Application
be directed to the persons listed on the facing page of this Application.
VII. Request
for Order of Exemption
For the foregoing reasons, Applicants request that the Commission
enter an Order under Sections 17(d) and 57(i) of the 1940 Act and Rule 17d-1 under the 1940 Act granting Applicants
the relief sought by the Application. Applicants submit that the requested exemption is consistent with the protection of
investors.
Dated: March 9, 2018
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NorthStar Real Estate Capital Income Master Fund
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/s/ Kevin P. Traenkle
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Name: Kevin P. Traenkle
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Title: Trustee, Chief Executive Officer, and President
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CNI RECF Advisors, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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CLNC Manager, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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Credit RE Operating Company, LLC
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Vice President
Colony NorthStar, Inc.
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Executive Vice President and Chief Operating
Officer
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Colony Capital Operating Company, LLC
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Vice President
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Colony Distressed Credit and Special Situations Fund IV, L.P.
By: Colony Capital Credit IV, LLC, its general partner
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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CDCF IV Investment Advisor, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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Exhibit A
Existing Affiliated Funds
Colony Capital Operating Company, LLC
Credit RE Operating Company, LLC
Colony NorthStar, Inc.
Colony Distressed Credit and Special Situations Fund IV, L.P.
Existing Affiliated Advisers
CLNC Manager, LLC
CDCF IV Investment Advisor, LLC
Exhibit B
Verification of Statement of Facts and Application
pursuant to Rule 17d-1 under the
Investment Company Act of 1940
for an Order of the Commission
The undersigned states that he has duly executed the attached
Application for an order under Sections 17(d) and 57(i) of the Investment Company Act of 1940 and Rule 17d-1 under
the Investment Company Act of 1940, dated March 9, 2018 for and on behalf of the Applicants, as the case may be, that he holds
the office with such entity as indicated below, and that all actions by stockholders, directors, members, and other bodies necessary
to authorize the undersigned to execute and file such Application have been taken. The undersigned further says that
he is familiar with the instrument and the contents thereof, and that the facts set forth therein are true to the best of his knowledge,
information, and belief.
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NorthStar Real Estate Capital Income Master Fund
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/s/ Kevin P. Traenkle
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Name: Kevin P. Traenkle
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Title: Trustee, Chief Executive Officer, and President
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CNI RECF Advisors, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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CLNC Manager, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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Credit RE Operating Company, LLC
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Vice President
Colony NorthStar, Inc.
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Executive Vice President and Chief Operating Officer
Colony Capital Operating Company, LLC
/s/ Mark M. Hedstrom
Name: Mark M. Hedstrom
Title: Vice President
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Colony Distressed Credit and Special Situations Fund IV, L.P.
By: Colony Capital Credit IV, LLC, its general partner
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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CDCF IV Investment Advisor, LLC
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/s/ Mark M. Hedstrom
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Name: Mark M. Hedstrom
Title: Vice President
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Exhibit C
Resolutions of the Board of
NorthStar Real Estate Capital Income
Master Fund
WHEREAS
, the Board believes it is in the best interests
of the Company to file an application with the SEC for an order pursuant to Sections 17(d) and 57(i) of the Investment Company
Act and Rule 17d-l promulgated under the Investment Company Act of 1940 (the “
Application
”), to authorize the
entering into of certain joint transactions and co-investments by the Company with certain entities which may be deemed to be “affiliates”
of the Company pursuant to the provisions of the 1940 Act, which such joint transactions and co-investments would otherwise be
prohibited by Sections 17(d) and 57(a)(4) of the 1940 Act, all as more fully set forth in the draft Application that has been presented
to the Board; and
WHEREAS
, the Board has reviewed the Application, a copy
of which is attached hereto as Exhibit A.
NOW, THEREFORE, BE IT RESOLVED
, that the President, Chief
Executive Officer, Chief Financial Officer, Secretary and Executive Vice President of the Company (each an “
Authorized
Officer
” and, collectively, the “
Authorized Officers
”) be, and they hereby are, authorized, empowered
and directed, in the name and on behalf of the Company, to cause to be prepared, executed, delivered and filed with the SEC the
Application, and to do such other acts or things and execute such other documents, including amendments to the Application, as
they deem necessary or desirable to cause the Application to conform to comments received from the Staff of the SEC and otherwise
to comply with the 1940 Act and the rules and regulations promulgated thereunder, in such form and accompanied by such exhibits
and other documents, as the Authorized Officers preparing the same shall approve, such approval to be conclusively evidenced by
the filing of the Application; and it is further
RESOLVED
, that the Authorized Officers be, and each of
them hereby is, authorized, empowered and directed, in the name and on behalf of the Company, to perform all of the agreements
and obligations of the Company in connection with the foregoing resolutions and to consummate the transactions contemplated thereby,
to take or cause to be taken any and all further actions, to execute and deliver, or cause to be executed and delivered, all other
documents, instruments, agreements, undertakings, and certificates of any kind and nature whatsoever, to incur and pay all fees
and expenses and to engage such persons as the Authorized Officers may determine to be necessary, advisable or appropriate to effectuate
or carry out the purposes and intent of the foregoing resolutions, and the execution by the Authorized Officers of any such documents,
instruments, agreements, undertakings and certificates, the payment of any fees and expenses or the engagement of such persons
or the taking by them of any action in connection with the foregoing matters shall conclusively establish the Authorized Officers’
authority therefore and the authorization, acceptance, adoption, ratification, approval and confirmation by the Company thereof.
(Adopted by Written Consent
dated November 10, 2015)
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