[Federal Register Volume 84, Number 224 (Wednesday, November 20, 2019)]
[Notices]
[Pages 64117-64124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25069]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33685; 812-14214]


T. Rowe Price Associates, Inc. and T. Rowe Price Equity Series, 
Inc.; Notice of Application

November 14, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for exemptive relief.

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SUMMARY OF APPLICATION: Applicants request an order under section 6(c) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act. If granted, the requested order 
would permit registered open-end investment companies that are 
exchange-traded funds (``ETFs'') and are actively managed to operate 
without being subject to a daily portfolio transparency condition.

APPLICANTS: T. Rowe Price Associates, Inc. (``T. Rowe'') and T. Rowe 
Price Equity Series, Inc. (the ``Corporation'').

FILING DATES: The application was filed on September 23, 2013, and 
amended on March 14, 2014, February 23, 2018, June 18, 2018, April 30, 
2019, June 13, 2019, July 26, 2019, and October 17, 2019.

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 December 9, 2019, 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

[[Page 64118]]

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, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090; Applicants: T. Rowe Price Associates, 
Inc. and T. Rowe Price Equity Series, Inc., 100 East Pratt Street, 
Baltimore, Maryland 21202.

FOR FURTHER INFORMATION CONTACT: Bradley Gude, Senior Counsel; Andrea 
Ottomanelli Magovern, Branch Chief, at (202) 551-6821 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's 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.

I. Introduction

    1. Applicants seek to introduce a novel type of actively-managed 
ETF that would not be required to disclose its portfolio holdings on a 
daily basis (each, a ``Fund''). Due to their characteristics, ETFs 
(including those proposed by Applicants) are only permitted to operate 
in reliance on Commission exemptive relief from certain provisions of 
the Act and rules thereunder.\1\ Accordingly, Applicants seek an order: 
Under section 6(c) of the Act for an exemption from sections 2(a)(32), 
5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 thereunder; under 
sections 6(c) and 17(b) of the Act granting an exemption from sections 
17(a)(1) and 17(a)(2) of the Act; and under section 12(d)(1)(J) for an 
exemption from sections 12(d)(1)(A) and (B) of the Act. The requested 
order would permit: (a) The Funds to issue shares (``Shares'') 
redeemable in large aggregations only (``creation units''); (b) 
secondary market transactions in Shares to occur at negotiated market 
prices rather than at net asset value (``NAV''); (c) certain Funds to 
pay redemption proceeds, under certain circumstances, more than seven 
days after the tender of Shares for redemption; (d) certain affiliated 
persons of a Fund to deposit securities into, and receive securities 
from, the Fund in connection with the purchase and redemption of 
creation units; and (e) certain registered management investment 
companies and unit investment trusts outside of the same group of 
investment companies as the Funds (``Investing Funds'') to acquire 
Shares of the Funds.
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    \1\ The Commission first granted exemptive relief to operate 
ETFs in the early 1990s when the first index-based ETFs were 
developed. See SPDR Trust Series I, Investment Company Act Release 
Nos. 18959 (Sept. 17, 1992) (notice) and 19055 (Oct. 26, 1992) 
(order). See generally Exchange Traded Funds, Investment Company Act 
Release No. 33646 (Sept. 25, 2019) (``ETF Rule Adopting Release''), 
at section I. The Commission has also granted ETFs exemptive relief 
from Sections 12(d)(1)(A) and (B) of the Act. See generally Fund of 
Funds Arrangements, Investment Company Act Release No. 33329 (Dec. 
19, 2018).
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    2. Section 6(c) allows the Commission to exempt any person, 
security, or transaction, or any class thereof, only ``if and to the 
extent that such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of [the Act].'' 
As discussed below, the Commission believes that the Funds meet the 
standard for exemptive relief under section 6(c) of the Act.\2\ 
Accordingly, the Commission intends to grant the requested relief.
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    \2\ See infra section IV for a discussion of all the relief 
requested by Applicants, including relief under sections 17(b) and 
12(d)(1)(J) of the Act.
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II. Background

A. Open-End Investment Companies and Net Asset Value

    3. The Act defines an investment company as an ``issuer'' of ``any 
security'' which ``is or holds itself out as being engaged primarily . 
. . in the business of investing . . . in securities.'' \3\ Shares in 
an investment company represent proportionate interests in its 
investment portfolio, and their value fluctuates in relation to the 
changes in the value of that portfolio.
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    \3\ 15 U.S.C. 80a-3(a); 80a-3(a)(1).
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    4. The most common form of investment company, the ``open-end'' 
investment company or mutual fund, is required by law to redeem its 
securities on demand at a price approximating the securities' 
proportionate share of the fund's NAV at the time of redemption.\4\ 
These funds also continuously issue and sell new shares, thereby 
replenishing their investment capital.
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    \4\ See section 22(d) and rule 22c-1; see also infra section 
IV.A (discussing section 22(d) and rule 22c-1).
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    5. Because open-end investment companies are required by law to 
redeem their shares based on investors' demands, shares of the funds 
have historically not traded on exchanges or in other secondary 
markets.\5\
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    \5\ This stems from section 22(d) of the Act, which in effect 
fixes the prices at which redeemable securities, including open-end 
shares, are sold. The result is a system that precludes dealers from 
making a secondary market in open-end shares.
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B. Exemptions Under the Act for Actively Managed ETFs

    6. ETFs, including those proposed by Applicants, are a type of 
open-end fund. But unlike traditional open-end funds, ETFs are made 
available to investors primarily through secondary market transactions 
on exchanges.
    7. In order for this to take place, ETFs require various exemptions 
from the provisions of the Act and the rules thereunder. Critically, in 
granting such exemptions to date, the Commission has required that a 
mechanism exist to ensure that ETF shares would trade at a price that 
is at or close to the NAV per share of the ETF.\6\
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    \6\ This has been a required representation in all ETF orders 
since the Commission issued the first order. See supra note 1.
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    8. Such a mechanism is essential for ETFs to operate because ETFs 
do not sell or redeem their individual shares at NAV per share as 
required by the Act. Instead, large broker-dealers that have 
contractual arrangements with an ETF (each, an ``Authorized 
Participant'') purchase and redeem ETF shares directly from the ETF, 
but only in large blocks called ``creation units.'' Traditionally, an 
Authorized Participant that purchases a creation unit of ETF shares 
first deposits with the ETF a ``basket'' of securities and other assets 
(e.g., cash) identified by the ETF that day, and then receives the 
creation unit of ETF shares in return for those assets. The basket is 
generally representative of the ETF's portfolio and is equal in value 
to the aggregate NAV of ETF shares in the creation unit. After 
purchasing a creation unit, the Authorized Participant may sell the 
component ETF shares in secondary market transactions. Investors then 
purchase individual shares in the secondary market. The redemption 
process is the reverse of the purchase process: The Authorized 
Participant acquires a creation unit of ETF shares and redeems it for a 
basket of securities and other assets.
    9. The combination of the creation and redemption process with the 
secondary market trading in ETF shares provides arbitrage opportunities 
that are designed to help keep the market price of ETF shares at or 
close to the NAV per share of the ETF.\7\ For example, if ETF shares 
begin trading on national securities exchanges at a ``discount'' (a 
price below the estimated intraday NAV per share of the ETF), an 
Authorized Participant can purchase ETF shares in

[[Page 64119]]

secondary market transactions and, after accumulating enough shares to 
comprise a creation unit, redeem them from the ETF in exchange for the 
more valuable securities and other assets in the ETF's redemption 
basket. In addition to purchasing ETF shares, Authorized Participants 
also are likely to hedge their intraday risk. Thus, for example, when 
ETF shares are trading at a discount to the estimated intraday NAV per 
share of the ETF, an Authorized Participant may also simultaneously 
short the securities in the ETF's redemption basket. At the end of the 
day, the Authorized Participant will return the creation unit of ETF 
shares to the ETF in exchange for the ETF's basket assets, and use such 
assets to cover its short positions. Those purchases reduce the supply 
of ETF shares in the market, and thus tend to drive up the market price 
of the shares to a level closer to the NAV per share of the ETF.\8\
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    \7\ See Investment Company Institute, 2019 Investment Company 
Fact Book (2019), at 88-89; ETF Rule Adopting Release, supra note 1, 
at note 31 and accompanying text.
    \8\ The Authorized Participant's purchase of the ETF shares in 
the secondary market, combined with the sale of the redemption 
basket securities, may also create upward pressure on the price of 
ETF shares and/or downward pressure on the price of redemption 
basket securities, driving the market price of ETF shares and the 
value of the ETF's portfolio holdings closer together.
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    10. Conversely, if the market price for ETF shares reflects a 
``premium'' (a price above the estimated intraday NAV per share of the 
ETF), an Authorized Participant can deposit a basket of securities and 
other assets in exchange for the more valuable creation unit of ETF 
shares, and then sell the individual shares in the market to realize 
its profit.\9\ An Authorized Participant also is likely to hedge its 
intraday risk when ETF shares are trading at a premium. Thus, for 
example, when the shares of an ETF are trading at a premium, an 
Authorized Participant may buy the securities in the ETF's purchase 
basket in the secondary market and sell short the ETF shares. At the 
end of the day, the Authorized Participant will deposit the basket 
assets in exchange for a creation unit of ETF shares, which it will 
then use to cover its short positions. The Authorized Participant will 
receive a profit from having paid less for the ETF shares than it 
received for the assets in the purchase basket. These transactions 
would increase the supply of ETF shares in the secondary market, and 
thus tend to drive down the price of ETF shares to a level closer to 
the NAV per share of the ETF.
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    \9\ The Authorized Participant's purchase of the basket assets, 
combined with the sale of ETF shares, may also create downward 
pressure on the price of ETF shares, upward pressure on the price of 
purchase basket securities, or both, bringing the market price of 
ETF shares and the value of the ETF's portfolio holdings closer 
together.
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    11. Market participants can also engage in arbitrage activity 
without using the creation or redemption processes described above. For 
example, if a market participant believes that an ETF is overvalued 
relative to its underlying or reference assets (i.e. trading at a 
premium), the market participant may sell ETF shares short and buy the 
underlying or reference assets, wait for the trading prices to move 
toward parity, and then close out the positions in both the ETF shares 
and the underlying or reference assets to realize a profit from the 
relative movement of their trading prices. Similarly, a market 
participant could buy ETF shares and sell the underlying or reference 
assets short in an attempt to profit when an ETF's shares are trading 
at a discount to the ETF's underlying or reference assets. As discussed 
above, this type of trading of an ETF's shares and the ETF's underlying 
or reference assets may bring the prices of the ETF's shares and its 
portfolio assets closer together through market pressure.
    12. In assessing whether to grant exemptive relief to actively 
managed ETFs in the past, the Commission has required a mechanism that 
would keep the market prices of ETF shares at or close to the NAV per 
share of the ETF.\10\ This close tie between market price and NAV per 
share of the ETF is the foundation for why the prices at which retail 
investors buy and sell ETF shares are similar to the prices at which 
Authorized Participants are able to buy and redeem shares directly from 
the ETF at NAV. In granting relief from section 22(d) of the Act and 
rule 22c-1 under the Act, the Commission relies on this close tie 
between what retail investors pay and what Authorized Participants pay 
to make the finding that the ETF's shareholders are being treated 
equitably when buying and selling shares.\11\
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    \10\ Until recently, the Commission only approved a mechanism 
dependent on daily portfolio transparency. See generally ETF Rule 
Adopting Release, supra note 1, at section II.C.4. Last May, the 
Commission issued an order granting relief to actively managed ETFs 
that, like the Funds, do not disclose their complete portfolio 
holdings on a daily basis. See Precidian ETFs Trust, et al., 
Investment Company Act Release No. 33440 (Apr. 8, 2019) (the 
``Precidian Notice'') and 33477 (May 20, 2019) (the ``Precidian 
Order''). The Applicants' proposed arbitrage mechanism differs from 
that in the Precidian Order.
    \11\ See supra note 4 and accompanying text.
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III. The Application

A. The Applicants

    13. The Corporation is a corporation organized under the laws of 
the State of Maryland and is registered with the Commission as an open-
end management investment company. T. Rowe is a Maryland corporation 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act''), would serve as the investment adviser to 
the initial Fund. The Corporation will enter into a distribution 
agreement with one or more distributors. Any distributor will be a 
registered broker-dealer under the Securities Exchange Act of 1934, as 
amended (``Exchange Act''), and will act as distributor and principal 
underwriter of the Funds.

B. Applicants' Proposal

    14. Applicants seek exemptive relief under section 6(c) to allow 
them to introduce actively-managed Funds that would not disclose their 
portfolio holdings on a daily basis.\12\ Applicants maintain that 
operating the Funds as fully-transparent actively-managed ETFs would 
make the Funds susceptible to ``front running'' and ``free riding'' by 
other investors and/or managers, which can harm, and result in 
substantial costs to, the Funds and their shareholders.\13\
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    \12\ Applicants request that the order apply to the series of 
the Corporation identified and described in the application as well 
as to additional series of the Corporation and any other open-end 
management investment company or series thereof that seek to rely on 
the relief requested in the application, each of which will operate 
as an actively-managed ETF. Any Fund will be advised by T. Rowe or 
an investment adviser controlling, controlled by, or under common 
control with T. Rowe (each such entity and any successor thereto is 
included in the term ``Adviser'') and comply with the terms and 
conditions of the application. The Adviser may retain one or more 
sub-advisers (each a ``Sub-Adviser'') for the Funds. Any Sub-Adviser 
will be registered under the Advisers Act. For purposes of the 
requested order, the term ``successor'' is limited to an entity that 
results from a reorganization into another jurisdiction or a change 
in the type of business organization.
    \13\ See application at 4-5.
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    15. Applicants believe that the Funds would allow investors to 
access active investment strategies offered by certain investment 
advisers that are currently only available via mutual funds, while also 
taking advantage of the traditional benefits of ETFs (e.g., lower fund 
costs, tax efficiencies and intraday liquidity).
    16. Applicants state that the relief in the application is similar 
to the relief granted in exemptive orders issued to existing actively 
managed ETFs, except for certain differences permitting the Funds to 
operate on a non-transparent

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basis.\14\ These material differences are discussed below.
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    \14\ Cf. Precidian Order supra note 10.
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    a. Proxy Portfolio. Each day a Fund would publish a basket of 
securities and cash that, while different from the Fund's portfolio, is 
designed to closely track its daily performance (the ``Proxy 
Portfolio'').\15\ In addition, every day the Fund would disclose the 
percentage weight overlap between the holdings of the prior business 
day's Proxy Portfolio compared to the holdings of the Fund that formed 
the basis for the Fund's calculation of NAV at the end of the prior 
business day (the ``Portfolio Overlap'').\16\ Such number would help 
market participants evaluate the risk that the performance of the Proxy 
Portfolio may deviate from the performance of the portfolio holdings of 
a Fund.
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    \15\ The Funds would, at a minimum, provide the quarterly 
portfolio disclosures required for mutual funds. See rule 30b1-9 
under the Act and Form N-PORT.
    \16\ A Fund's Proxy Portfolio will have a minimum weightings 
overlap of 80% with the Fund's portfolio at the beginning of each 
trading day.
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    Applicants state that the Proxy Portfolio would serve as a pricing 
and hedging tool for market participants to identify and take advantage 
of arbitrage opportunities. Because the Proxy Portfolio would be 
designed to closely track the daily performance of the Fund's holdings, 
the Proxy Portfolio would serve to estimate the value of those 
holdings. For the same reason, trading the Proxy Portfolio would allow 
market participants to get exposure to the performance of the Fund's 
holdings, so that a Fund's Proxy Portfolio could serve to hedge a 
position in the Fund's Shares. Further, the Proxy Portfolio would serve 
as the creation/redemption basket when Authorized Participants exchange 
creation units with the Fund.
    Also in order to facilitate arbitrage, each Fund's portfolio and 
Proxy Portfolio will only include certain securities that trade on an 
exchange contemporaneously with the Fund's Shares.\17\ Because the 
securities would be exchange traded, market participants would be able 
to accurately price and readily trade the securities in the Proxy 
Portfolio for purposes of assessing the intraday value of the Fund's 
portfolio holdings and to hedge their positions in the Fund's 
shares.\18\
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    \17\ Each Fund may invest only in ETFs, Exchange-traded notes, 
Exchange-traded common stocks, common stocks listed on a foreign 
exchange that trade on such exchange synchronously with the Shares, 
Exchange-traded preferred stocks, Exchange-traded American 
depositary receipts, Exchange-traded real estate investment trusts, 
Exchange-traded commodity pools, Exchange-traded metals trusts, 
Exchange-traded currency trusts, and exchange-traded futures that 
trade contemporaneously with the Shares, as well as cash and cash 
equivalents. For purposes of the application, exchange-traded 
futures are U.S. listed futures contracts where the futures 
contract's reference asset is an asset that the Fund could invest in 
directly, or in the case of an index future, is based on an index of 
a type of asset that the Fund could invest in directly. All futures 
contracts that a Fund may invest in will be traded on a U.S. futures 
exchange. For these purposes, an ``Exchange'' is a national 
securities exchange as defined in section 2(a)(26) of the Act. No 
Fund will invest in a ``penny stock'' as defined in Exchange Act 
Rule 3a51-1, borrow for investment purposes, hold short positions, 
or purchase any security that is illiquid at the time of purchase. 
The Proxy Portfolio will be subject to the same limitations.
    \18\ Applicants also expect to disseminate an intraday estimate 
of each Fund's NAV (``INAV'') every 15 seconds. Applicants maintain 
that their proposed INAV does not raise the concerns that the 
Commission has raised about the use of an indicative intraday NAV, 
in particular because the Funds would only invest in exchange-traded 
securities that can be more accurately priced for purposes of the 
IIV calculation, and because the INAV would only serve as a 
secondary pricing signal. See application at 9-10; see also 
Precidian ETFs Trust, et al., Investment Company Act Rel. No. 31300 
(Oct. 21, 2014) at paragraphs 22-31.
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    b. Arbitrage Transactions in the Funds. Applicants state that, 
given the correlation between a Fund's Proxy Portfolio and its 
portfolio holdings, the Proxy Portfolio would serve as a pricing signal 
to identify arbitrage opportunities when its value and the secondary 
market price of the Shares diverge. If Shares began trading at a 
discount to the Proxy Portfolio, an authorized participant could 
purchase the Shares in secondary market transactions and, after 
accumulating enough Shares to comprise a creation unit, redeem them 
from the Fund in exchange for a redemption basket reflecting the NAV 
per share of the Fund's portfolio holdings.\19\ The purchases of Shares 
would reduce the supply of Shares in the market, and thus tend to drive 
up the Shares' market price closer to the Fund's NAV.\20\ 
Alternatively, if Shares are trading at a premium, the transactions in 
the arbitrage process are reversed.
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    \19\ In addition to purchasing Shares, an authorized participant 
also would likely hedge its intraday risk by shorting the securities 
in the Proxy Portfolio (the same as in the redemption basket) in an 
amount corresponding to its long position in Shares. After the 
authorized participant returns a creation unit to the Fund in 
exchange for a redemption basket, the authorized participant can use 
the basket securities to cover its short positions. Cf. supra note 
8.
    \20\ The purchase of the Shares in the secondary market, 
combined with the sale of the redemption basket securities, may also 
drive the market price of Shares and the value of the Fund's 
portfolio holdings closer together. See supra note 8.
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    Applicants further state that, like with traditional ETFs, market 
participants also can engage in arbitrage without using the creation or 
redemption processes.\21\ For example, if a Fund is trading at a 
premium to the Proxy Portfolio, the market participant may sell Shares 
short and take a long position in the Proxy Portfolio securities, wait 
for the trading prices to move toward parity, and then close out the 
positions in both the Shares and the securities, to realize a profit 
from the relative movement of their trading prices. Similarly, a market 
participant could buy Shares and take a short position in the Proxy 
Portfolio securities in an attempt to profit when Shares are trading at 
a discount to the Proxy Portfolio.
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    \21\ See supra paragraph 11.
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    c. Protective conditions. Applicants have agreed to comply with 
certain conditions in addition to those included in prior ETF exemptive 
orders.\22\ First, the Funds will provide certain public disclosures to 
explain to investors how they differ from traditional ETFs and inform 
investors that the Funds' bid-ask spreads and premiums/discounts may be 
larger than those for traditional ETFs due to the lack of transparency, 
thus making trading in the Funds' Shares more expensive. The Funds will 
also disclose that market participants may attempt to reverse engineer 
a Fund's trading strategy, which, if successful, could increase 
opportunities for trading practices that may disadvantage the Fund and 
its shareholders.\23\ Each Fund will include a legend (the ``Legend'') 
in a prominent location on the outside cover page of its prospectus, as 
well as on its website and any marketing materials, that will highlight 
for investors the differences between the Funds and fully transparent 
actively managed ETFs and the above costs and risk.\24\ Unless 
otherwise requested by the staff of the Commission, the Legend will 
read as follows:
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    \22\ These are substantially the same as conditions included in 
the Precidian Order. See Precidian Notice supra note 10, at 
paragraph 17(d).
    \23\ See application at 18.
    \24\ See application at 17-18; 31.
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This ETF Is Different From Traditional ETFs

    Traditional ETFs tell the public what assets they hold each day. 
This ETF will not. This may create additional risks for your 
investment. For example:
     You may have to pay more money to trade the ETF's shares. 
This ETF will provide less information to traders, who tend to charge 
more for trades when they have less information.
     The price you pay to buy ETF shares on an exchange may not 
match the value of the ETF's portfolio. The same is true when you sell 
shares. These price differences may be greater for this ETF compared to 
other ETFs because it provides less information to traders.

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     These additional risks may be even greater in bad or 
uncertain market conditions.
     The ETF will publish on its website each day a ``Proxy 
Portfolio'' designed to help trading in shares of the ETF. While the 
Proxy Portfolio includes some of the ETF's holdings, it is not the 
ETF's actual portfolio.
    The differences between this ETF and other ETFs may also have 
advantages. By keeping certain information about the ETF secret, this 
ETF may face less risk that other traders can predict or copy its 
investment strategy. This may improve the ETF's performance. If other 
traders are able to copy or predict the ETF's investment strategy, 
however, this may hurt the ETF's performance.
    For additional information regarding the unique attributes and 
risks of the ETF, see section [ ] below.
    17. Second, Applicants will comply with the requirements of 
Regulation Fair Disclosure (``Reg. FD'') as if it applied to them, thus 
prohibiting the Fund's selective disclosure of any material nonpublic 
information.\25\ Because the Funds will not publicly disclose their 
portfolio holdings daily, the selective disclosure of material 
nonpublic information, including information other than portfolio 
information, would be more likely to provide an unfair advantage to the 
recipient than in other ETFs.
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    \25\ See 17 CFR 243. ETFs are not otherwise subject to Reg. FD. 
The federal securities laws and an investment adviser's fiduciary 
duties permit the disclosure of an ETF's nonpublic portfolio 
information to selected third parties only when the ETF has 
legitimate business purposes for doing so and the recipients are 
subject to a duty of confidentiality, including a duty not to trade 
on the nonpublic information. See Exchange Traded Funds, Investment 
Company Act Release No. 33140 (Jun. 28, 2018), at text accompanying 
notes 225-226 (proposing rule 6c-11 and discussing Reg. FD). Reg. 
FD's Rule 100(b)(2)(iii) exempts from Reg. FD certain communications 
made in connection with a securities offering registered under the 
Securities Act. Applicants would not rely on this exemption; as the 
Funds will be continuously offered, this exemption would likely make 
the condition requiring Applicants to comply with Reg. FD 
meaningless.
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    18. Third, the Funds and their Adviser will take remedial actions 
as necessary if the Funds do not function as anticipated. For the first 
three years after launch, a Fund will establish certain thresholds for 
its level of Tracking Error,\26\ premiums/discounts, and spreads, so 
that, upon the Fund's crossing a threshold, the Adviser will promptly 
call a meeting of the Fund's board of directors, and will present the 
board with recommendations for appropriate remedial measures.\27\ The 
board would then consider the continuing viability of the Fund, whether 
shareholders are being harmed, and what, if any, action would be 
appropriate.\28\ In addition, Applicants have agreed to provide to 
Commission staff on a periodic basis certain metrics and other such 
information as the staff may request in order to facilitate the staff's 
ongoing monitoring of the Funds.\29\
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    \26\ ``Tracking Error'' is the standard deviation over the past 
three months of the daily proxy spread (i.e., the difference, in 
percentage terms, between the Tracking Basket's per share NAV and 
that of the Fund at the end of the trading day).
    \27\ See application at 13. For the first three years after 
launch of a Fund, its board or committee would promptly meet (1) if 
the Tracking Error exceeds 1%; or (2) if, for 30 or more days in any 
quarter or 15 days in a row (a) the absolute difference between 
either the market closing price or Bid/Ask Price, on one hand, and 
NAV, on the other, exceeds no more than 2%, or (b) the bid/ask 
spread exceeds no more than 2%. A Fund may adopt additional or lower 
(i.e., less than the 1% and 2% upper limits) thresholds to the 
extent deemed appropriate and approved by the Fund's board or a 
designated committee thereof.
    \28\ For at least three years after launch of each Fund, the 
Board will also undertake these considerations on an annual basis, 
regardless of whether the Fund's preset thresholds have been 
crossed. Potential actions may include, but are not limited to, 
changing lead market makers, listing the Fund on a different 
exchange, changing the size of creation units, modifications to the 
Proxy Portfolio process, changing the Fund's investment objective or 
strategy, and liquidating the Fund. See application at 13.
    \29\ See application at 31, condition 7.
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IV. Requested Exemptive Relief

    19. Applicants request an order under section 6(c) of the Act for 
an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the 
Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the 
Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, 
and under section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and (B) of the Act.
    20. Applicants' request for relief is novel only under section 
22(d) and rule 22c-1 due to the proposed alternative arbitrage 
mechanism. In all other respects, Applicants are seeking relief that 
the Commission has previously granted to existing ETFs. As discussed 
above, the requested relief would be available to any open-end 
investment company that is an actively-managed ETF operating in 
compliance with the terms and conditions of the order and that is 
advised by an Adviser.\30\
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    \30\ Applicants request that the terms and conditions of the 
requested order apply to other registered open-end management 
investment companies or series thereof not advised by the Adviser 
(``Authorized Funds''). Applicants anticipate that the Adviser or an 
affiliate thereof may in the future enter into agreements concerning 
Applicant's intellectual property rights in the Funds with the 
registered investment advisers advising the Authorized Funds 
(together with the Authorized Funds, ``Future Applicants''). 
Applicants further expect that Future Applicants would apply for a 
separate exemptive order that incorporates by reference all the 
terms and conditions of the requested order and any amendments 
thereto. See application at 2. See also Precidian Notice supra note 
10, at note 41 and in re Eaton Vance Management, et al., File No. 
812-14139, Fourth Amendment, filed Sept. 25, 2014; Investment 
Company Act Rel. No. 31333 (Nov. 6, 2014) (notice), Investment 
Company Act Rel. No. 31361 (Dec. 2, 2014) (order). See also, e.g., 
in re American Beacon Nextshares Trust, et al., File No. 812-14417, 
First Amendment, filed Feb. 23, 2015; Investment Company Act Rel. 
No. 31498 (Mar. 6, 2015) (notice); Investment Company Act Rel. No. 
31542 (Apr. 1, 2015) (order).
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    21. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provisions of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general purposes of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors.

A. Novel Relief Under Section 22(d) and Rule 22c-1

    22. Section 22(d) of the Act, among other things, prohibits a 
dealer from selling a redeemable security that is currently being 
offered to the public by or through a principal underwriter other than 
at a current public offering price described in the fund's prospectus. 
Rule 22c-1 under the Act requires open-end funds, their principal 
underwriters, and dealers in fund shares (and certain others) to sell 
and redeem fund shares at a price based on the current NAV next 
computed after receipt of an order to buy or redeem.
    23. Together, section 22(d) and rule 22c-1 are designed to: (i) 
Prevent dilution caused by certain riskless trading practices of 
principal underwriters and dealers; (ii) prevent unjust discrimination 
or preferential treatment among investors purchasing and redeeming fund 
shares; and (iii)

[[Page 64122]]

preserve an orderly distribution of investment company shares.\31\
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    \31\ See ETF Rule Adopting Release, supra note 1, at text 
accompanying note 116.
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    24. Applicants believe that none of these concerns will be raised 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that secondary market trading in Shares does 
not involve the Funds as parties and cannot result in dilution of an 
investment in Shares, and to the extent different prices for Shares 
exist during a given trading day, or from day to day, such variances 
occur as a result of third-party market forces, such as supply and 
demand. Therefore, Applicants assert that secondary market transactions 
in Shares will not lead to discrimination or preferential treatment 
among purchasers. Finally, Applicants state that the proposed 
distribution system will be orderly because anyone will be able to sell 
or acquire Shares on an exchange and arbitrage activity should ensure 
that secondary market transactions occur at prices at or close to the 
Fund's NAV.
    25. In considering relief from section 22(d) and rule 22c-1 for 
ETFs, the Commission has focused on whether the ETFs' arbitrage 
mechanism addresses the concerns underlying those provisions. The 
Commission believes that the alternative arbitrage mechanism proposed 
by Applicants can work in an efficient manner to maintain a Fund's 
secondary market prices close to its NAV.\32\ The Commission 
recognizes, however, that the lack of full transparency may cause the 
Funds to trade with spreads and premiums/discounts that are larger than 
those of comparable, fully transparent ETFs.\33\ Nonetheless, as long 
as arbitrage continues to keep the Fund's secondary market price and 
NAV close, and does so efficiently so that spreads remain narrow, the 
Commission believes that investors would benefit from the opportunity 
to invest in active strategies through a vehicle that offers the 
traditional benefits of ETFs.\34\
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    \32\ See supra paragraph 16(b).
    \33\ The performance of a Fund's Proxy Portfolio and portfolio 
holdings may deviate to some extent, which would make market 
participants' estimates of the profitability of their arbitrage 
transactions less precise. To account for this possibility, market 
participants would likely require wider spreads to trade Shares.
    \34\ Investors will have the information necessary to compare 
the costs associated with investing in the Funds with the costs of 
investing in other ETFs and mutual funds. See Item 3 of Form N-1A; 
condition 2. Cf. ETF Rule Adopting Release, supra note 1, at text 
following note 119 (noting that for fully transparent ETFs, ``under 
certain circumstances, including during periods of market stress, 
the arbitrage mechanism may work less effectively for a period of 
time,'' but that ``on balance, . . . investors are more likely to 
weigh the potential benefits of ETFs (e.g., low cost and intraday 
trading) against any potential for market price deviations when 
deciding whether to utilize ETFs.'' Cf. Precidian Notice supra note 
10, at 19-20.
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B. Other Relief

    26. The additional exemptive relief Applicants seek is relief 
routinely granted to ETFs, and does not raise novel issues on account 
of the lack of daily portfolio transparency.
    27. Sections 5(a)(1) and 2(a)(32) of the Act. First, because the 
Shares will not be individually redeemable, Applicants request an 
exemption from section 5(a)(1) and section 2(a)(32) of the Act that 
would permit the Funds to register as open-end management investment 
companies and issue Shares that are redeemable in creation units only.
    28. Section 22(e) of the Act. Second, Applicants seek relief from 
section 22(e) to permit Funds to satisfy redemption requests more than 
seven days from the tender of Shares for redemption with respect to 
foreign securities where the settlement cycle, coupled with local 
holiday schedules, would not permit a Fund to satisfy redemption 
requests within the seven days required under section 22(e) of the Act. 
A Fund would deliver the foreign securities as soon as practicable, but 
in no event later than 15 days after the tender of Shares.
    29. Sections 17(a)(1) and (2) of the Act. Second, Applicants 
request an exemption from sections 17(a)(1) and 17(a)(2) of the Act to 
permit persons that are affiliated persons, or second-tier affiliates, 
of the Funds, solely by virtue of certain ownership interests, to 
effectuate purchases and redemptions in-kind. The deposit procedures 
for in-kind purchases of creation units and the redemption procedures 
for in-kind redemptions of creation units will be the same for all 
purchases and redemptions and basket securities will be valued in the 
same manner as those portfolio securities currently held by the Funds. 
Applicants also seek relief from the prohibitions on affiliated 
transactions in section 17(a) to permit a Fund to sell its Shares to 
and redeem its Shares from an Investing Fund, and to engage in the 
accompanying in-kind transactions with the Investing Fund.\35\ The 
purchase of creation units by an Investing Fund directly from a Fund 
will be accomplished in accordance with the policies of the Investing 
Fund and will be based on the NAVs of the Funds.
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    \35\ The requested relief would apply to direct sales of shares 
in creation units by a Fund to an Investing Fund and redemptions of 
those shares. Applicants, moreover, are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an affiliated person, or a 
second-tier affiliate, of an Investing Fund because an Adviser or an 
entity controlling, controlled by or under common control with an 
Adviser provides investment advisory services to that Investing 
Fund.
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    30. Section 12(d)(1) of the Act. Third, Applicants request an 
exemption to permit Investing Funds to acquire Fund Shares beyond the 
limits of section 12(d)(1)(A) of the Act and permit the Funds, and any 
principal underwriter for the Funds, and/or any broker or dealer 
registered under the Exchange Act, to sell Fund Shares to Investing 
Funds beyond the limits of section 12(d)(1)(B) of the Act. The 
application's terms and conditions are designed to, among other things, 
help prevent any potential (i) undue influence over a Fund through 
control or voting power, or in connection with certain services, 
transactions, and underwritings, (ii) excessive layering of fees, and 
(iii) overly complex fund structures, which are the concerns underlying 
the limits in sections 12(d)(1)(A) and (B) of the Act.

C. Consideration of Possible Concerns Relating to the Requested Relief

    31. As part of our review, we have considered possible concerns 
regarding the requested relief, including, among others, concerns 
related to the proposed arbitrage mechanism, the use of Proxy 
Portfolios, and reverse engineering, as discussed below. We believe, 
however, that the Applicants' proposed terms and conditions 
sufficiently address such concerns.
    32. Proposed Arbitrage Mechanism. One possible concern is that the 
proposed arbitrage mechanism may not facilitate effective arbitrage, 
which could result in significant deviations between the secondary 
market price and NAV per share of a Fund. We believe that the proposed 
arbitrage mechanism can work in an efficient manner to maintain 
secondary market prices of Shares close to their NAV while providing 
investors with the opportunity to invest in active strategies through a 
vehicle that offers the traditional benefits of ETFs.\36\ In addition, 
to the extent that the Funds do not function as anticipated, Applicants 
have undertaken to take remedial actions as appropriate.\37\
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    \36\ See supra paragraphs 15 and 16.
    \37\ See supra paragraph 18.
---------------------------------------------------------------------------

    33. Use of Proxy Portfolios. Applicants have also addressed 
possible implications of using a Proxy Portfolio as an arbitrage 
mechanism. First, Applicants note that a Fund's Proxy Portfolio would 
not misrepresent the Fund's holdings or cause investor

[[Page 64123]]

confusion.\38\ To that effect, the Funds would provide disclosures in 
their prospectus, marketing materials and website clearly indicating 
the Proxy Portfolio's purpose and that it is not the Fund's portfolio 
holdings.\39\ Second, Applicants state that they would design their 
Proxy Portfolio so that arbitrageurs' trading will not have a 
significant market impact on the securities in the Proxy Portfolio, in 
particular those that a Fund does not hold for investment purposes.\40\
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    \38\ See application at 11.
    \39\ See application at Id. In addition, every day the Funds 
would disseminate the Portfolio Overlap, which would inform market 
participants as to the degree to which the Proxy Portfolio and the 
Fund's portfolio actually differ. See application at Id.
    \40\ Specifically, the Funds expect to include in the Proxy 
Portfolio only assets that are liquid and have a high trading 
volume. See application at 11. Further, Applicants note that their 
proposed use of a Proxy Portfolio is not novel in this respect. 
Currently, arbitrageurs for fully-transparent ETFs may use 
securities that are not in the ETFs' portfolio to hedge their 
positions in the ETFs' shares. See application at Id.
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    34. Reverse Engineering. A third possible concern is that other 
market participants may be able to reverse engineer current activity in 
a Fund's holdings and use such information to the disadvantage of the 
Fund, Authorized Participants and shareholders. Applicants have 
represented that they will operate the Funds in a manner designed to 
minimize the risk of reverse engineering and we anticipate that the 
Funds will have the ability to minimize such risk.\41\ Indeed, we note 
that the Applicants have a significant incentive to minimize this risk, 
considering that the purpose of their proposed arbitrage mechanism is 
to facilitate the operation of ETFs that limit the ETFs' susceptibility 
to predatory trading practices, like ``front running'' and ``free 
riding.'' \42\
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    \41\ Our Division of Economic Research and Analysis (``DERA'') 
considered whether the current activity in a Fund's holdings could 
be reverse engineered and concluded that the answer depends on the 
specifics of each Fund, including the size of the Fund's universe of 
potential portfolio selections, the mechanics of how the Fund's 
Proxy Portfolio is constructed in relationship to the Fund's 
portfolio holdings, the type of information disclosed about the 
Fund's portfolio holdings, and the degree of overlap between the 
Fund's Proxy Portfolio and its portfolio holdings. The Funds would 
disclose this risk to investors. See application at 12 and 18.
    \42\ See application at 12.
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V. Applicants' Conditions \43\
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    \43\ Capitalized terms not otherwise defined herein shall have 
the same meaning as in the application.
---------------------------------------------------------------------------

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:

A. ETF Relief

    1. As long as a Fund operates in reliance on the requested order, 
the Shares of the Fund will be listed on an exchange.
    2. The website for the Funds, which is and will be publicly 
accessible at no charge, will contain, on a per Share basis, for each 
Fund the prior business day's NAV and market closing price or Bid/Ask 
Price of the Shares, a calculation of the premium or discount of the 
market closing price or Bid/Ask Price against such NAV, and any other 
information regarding premiums and discounts as may be required for 
other ETFs under rule 6c-11 under the Act, as amended. The website will 
also disclose any information regarding the bid-ask spread for each 
Fund as may be required for other ETFs under rule 6c-11 under the Act, 
as amended.
    3. Each Fund will include the Legend in a prominent location on the 
outside cover page of its prospectus, as well as on its website and any 
marketing materials.
    4. On each business day, before the commencement of trading of 
Shares, each Fund will publish on its website the Proxy Portfolio and 
the Portfolio Overlap for that day.
    5. No Adviser or Sub-Adviser, directly or indirectly, will cause 
any Authorized Participant (or any investor on whose behalf an 
Authorized Participant may transact with the Fund) to acquire any 
deposit instrument for a Fund through a transaction in which the Fund 
could not engage directly.
    6. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of actively managed ETFs that disclose 
a proxy portfolio on each business day, without fully disclosing the 
ETF's entire portfolio at the same time.
    7. Each Fund will provide the Commission staff with periodic 
reports (for which confidential treatment may be requested) containing 
such information as the Commission staff may request.
    8. Each Fund and each person acting on behalf of a Fund will comply 
with and agree to be subject to the requirements of Regulation Fair 
Disclosure as if it applied to them (except that the exemptions 
provided in Rule 100(b)(2)(iii) therein shall not apply).
    9. Each Fund will maintain and preserve, for a period of not less 
than five years, in an easily accessible place, (i) all written 
agreements (or copies thereof) between an Authorized Participant and 
the Fund or one of its service providers that allows the Authorized 
Participant to place orders for the purchase or redemption of creation 
units; (ii) a copy of the Proxy Portfolio published on the Fund's 
website for each business day; and (iii) a list of all creation or 
redemption baskets exchanged with an Authorized Participant where cash 
was included in the basket in lieu of some or all of the Proxy 
Portfolio securities (except for cash included because the securities 
are not eligible for trading by the Authorized Participant or the 
investor on whose behalf the Authorized Participant is acting), the 
amount of any such cash in lieu and the identity of the Authorized 
Participant conducting the transaction.

B. Section 12(d)(1) Relief

    10. The members of the Investing Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
section 2(a)(9) of the Act. The members of the Investing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, the 
Investing Fund's Advisory Group or the Investing Fund's Sub-Advisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of a Fund, it will vote its Shares 
of the Fund in the same proportion as the vote of all other holders of 
the Fund's Shares. This condition does not apply to the Investing 
Fund's Sub-Advisory Group with respect to a Fund for which the 
Investing Fund Sub-Adviser or a person controlling, controlled by or 
under common control with the Investing Fund Sub-Adviser acts as the 
investment adviser within the meaning of section 2(a)(20)(A) of the 
Act.
    11. No Investing Fund or Investing Fund Affiliate will cause any 
existing or potential investment by the Investing Fund in a Fund to 
influence the terms of any services or transactions between the 
Investing Fund or an Investing Fund Affiliate and the Fund or a Fund 
Affiliate.
    12. The board of directors or trustees of an Investing Management 
Company, including a majority of the independent directors or trustees, 
will adopt procedures reasonably designed to ensure that the Investing 
Fund Adviser and any Investing Fund Sub-Adviser are conducting the 
investment program of the Investing Management Company without taking 
into account any consideration received by the Investing

[[Page 64124]]

Management Company or an Investing Fund Affiliate from a Fund or a Fund 
Affiliate in connection with any services or transactions.
    13. Once an investment by an Investing Fund in the Shares of a Fund 
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board of a 
Fund, including a majority of the independent directors or trustees, 
will determine that any consideration paid by the Fund to the Investing 
Fund or an Investing Fund Affiliate in connection with any services or 
transactions: (i) Is fair and reasonable in relation to the nature and 
quality of the services and benefits received by the Fund; (ii) is 
within the range of consideration that the Fund would be required to 
pay to another unaffiliated entity in connection with the same services 
or transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    14. The Investing Fund Adviser, or Trustee or Sponsor, as 
applicable, will waive fees otherwise payable to it by the Investing 
Fund in an amount at least equal to any compensation (including fees 
received pursuant to any plan adopted by a Fund under rule 12b-1 under 
the Act) received from a Fund by the Investing Fund Adviser, or Trustee 
or Sponsor, or an affiliated person of the Investing Fund Adviser, or 
Trustee or Sponsor, other than any advisory fees paid to the Investing 
Fund Adviser, or Trustee or Sponsor, or its affiliated person by the 
Fund, in connection with the investment by the Investing Fund in the 
Fund. Any Investing Fund Sub-Adviser will waive fees otherwise payable 
to the Investing Fund Sub-Adviser, directly or indirectly, by the 
Investing Management Company in an amount at least equal to any 
compensation received from a Fund by the Investing Fund Sub-Adviser, or 
an affiliated person of the Investing Fund Sub-Adviser, other than any 
advisory fees paid to the Investing Fund Sub-Adviser or its affiliated 
person by the Fund, in connection with the investment by the Investing 
Management Company in the Fund made at the direction of the Investing 
Fund Sub-Adviser. In the event that the Investing Fund Sub-Adviser 
waives fees, the benefit of the waiver will be passed through to the 
Investing Management Company.
    15. No Investing Fund or Investing Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause a Fund to purchase a security in an Affiliated Underwriting.
    16. The Board of a Fund, including a majority of the independent 
directors or trustees, will adopt procedures reasonably designed to 
monitor any purchases of securities by the Fund in an Affiliated 
Underwriting, once an investment by an Investing Fund in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
including any purchases made directly from an Underwriting Affiliate. 
The Board will review these purchases periodically, but no less 
frequently than annually, to determine whether the purchases were 
influenced by the investment by the Investing Fund in the Fund. The 
Board will consider, among other things: (i) Whether the purchases were 
consistent with the investment objectives and policies of the Fund; 
(ii) how the performance of securities purchased in an Affiliated 
Underwriting compares to the performance of comparable securities 
purchased during a comparable period of time in underwritings other 
than Affiliated Underwritings or to a benchmark such as a comparable 
market index; and (iii) whether the amount of securities purchased by 
the Fund in Affiliated Underwritings and the amount purchased directly 
from an Underwriting Affiliate have changed significantly from prior 
years. The Board will take any appropriate actions based on its review, 
including, if appropriate, the institution of procedures designed to 
assure that purchases of securities in Affiliated Underwritings are in 
the best interest of shareholders of the Fund.
    17. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by an Investing Fund in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    18. Before investing in a Fund in excess of the limits in section 
12(d)(1)(A), an Investing Fund will execute a FOF Participation 
Agreement with the Fund stating that their respective boards of 
directors or trustees and their investment advisers, or Trustee and 
Sponsor, as applicable, understand the terms and conditions of the 
order, and agree to fulfill their responsibilities under the order. At 
the time of its investment in Shares of a Fund in excess of the limit 
in section 12(d)(1)(A)(i), an Investing Fund will notify the Fund of 
the investment. At such time, the Investing Fund will also transmit to 
the Fund a list of the names of each Investing Fund Affiliate and 
Underwriting Affiliate. The Investing Fund will notify the Fund of any 
changes to the list as soon as reasonably practicable after a change 
occurs. The Fund and the Investing Fund will maintain and preserve a 
copy of the order, the FOF Participation Agreement, and the list with 
any updated information for the duration of the investment and for a 
period of not less than six years thereafter, the first two years in an 
easily accessible place.
    19. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the independent directors or trustees, 
will find that the advisory fees charged under such contract are based 
on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Investing Management Company.
    20. Any sales charges and/or service fees charged with respect to 
shares of an Investing Fund will not exceed the limits applicable to a 
fund of funds as set forth in FINRA Rule 2341.
    21. No Fund will acquire securities of any investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other investment companies for short-term 
cash management purposes.

    By the Commission,
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25069 Filed 11-19-19; 8:45 am]
 BILLING CODE 8011-01-P