[Federal Register Volume 85, Number 81 (Monday, April 27, 2020)]
[Notices]
[Pages 23398-23404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08824]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33843; 812-14866]


Principal Funds, Inc. et al.

April 21, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under sections 6(c) and 17(b) 
of the Investment Company Act of 1940 (``Act'') for exemptions from 
section 17(a) of the Act, and under section 17(d) of the Act and rule 
17d-1 thereunder to permit certain joint transactions.
    Summary of Application: Applicants request an order that would 
permit certain registered management investment companies or series 
thereof that are advised by Principal Global Investors, LLC (``PGI'') 
\1\ to invest in a private investment vehicle established by PGI to 
invest directly in real estate.
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    \1\ PGI includes any successor entity to PGI or an entity 
controlling, controlled by, or under common control with PGI. For 
purposes of the application, 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.
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    Applicants: Principal Funds, Inc. (``PFI''), Principal Variable 
Contracts Funds, Inc. (``PVC''), PGI, Principal Direct Property Fund, 
LP (``PDPF''), Principal Direct Property Fund GP, LLC (``PDPGP'') and 
Principal Commercial Property Fund REIT, LLC (``PCP REIT'').
    Filing Dates: The application was filed on January 16, 2018 and 
amended on June 27, 2018, July 11, 2019, September 6, 2019, February 5, 
2020, and March 17, 2020.
    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 emailing the Commission's 
Secretary at [email protected] and serving applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on May 18, 2020, and should be accompanied 
by proof of service on applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by emailing the 
Commission's Secretary at [email protected].

ADDRESSES: The Commission: [email protected]. Applicants: PGI, 
Attn: Adam U. Shaikh, Assistant General Counsel, 
[email protected].

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-3038, or Trace W. Rakestraw, Branch Chief, at (202) 551-6825 
(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.

Applicants' Representations

    1. Each of PFI and PVC is organized as a Maryland corporation and 
is an open-end management investment company registered under the Act. 
PFI and PVC each consist of multiple Funds (as defined below).
    2. PDPF is organized as a limited partnership, and applicants state 
that it will rely on an exception from the definition of ``investment 
company'' such as section 3(c)(1) or section 3(c)(7) of the Act (or any 
other applicable exclusion). PDPGP, the general partner of PDPF, is 
organized as a limited liability company and will be a direct or 
indirect wholly owned subsidiary of Principal Financial Group, Inc. 
(``PFG''). As general partner of PDPF, PDPGP will

[[Page 23399]]

be responsible for the operational and administrative maintenance of 
PDPF, but it will not exercise any responsibilities for the management 
of PDPF's assets.
    3. PCP REIT is organized as a limited liability company, and 
applicants anticipate that it will be excluded from the definition of 
``investment company'' under section 3(a)(1) of the Act by reason of 
its real estate investments. Applicants state that PCP REIT will elect 
to be taxed as a real estate investment trust (``REIT'') under the 
Internal Revenue Code of 1986, as amended (the ``Code'') and will not 
incur separate, entity level tax under the current provisions of the 
Code.
    4. PGI, a Delaware limited liability company, is an investment 
adviser that is registered with the Commission under the Investment 
Advisers Act of 1940, as amended (the ``Advisers Act''). PGI is an 
indirect, wholly owned subsidiary of PFG. PGI will be the investment 
adviser to each of the Funds (as defined below), PDPF and PCP REIT.\2\
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    \2\ Only PGI will serve as investment adviser to PDPF or PCP 
REIT, and any other investment adviser to PDPF or PCP REIT will 
serve only as investment sub-adviser.
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    5. PGI believes that exposure to direct real estate investments is 
an important element of diversified retirement investing. Applicants 
argue that direct exposure to real estate offers advantages over 
investment in conventional real estate mutual funds that invest 
primarily in publicly traded REITs. In addition, applicants note that, 
while the Act does not preclude a registered management investment 
company from investing directly in real estate (provided that the fund 
is not subject to a fundamental policy precluding such investment and, 
in the case of an open-end fund, has sufficient liquidity to comply 
with applicable Commission and staff positions), direct investment in 
real estate would be impractical due to the typical size of such 
investments and for tax reasons. Accordingly, applicants propose to 
allow each Fund (solely to the extent consistent with its investment 
policies, objectives, strategies and restrictions) to obtain exposure 
to real estate through PDPF, which will be dedicated to investing 
indirectly in real estate through PCP REIT.
    6. For this reason, applicants request an order under sections 6(c) 
and 17(b) of the Act for exemptions from section 17(a) of the Act, and 
under section 17(d) of the Act and rule 17d-1 thereunder, to permit: 
(i) One or more Funds (as defined below) to purchase, hold and redeem 
units of limited partnership interests of PDPF (``Units''); (ii) PDPF 
to sell Units to one or more Funds and redeem such Units following 
demand of such Funds; (iii) to the extent it could be deemed an element 
of a ``joint transaction,'' as defined below, PDPF to purchase, hold 
and redeem interests in PCP REIT; and (iv) the Funds and Other Accounts 
(as defined below) to engage in certain purchase or sale cross 
transactions in securities, all as described and subject to the 
conditions set forth in the application.\3\
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    \3\ Applicants acknowledge that they are not seeking, and the 
Commission is not granting, relief from any disclosure requirements 
that are applicable to applicants.
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    7. Applicants request that the relief extend to each existing or 
future registered management investment company or series thereof that 
is advised by PGI or any successor entity or any entity controlling, 
controlled by, or under common control with PGI (each, a ``Fund'').\4\ 
Applicants further request that the relief extend to any future limited 
partnership (``Future LP''), general partner thereof (``Future GP''), 
and underlying real estate investment vehicle (``Future Real Estate 
Fund'') in which such Future LP invests that has elected to be taxed as 
a REIT pursuant to the Code that operate in a manner that is identical 
to PDPF, PDPGP and PCP REIT except for the types of real estate 
investments held by a Future Real Estate Fund.\5\
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    \4\ Each entity that currently intends to rely on the requested 
relief has been named as an applicant. For purposes of the requested 
order, ``successor'' is limited to an entity that results from 
reorganization into another jurisdiction or a change in the type of 
business organization.
    \5\ Any entity that relies in the future on the requested relief 
will comply with the terms and conditions of the application as they 
apply to the corresponding current party.
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    8. Applicants state that PCP REIT will invest in direct real estate 
holdings and, to maintain some liquidity, may invest a portion of its 
assets in liquid investments. To finance its investments in real estate 
holdings, PCP REIT plans to borrow from banks, as well as from 
insurance companies, pension/retirement systems, state and federal 
government related entities (e.g., Freddie Mac), investment banks, and 
other commercial lenders (e.g., GE Capital Corporation (or its 
successor), Ally Financial) (lenders other than banks are referred to 
as ``Non-bank Commercial Lenders''). Applicants represent that PCP REIT 
plans to incur loans from Non-bank Commercial Lenders because such 
lenders have been longstanding capital resources to the commercial real 
estate market and often are able to offer more favorable lending terms 
to borrowers.\6\ PCP REIT will not incur any loans that are callable at 
the option of the lender.
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    \6\ Applicants submit that, in light of the presence of a bona 
fide business purpose for PDPF and PCP REIT and the difficulty a 
Fund would have in directly investing in real estate, the structure 
proposed by the application can be distinguished from a structure 
intended primarily to evade leverage restrictions applicable to 
open-end funds.
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    9. Applicants state that PDPF will invest a substantial portion of 
its assets in PCP REIT and, if deemed appropriate by PGI, for short-
term cash management purposes and/or for purposes of maintaining some 
liquidity, invest a portion of its assets in liquid securities. PDPF 
will incur expenses relating to the management of any liquid 
investments held by PDPF, as well as for the general operation and 
administration of the entity.\7\
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    \7\ Applicants anticipate that PDPF will be able to efficiently 
deploy assets invested by the Funds in light of the ability of PDPF 
to invest in liquid investments in addition to interests in PCP 
REIT, so that any Fund assets invested in PDPF that are not 
currently invested in real estate will be effectively deployed 
pending completion of real estate investments. The performance of 
PDPF, the costs of investing in PDPF and the related expenses, will 
be considered by the Funds' Board during the course of its oversight 
of the Funds' investments in PDPF, including its annual 
determinations as required by condition 1 below.
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    10. PDPF will conduct a non-public offering of its Units, and will 
not be publicly traded. Applicants state that PDPF is currently 
expected to be made available solely to the Funds, although it is 
possible that it will be made available in the future to: (i) 
Unaffiliated registered investment companies, pension plans, other 
institutional investors or high-net-worth individuals (``Outside 
Investors''); as well as to (ii) pension plans, insurance separate 
accounts, collective investment trusts, or other institutional 
investors or high-net-worth individuals for which PGI or an affiliate 
of PGI serves as investment adviser (``Other Accounts'').\8\
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    \8\ No applicant, or an affiliated person thereof, will have a 
proprietary interest in any Outside Investor or Other Account, 
except that an applicant or an affiliated person thereof may be a 
shareholder of an Outside Investor that is a registered investment 
company so long as the applicant or affiliated person of such 
applicant is not an affiliated person of such registered investment 
company.
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    11. Applicants state that the Funds (as well as any Other Accounts 
or Outside Investors) that invest in PDPF will be able to purchase and 
redeem Units on a daily basis at the next determined net asset value 
(``NAV'') per Unit. In the event that PDPF is unable to accommodate 
investment demand from the Funds, Other Accounts and/or Outside 
Investors, opportunities for investment will be allocated in accordance 
with allocation policies and procedures drafted and maintained by

[[Page 23400]]

PGI.\9\ Applicants represent that, while such allocation policies and 
procedures may be subject to revision over time, the allocation 
policies and procedures generally will allocate opportunities on a pro 
rata basis based on orders received, with normal exceptions for 
rounding and de minimis amounts, although applicants state that other 
allocation methodologies may be employed as appropriate. Any such 
methodology will be applied in a manner that is objective and 
verifiable and will be consistent with PGI's fiduciary obligation to 
treat client accounts in a manner that is fair and provides for 
equality of opportunity over time. However, PDPF will reserve the right 
to give the Funds preferential access to opportunities to invest in 
PDPF as compared to Outside Investors and (to the extent permitted 
under the allocation policies and procedures) Other Accounts, and the 
Funds will always have opportunities to invest in PDPF that are at 
least as favorable as the opportunities to invest in PDPF made 
available to Other Accounts or Outside Investors. The policies and 
procedures will require the documentation of the basis of allocation, 
as well as the basis for any exception to the general principles set 
forth in the policies and procedures, which exception will be subject 
to review by legal or compliance personnel.
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    \9\ Applicants are not seeking any comfort and acknowledge that 
the Commission is providing no opinion on whether these allocation 
policies and procedures meet the standards applicable either under 
the Act or the Advisers Act.
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    12. Applicants anticipate that PDPF will be managed to maintain 
sufficient liquidity to satisfy the daily liquidity needs of its 
limited partners under ordinary market conditions. However, any 
investment in PDPF will be subject to terms permitting PDPF, under 
circumstances described in the application, to (a) cease offering new 
Units; (b) limit or postpone redemptions in the event that PCP REIT has 
insufficient liquidity to satisfy redemption requests; or (c) utilize a 
``gate'' pursuant to which the amount of redemptions from PDPF by any 
limited partner on any business day may be limited to a percentage of 
the limited partner's entire investment in PDPF.\10\ Accordingly, each 
Fund that is an open-end investment company will treat its entire 
investments in PDPF and any Future LPs as investments that are not 
liquid for purposes of any applicable rules or guidance of the 
Commission or its staff regarding the management of liquidity. 
Similarly, each Fund, including any open-end or closed-end investment 
company will, at all times, limit its holdings in PDPF (together with 
any Future LPs) to no more than 15% of its net assets.\11\
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    \10\ PDPF expects that the ability to limit or postpone 
redemption will help to minimize transaction costs, investment 
losses and any dilutive effects on non-redeeming limited partners. 
PDPF's ability to limit or postpone redemption and the circumstances 
under which PDPF may waive an established redemption gate, in whole 
or in part, are discussed in greater detail in the application.
    \11\ Applicants submit that, although closed-end Funds do not 
present the same concerns with respect to liquidity as open-end 
Funds, it is nonetheless appropriate to limit the investments of 
these Funds in PDPF (and Future LPs) to address concerns that may 
arise regarding complex structures and the use of leverage, among 
other things.
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    13. Redemption requests will be considered on a first in basis 
based upon the business day of receipt, unless a limited partner (other 
than a registered investment company or Other Account) has agreed to a 
lower priority of redemption. Except as a limited partner (other than a 
registered investment company or Other Account) has otherwise agreed, 
redemption requests of all investors will be treated equally, and PDPF 
will allocate redemption proceeds on a pro rata basis in the event that 
there are insufficient liquid assets to satisfy fully all redemption 
requests. The rules on redemption and PDPF's policy regarding the 
allocation of redemption proceeds, and any changes to either of these, 
will be disclosed to all prospective investors in PDPF. PDPF will have 
a written policy regarding the allocation of redemption proceeds that 
will be applied in a manner that is objective and verifiable and will 
be consistent with PGI's fiduciary obligation to treat client accounts 
in a manner that is fair.
    14. Each Fund and Other Account limited partner of PDPF will have 
identical rights, duties and obligations under the limited partnership 
agreement as each other Fund and Other Account limited partner. If 
Outside Investors are permitted to invest in PDPF, PDPF may distinguish 
between Fund and Other Account limited partners, on the one hand, and 
Outside Investors, on the other, by entitling the Funds and Other 
Accounts to purchase, hold and redeem Units with more favorable rights, 
duties and obligations pursuant to the terms of the limited partnership 
agreement with respect to the following issues: (a) Utilization of 
redemption gates; (b) limitation of rights of redemption; and/or (c) 
the level of expenses charged in connection with an investment in 
PDPF.\12\
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    \12\ In making a determination as to whether the rights, duties, 
and obligations of the Funds and Other Accounts under the terms of 
the limited partnership agreement are more favorable than those of 
Outside Investors, applicants will consider each right, duty, and 
obligation individually and in the aggregate.
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    15. PDPF will be able to purchase and redeem limited liability 
company interests in PCP REIT on a daily basis at the next determined 
NAV. Applicants represent that PDPF will be the sole investor in PCP 
REIT, other than the ninety-nine or more additional investors necessary 
or appropriate to allow PCP REIT to qualify as a REIT under section 
856(a)(5) of the Code (the ``Tax Holders''). The Tax Holders' interests 
in PCP REIT will be preferred to PDPF's interests in PCP REIT. However, 
(a) the Tax Holders will have only limited voting rights, (b) the Tax 
Holders' aggregate interests in PCP REIT will be de minimis in relation 
to that of PDPF,\13\ and (c) PCP REIT will not issue additional 
interests to the Tax Holders after the initial organization of PCP REIT 
(clause (a), (b), and (c), collectively, the ``Tax Holder 
Limitations'').\14\ Accordingly, it is anticipated that PDPF will own 
substantially all of the total outstanding securities of PCP REIT at 
all times during the operation of PCP REIT.
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    \13\ Applicants anticipate that the Tax Holders will invest, in 
aggregate, approximately $125,000 and will represent much less than 
1% of the expected aggregate net assets of PCP REIT.
    \14\ The Tax Holders' interests in PCP REIT and the Tax Holder 
Limitations are discussed in greater detail in the application.
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    16. Applicants represent that PCP REIT will not participate in any 
joint enterprise or other joint arrangement, within the meaning of rule 
17d-1 under the Act, with the Future Real Estate Funds or other PGI 
related accounts, and applicants are not asking for an order pursuant 
to rule 17d-1 with respect to any such transaction. Further, applicants 
state that PGI has adopted policies and procedures applicable to any 
purchasing conflicts between PCP REIT and any other PGI related 
accounts, which are designed to allocate opportunities consistent with 
PGI's fiduciary obligations to its clients and will be applied in a 
manner that is objective and verifiable.

Applicants' Legal Analysis

Section 17(a)--purchase and sale of Units

    1. Section 17(a) of the Act generally prohibits an ``affiliated 
person'' as defined by section 2(a)(3) of the Act, or an affiliated 
person of an affiliated person, of a registered investment company, 
acting as principal, from purchasing securities or other property from 
the registered investment company or selling securities or other 
property to the registered investment company.

[[Page 23401]]

Section 2(a)(3) of the Act defines an ``affiliated person'' of another 
person to include, among others, (a) any person directly or indirectly 
owning, controlling, or holding with power to vote, 5% or more of the 
outstanding voting securities of the other person; (b) any person 5% or 
more of whose outstanding voting securities are directly or indirectly 
owned, controlled, or held with the power to vote by the other person; 
and (c) any person directly or indirectly controlling, controlled by, 
or under common control with the other person. Section 2(a)(9) defines 
``control'' to mean ``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 such company.''
    2. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
the terms of the proposed transaction, including the consideration to 
be paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, and the proposed 
transaction is consistent with the policies of each registered 
investment company involved and with the general purposes of the Act. 
Section 6(c) of the Act permits the Commission to exempt any person or 
transactions from any provisions of the Act if 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.
    3. Applicants state that the sale by PDPF of its Units to a Fund or 
the repurchase by PDPF of its Units from a Fund may be deemed to be 
prohibited by section 17(a) of the Act, as PDPF and each Fund may be 
deemed to be affiliated persons, or affiliated persons of affiliated 
persons, of each other under multiple theories. For example, the Fund 
may be deemed to be an affiliated person of PDPF in the event that it 
owns 5% or more of the Units in PDPF. In addition, PDPF could be deemed 
to be an affiliated person of an affiliated person of the Fund, if it 
is deemed to be under the control of or under common control with PGI.
    4. Applicants believe that the proposed transactions among the 
Funds and PDPF satisfy the requirements for relief from section 17(a) 
of the Act under both sections 17(b) and 6(c) of the Act.
    5. Applicants submit that the proposed transactions are reasonable 
and fair and would not involve overreaching on the part of any person 
concerned. Before investment by a Fund in PDPF, the Fund's Board, 
including a majority of the Independent Directors, would have made the 
determinations required under condition 1 below.\15\ The Board, 
including the Independent Directors, will review these determinations 
on at least an annual basis. Applicants represent that, currently, the 
Board is made up of twelve directors, nine of whom are Independent 
Directors. Further, applicants notes that PGI's ability to allocate a 
Fund's assets to investments in PDPF would be limited to address any 
potential for overreaching because (a) the allocation would be 
determined either by the Fund's glide path or would be within a range 
of permissible allocations approved in advance by the Board and (b) the 
Fund's investment would be limited under condition 3 below.
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    \15\ The ``Independent Directors'' are the directors who are not 
interested persons of the relevant Fund within the meaning of 
section 2(a)(19) of the Act.
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    6. In addition, applicants state that each Fund would purchase and 
sell Units on the same terms as each other Fund and any Other Account, 
and on terms that are at least as favorable as the terms on which 
Outside Investors would purchase and sell Units. PDPF also would sell 
its shares to or purchase its shares from a Fund at the next-calculated 
NAV per Unit. This value, which would be provided to the Funds on a 
daily basis, would be determined based on the valuations of the assets 
of PCP REIT, which would be determined by using valuation methodologies 
that are consistent with section 2(a)(41) of the Act except that the 
PDPF Committee will, in reliance on independent appraisals obtained at 
least quarterly, make determinations that would otherwise be made by a 
board of directors.\16\
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    \16\ Applicants note that, in accordance with condition 9, PDPF 
will consolidate PCP REIT for reporting purposes and the 
consolidated financial statements of PDPF will be prepared in 
accordance with Regulation S-X, will be audited by an independent 
auditor, and, if practicable, will be prepared as of the same date 
and for the same periods as the investing Funds. Applicants state 
that the Public Company Accounting Oversight Board auditing 
standards applicable to the audit of PDPF would be the same 
standards as those applicable to a registered investment company. 
Further, applicants state that the U.S. Generally Accepted 
Accounting Principles and Regulation S-X would apply to the 
financial statements of both PDPF and a registered investment 
company. Thus, applicants assert that critical accounting policies 
governing security valuation, accounting for investment 
transactions, recognition of investment income and of expenses, and 
accrual of expenses, which are often the critical policies 
applicable to investment companies, would apply in substantially the 
same manner for the financial statements of PDPF. Valuation of the 
assets of PDPF and PCP REIT for which market quotations are not 
readily available will be overseen by a committee consisting of the 
employees and agents of PDPF, PGI and/or its subsidiaries (the 
``PDPF Committee'').
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    7. Applicants further submit that the proposed transactions would 
be consistent with the policies of each Fund. Applicants represent that 
the investment by a Fund in PDPF would be effected in accordance with 
the investment policies, objective, strategies and restrictions 
contained in the registration statement of the Fund.
    8. Finally, applicants submit that, for these reasons, as well as 
the benefits shareholders in the Funds would experience by reason of 
the Funds' investments in PDPF, the proposed transactions are 
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(d)

    9. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit joint transactions involving registered investment companies 
and their affiliates unless the Commission has approved the 
transaction. In considering whether to approve a joint transaction 
under rule 17d-1, the Commission considers whether the proposed 
transaction is consistent with the provisions, policies, and purposes 
of the Act, and the extent to which the participation of the investment 
companies is on a basis different from or less advantageous than that 
of the other participants.
    10. Applicants state that the sale of Units to a Fund, the Fund's 
holding of Units, the redemption of Units held by the Fund, an Other 
Account's purchase, holding and redemption of Units alongside a Fund, 
PDPF's purchase, holding and redemptions of interest in the PCP REIT, 
and PGI's management of the Funds, Other Accounts, PDPF and PCP REIT at 
the same time that the Funds are investing in PDPF (directly) and PCP 
REIT (indirectly) could be deemed to constitute a joint enterprise or 
joint arrangement among the Funds, Other Accounts, PDPF, PDPGP, PCP 
REIT, and PGI because the Funds may be presumed to be affiliated 
persons, or affiliated persons of affiliated persons, of PGI, Other 
Accounts, PDPF or PCP REIT.
    11. For the reasons discussed above, applicants submit that the 
proposed transactions are consistent with the provisions, policies and 
purposes of the Act. Applicants further believe that, based on the 
terms of the proposed transactions and the conditions set forth

[[Page 23402]]

below, the participation by the Funds in the proposed transactions 
would be on a basis no different from that of other Funds or Other 
Accounts or less advantageous than that of other Funds, Outside 
Investors or Other Accounts. A Fund will hold Units of PDPF only if it 
will at all times have identical rights, duties and obligations under 
the limited partnership agreement as each other Fund limited partner 
and Other Account limited partner. If Outside Investors or Other 
Accounts are permitted to invest in PDPF, the Funds will be entitled to 
purchase, hold and redeem Units on terms that are at least as 
favorable, including (without limitation) the expenses associated with 
an investment in PDPF, as the terms on which any Outside Investor 
purchases, holds or redeem Units and on terms that are the same as the 
terms on which any Other Account purchases, holds or redeems Units.\17\ 
PDPF and the Tax Holders will be the only investors in PCP REIT, and 
the Tax Holders' interests will be subject to the Tax Holder 
Limitations. All transactions in Units would be priced in the same 
manner and would be redeemable under the terms discussed herein and 
disclosed to investors. In addition, any investment by a Fund in PDPF 
would be subject to oversight by the Fund's Board.
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    \17\ In making a determination as to whether the rights, duties, 
and obligations of the Funds and Other Accounts under the terms of 
the limited partnership agreement are at least as favorable as those 
of Outside Investors, applicants will consider each right, duty and 
obligation individually and in the aggregate.
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Section 17(a)--Cross Transactions

    12. Applicants also propose that the Funds and Other Accounts be 
permitted to engage in certain purchase and sale cross transactions in 
securities (``Cross Transactions''). Applicants expect that these 
transactions will be between a Fund seeking to implement a portfolio 
strategy and an Other Account seeking to raise or invest cash, or vice 
versa. Applicants represent that the Funds currently are able rely on 
rule 17a-7 to engage in such Cross Transactions. However, if a Fund and 
an Other Account were deemed to be affiliated persons of an affiliated 
person of each other by virtue of their ownership or control 
affiliations with PDPF, the Funds may not be entitled to rely on rule 
17a-7 because they would no longer be affiliated solely for the reasons 
permitted by the rule. Applicants represent that Funds and Other 
Accounts will not engage in Cross Transactions involving Units, and to 
the extent any Future LPs are created, PDPF and the Future LPs (and 
their respective subsidiaries) will not engage in cross-trades with 
each other.
    13. Applicants represent that, when engaging in Cross Transactions, 
the Funds and Other Accounts will comply with the requirements set 
forth in rule 17a-(7)(a) through (g), as interpreted by the Commission 
staff. Applicants assert that the potential affiliations created by the 
PDPF structure do not affect the other protections provided by the 
rule, including the integrity of the pricing mechanism employed and 
oversight by each Fund's Board. Applicants also note that no brokerage 
commission, fee or other remuneration will be paid in connection with 
the transactions. Applicants, therefore, believe that Cross 
Transactions will be reasonable and fair, will not involve 
overreaching, and will be consistent with the purposes of the Act and 
the investment policy of each Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. PGI will not implement an initial decision to invest the assets 
of a Fund in PDPF unless prior to the Fund's initial investment in 
PDPF, the Board, including a majority of the Independent Directors, has 
determined that: (i) Investment in PDPF (and indirectly in PCP REIT) is 
an appropriate means to implement an investment decision made by PGI 
for the Fund to seek real estate exposure; (ii) investment in PDPF (and 
indirectly in PCP REIT) is in the best interests of the Fund and its 
shareholders, taking into account, among other things, the management 
and administration fees of PDPF and PCP REIT; (iii) the management and 
administration fees to be charged by PDPF and PCP REIT are for services 
in addition to, rather than duplicative of, services rendered to the 
Fund directly; and (iv) the management and administration fees to be 
charged by PDPF and PCP REIT are fair and reasonable in light of the 
usual and customary fees charged by others for services of the same 
nature and quality. The Board, including the Independent Directors, 
will review these determinations on at least an annual basis. The basis 
for each of the Board's determinations required by this condition will 
be recorded in its minutes. If the Board does not make the 
determinations in clauses (iii) and (iv) in a review subsequent to the 
initial investment, PGI will reimburse the Fund the amount of any 
management and administrative fee borne by the Fund as a direct 
investor in PDPF and an indirect investor in PCP REIT charged since the 
most recent date on which the Board did make these determinations.
    2. Prior to any initial or additional investments in Units, PGI 
will determine that each Fund's investment in PDPF will be consistent 
with the Fund's investment policies, objective, strategies and 
restrictions, and purchases of Units will be determined either by the 
Fund's glide path or be limited such that total holdings remain within 
a range of permissible allocations approved in advance by the Board. 
For purposes of determining consistency with a Fund's investment 
policies, objective, strategies and restrictions, a Fund will look 
through its investment in PDPF (and indirectly in PCP REIT) and apply 
its investment policies, objective, strategies and restrictions (except 
for any restriction relevant to the direct ownership of real estate 
assets) in such a manner that the Fund will not do indirectly through 
PDPF and PCP REIT that which it cannot do directly. For purposes of 
applying its investment policies, objective, strategies and 
restrictions, a Fund will be considered as owning its pro rata portion 
of the portfolio holdings of PDPF and PCP REIT.
    3. Each Fund that is an open-end investment company will treat its 
entire investments in PDPF and any Future LPs as investments that are 
not liquid for purposes of any applicable rules or guidance of the 
Commission or its staff regarding the management of liquidity. In 
addition, each Fund, including any open- or closed-end investment 
company, will, at all times, limit its holdings in PDPF (together with 
any Future LPs) to no more than 15% of its net assets.\18\
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    \18\ Although closed-end Funds do not present the same concerns 
with respect to liquidity as open-end Funds, Applicants believe that 
it is nonetheless appropriate to limit the investments of these 
Funds in PDPF (and Future LPs) to address concerns that may arise 
regarding complex structures and the use of leverage, among other 
things.
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    4. At all times that any Fund or other registered investment 
company holds an interest in PDPF, each of PDPF and PCP REIT: (a) Will 
determine its respective net asset value per Unit or membership 
interest, as applicable, each Business Day; and (b) will maintain and 
comply with policies and procedures for valuing its assets that are 
consistent with section 2(a)(41) of the Act except that PDPF Committee 
will, in reliance on independent appraisals obtained at least 
quarterly, make determinations that would otherwise be made by a board 
of directors (as if PDPF and PCP REIT were subject to section 2(a)(41)) 
and with

[[Page 23403]]

applicable U.S. generally accepted accounting principles (``U.S. 
GAAP'') (or successor accounting standards). For these purposes, 
``Business Day'' means each day on which the Funds or other registered 
investment company determine net asset value per share, as disclosed in 
the Funds' or other registered investment company's registration 
statement.
    5. A Fund will hold Units of PDPF only if it will at all times have 
identical rights, duties and obligations under the limited partnership 
agreement as each other Fund limited partner and Other Account limited 
partner. If Other Accounts or Outside Investors are permitted to invest 
in PDPF, the Funds will be entitled to purchase, hold and redeem Units 
on terms that are at least as favorable, including (without limitation) 
the expenses associated with an investment in PDPF, as the terms on 
which any Outside Investor purchases, holds or redeems Units and on 
terms that are the same as the terms on which any Other Account 
purchases, holds or redeems Units.\19\ Other than the Tax Holders' 
interests, which will be subject to the Tax Holder Limitations, PDPF 
will own at all times 100% of the voting and economic interests in PCP 
REIT.
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    \19\ See supra footnote 17.
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    6. PCP REIT and PDPF will be managed by an investment adviser that 
is registered as an investment adviser with the Commission. Any 
investment sub-adviser to PCP REIT or PDPF will be registered as an 
investment adviser with the Commission or, if not registered, will 
consent to examination by the Commission staff with respect to the 
services it would provide to PCP REIT or PDPF as if it were registered 
as an investment adviser.
    7. The Funds' proposed investments in PDPF, and PDPF's investment 
in PCP REIT, will not be subject to any sales load, redemption fee, 
distribution fee analogous to a 12b-1 fee, or service fee analogous to 
a FINRA Rule 2830 service fee imposed by PDPF or PCP REIT.
    8. PGI shall cause PDPGP, PDPF and PCP REIT to maintain books and 
records as is consistent with Internal Revenue Service guidance and 
U.S. GAAP, shall cause the books and records of PDPGP, PDPF and PCP 
REIT to be made available for inspection by the Commission staff as 
would be required by the Act if each of PDPGP, PDPF and PCP REIT was a 
registered investment company, and, if requested, shall furnish copies 
of the books and records to the Commission staff.
    9. PDPF will prepare consolidated annual and semi-annual financial 
reports and, for each quarter for which a semi-annual or annual report 
is not required to be prepared, a consolidated schedule of investments 
for PDPF. The financial statements of PDPF will be prepared in 
accordance with Regulation S-X and U.S. GAAP, will be audited by an 
independent auditor (for annual financial statements), and, if 
practicable, will be prepared as of the same date and for the same 
periods as the investing Funds. PDPF will consolidate PCP REIT for 
financial reporting purposes. Any consolidated schedule of investments 
of PDPF will disclose each position that PDPF and PCP REIT hold. PFI 
and PVC on behalf of each Fund that has invested 5% or more of its net 
assets in PDPF \20\ as of the end of a reporting period, will attach, 
as an exhibit to each of PFI's and PVC's shareholder reports with 
respect to such a Fund filed on Form N-CSR and each of PFI's and PVC's 
quarterly reports with respect to such a Fund filed on Form N-PORT, 
PDPF's audited or unaudited financial statements (which will consist of 
financial statements, footnotes thereto and a schedule of investments) 
or schedule of investments for the period most recently ended. PDPF 
will deliver such annual and semi-annual financial statements and 
schedules of investments to PFI and PVC in time to allow PFI and PVC to 
make such filings. The relevant Fund's shareholder reports and 
quarterly reports will cross-reference the PDPF financial statements 
(for annual and semi-annual reports) or schedule of investments (for 
other quarters) filed as an exhibit to the form. If a Fund is required 
to attach and cross-reference the financial statements of PDPF solely 
for purpose of complying with this condition 9, (a) the Fund may 
disclaim that (i) PDPF financial statements or schedule of investments 
constitute part of the Fund's financial statements, shareholder report 
or quarterly report, and (ii) PDPF financial statements or schedule of 
investments are incorporated therein by reference, and (b) the 
certifications for each principal executive and principal financial 
officer required by rule 30a-2(a) under the Act that accompany Form N-
CSR or Form N-PORT filings with respect to such a Fund may make clear 
that PDPF financial statements or schedule of investments that 
accompany the Form N-CSR or Form N-PORT filings do not constitute part 
of the report to which the certificate relates.\21\
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    \20\ Investments in any Future LPs will be aggregated with 
investments in PDPF to determine whether a Fund has invested 5% or 
more of its net assets. If the aggregate investments are 5% or more, 
then the disclosure requirements under this condition will apply 
(for that Fund) with respect to information about PDPF and each 
Future LP in which that Fund is invested.
    \21\ As noted above, the requested order does not include relief 
from any existing disclosure requirements. Accordingly, the 
disclaimer and clarification contemplated in clauses (a) and (b) 
could not be included if the Fund is required to disclose 
information regarding the financial statements of PDPF for any 
purpose other than complying with this condition 9.
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    10. Neither PDPF nor PCP REIT will acquire securities of any other 
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 that PDPF or PCP REIT: (a) Receives 
securities of another investment company as a dividend or as a result 
of a plan of reorganization of a company (other than a plan devised for 
the purpose of evading section 12(d)(1) of the Act); or (b) acquires 
(or is deemed to have acquired) securities of another investment 
company pursuant to exemptive relief from the Commission permitting 
PDPF or PCP REIT to (i) acquire securities of one or more investment 
companies for short-term cash management purposes, or (ii) engage in 
interfund borrowing and lending transactions.
    11. A Fund will treat any leverage that PDPF or PCP REIT incurs as 
though such leverage were incurred by the Fund for purposes of 
determining compliance with applicable restrictions under the Act 
relevant to the Fund's use of leverage. Under no circumstances will a 
Fund guarantee, or otherwise be responsible for the satisfaction of, 
any loan or obligation incurred by PDPF or PCP REIT.
    12. PDPF and PCP REIT will comply with the following sections of 
the Act as if PDPF and PCP REIT each were an open-end management 
investment company registered under the Act, except as noted: Section 
9; section 12 (except that, to the extent necessary to implement the 
arrangements described herein, (i) the Funds may invest in Units issued 
by PDPF in accordance with condition 3, (ii) PDPF may issue Units to 
the investing Funds subject to the limits in condition 3, and (iii) 
PDPF may invest in PCP REIT beyond the limits of sections 12(d)(1)(A) 
and (B)); section 13 (provided that section 13(a)(4) will apply as 
though it read only ``change the nature of its business''; the 
interests issued by PDPF and PCP REIT will be regarded as voting 
securities under section 2(a)(42) of the Act for purposes of applying 
this condition; and the offering memoranda utilized by PDPF and PCP 
REIT to offer and sell their interests will be regarded as registration 
statements for purposes

[[Page 23404]]

of applying this condition); section 17(a) (except insofar as relief is 
provided by the order requested herein); section 17(d) (except insofar 
as relief is provided by the order requested herein); section 17(e); 
section 17(f); section 17(h); section 18 (although (a) the interests 
issued by PDPF and PCP REIT will be regarded as voting securities under 
section 2(a)(42) of the Act for purposes of applying this condition, 
(b) PCP REIT will be permitted to incur loans from Non-bank Commercial 
Lenders, subject to the asset coverage limit, (c) PCP REIT will not be 
required to restore 300% asset coverage within three days, as required 
under section 18(f), if such asset coverage falls below 300% solely as 
a result of a decline in the value of PCP REIT's real estate holdings, 
and (d) each Fund and Other Account limited partner of PDPF will have 
identical rights, duties, and obligations under the limited partnership 
agreement as each other Fund and Other Account limited partner, and if 
Outside Investors are permitted to invest in PDPF, PDPF may distinguish 
between Fund and Other Account limited partners, on the one hand, and 
Outside Investors, on the other, by entitling the Funds and Other 
Accounts to purchase, hold, and redeem Units with more favorable 
rights, duties and obligations pursuant to the terms of the limited 
partnership agreement with respect to the following issues: (1) 
Utilization of redemption gates; (2) limitation of rights of 
redemption; and/or (3) the level of expenses charged in connection with 
an investment in PDPF); \22\ section 21; section 36; and sections 37-
53. In addition, PDPF and PCP REIT will comply with the rules under 
section 17(f) and section 17(g) of the Act, as well as rule 22c-1 under 
the Act as if each of PDPF and PCP REIT were an open-end management 
investment company registered under the Act.
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    \22\ See supra, footnote 12.
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    PGI will cause PDPGP, PDPF and PCP REIT to, and PDPGP, PDPF and PCP 
REIT will, adopt policies and procedures designed to ensure that each 
of PDPF and PCP REIT complies with the aforementioned sections of the 
Act and rules under the Act. PGI will cause PDPGP, PDPF and PCP REIT 
to, and PDPGP, PDPF and PCP REIT will, periodically review and 
periodically update as appropriate such policies and procedures, 
maintain books and records describing such policies and procedures, and 
maintain the records required by rules 31a-1(b)(1), 31a-1(b)(2)(ii) and 
31a-1(b)(9) under the Act. All books and records required to be made 
pursuant to this condition will be maintained and preserved for a 
period of not less than six years from the end of the fiscal year in 
which any transaction occurs, the first two years in an easily 
accessible place, and will be subject to examination by the Commission 
and its staff.
    For purposes of implementing condition 12, any action that the 
above-referenced statutory and regulatory provisions require to be 
taken or made by the directors, officers and/or employees of a 
registered investment company will be performed by PDPGP with respect 
to PDPF, and by PGI, as managing member with respect to PCP REIT. As 
noted in this Application, the PDPF Committee will oversee the 
valuation of the assets of PDPF and PCP REIT for which market 
quotations are not readily available, which also will be relevant to 
the implementation of condition 12.
    13. To engage in Cross Transactions, the Funds will comply with 
rule 17a-7 under the Act in all respects other than the requirement 
that the parties to the transaction be affiliated persons (or 
affiliated persons of affiliated persons) of each other solely by 
reason of having a common investment adviser or investment advisers 
which are affiliated persons of each other, common officers, and/or 
common directors, solely because a Fund and Other Account might become 
affiliated persons within the meaning of section 2(a)(3)(A), (B) or (C) 
of the Act due to their investments in PDPF.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08824 Filed 4-24-20; 8:45 am]
 BILLING CODE 8011-01-P