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

    \320\ The new and omitted conditions of proposed rule 12d1-4
would also affect the cost of operations of funds of funds. See
section VI.C.1.c for a detailed discussion of the costs and benefits
of the new and omitted conditions. Nevertheless, the net effect of
the new and omitted conditions on the funds' cost of operations is
unclear because we are unable to quantify the effect of many of
these conditions. To the extent that the net effect of the new and
omitted conditions would be to increase (decrease) the cost of
operations for funds of funds, the new and omitted conditions (i)
could result in higher (lower) fees and expenses for fund investors
and (ii) could decrease (increase) the number of available funds of
funds, which would ultimately harm (improve) the efficient
allocation of the assets of the acquiring fund investors.
---------------------------------------------------------------------------

    Second, the rule proposal would create a more consistent and
efficient regulatory framework for funds of funds than the existing
regulatory framework for the following reasons. First, proposed rule
12d1-4 would create a consistent framework for all registered funds and
BDCs by providing the same investment flexibility to all registered
funds and BDCs. Second, under the existing regulatory framework,
substantially similar funds of funds are subject to different
conditions. For example, an acquiring fund currently can rely on
section 12(d)(1)(G) and rule 12d1-2 to invest in an acquired fund
within the same group of investment companies or, alternatively, can
rely on relief provided by the Commission to achieve the same
investment objectives. The rule proposal would eliminate the existing
overlapping and potentially inconsistent conditions for funds of funds
and harmonize conditions across different fund arrangements. Regulatory
consistency and efficiency could remove obstacles to funds' investments
and operations because regulatory consistency and efficiency would
decrease compliance and operating costs. By reducing compliance and
operating costs, the rule proposal would further reduce frictions in
asset allocation and could promote the efficient allocation of funds'
assets.
    Third, assuming that the proposed rule would increase funds'
investment flexibility, it could increase the efficiency of funds'
asset allocation because funds would be better able to diversify their
investment portfolio. The proposed rule could increase funds'
investment flexibility by expanding the scope of permissible acquiring
and

acquired funds relative to the current exemptive orders. Fourth, the
limit on fund redemptions under proposed rule 12d1-4 would incentivize
acquiring funds to hold smaller percentages of the acquired fund shares
to mitigate any negative effects of the limits on fund redemptions,
which could ultimately result in a more diversified fund portfolio.
    On the other hand, the rule proposal could reduce the efficiency of
funds' asset allocation for two reasons. First, proposed rule 12d1-4
could affect funds' investment objectives due to the differential
effects of the redemption limit on listed versus unlisted acquired
funds and large versus small acquired funds, which ultimately could
harm the efficient allocation of funds' assets. Second, assuming that
the rule proposal would reduce funds' investment flexibility by
prohibiting certain currently permissible funds of funds, it could
decrease the efficiency of funds' asset allocation because funds would
be less able to diversify their investment portfolio.
    Efficiency of the asset allocation of current and prospective
acquiring fund investors. The impact of the rule proposal on the
efficiency of the asset allocation of current and prospective acquiring
fund investors is unclear ex-ante. On one hand, the rule proposal could
promote the efficiency of investors' asset allocation. First, proposed
rule 12d1-4 would reduce the cost of setting up a fund of funds by
eliminating the need to apply for an exemptive order. To the extent
that the fund industry is competitive,\321\ fund advisers/sponsors
could pass through to investors the cost savings associated with
eliminating the need to apply for an exemptive order, which could
result in lower fees and expenses for acquiring fund investors.\322\
Lower fees and expenses, in turn, could translate into improved
efficiency of investors' asset allocation because investors could
achieve the same investment objectives at a potentially lower cost.
Similarly, the rule proposal would create a more consistent and more
efficient regulatory framework. Fund advisers/sponsors could also pass
through to investors any cost savings associated with a more consistent
and efficient regulatory framework, which could result in lower fees
and expenses, and more efficient allocation of acquiring fund
investors' assets. Second, assuming that proposed rule 12d1-4 would
increase funds' investment flexibility, the proposed rule would
increase the diversity of available funds of funds, which could promote
the efficient allocation of acquiring fund investors' assets because
investors would be better able to diversity their investment portfolio.
---------------------------------------------------------------------------

    \321\ See supra footnotes 270 and 271.
    \322\ Any effects of eliminating the need to apply for an
exemptive order are limited by the fact that each exemptive order
can be used by multiple funds within the same fund complex and the
costs of the exemptive order application process are one-time costs.
---------------------------------------------------------------------------

    On the other hand, the rule proposal could reduce the efficiency of
investors' asset allocation. In particular, proposed rule 12d1-4 could
decrease the diversity of available funds of funds because (i) it could
reduce acquiring funds' investment flexibility and (ii) it could affect
funds' investment objectives due to the differential effects of the
redemption limit on listed versus unlisted acquired funds and large
versus small acquired funds, which could decrease acquiring fund
incentives to invest in small and unlisted acquired funds. A decrease
in the diversity of available funds of funds would harm the efficient
allocation of investors' assets because investors would be less able to
diversify their investment portfolio.
    Efficiency of prices of acquired funds and their underlying assets.
The impact of the rule proposal on the efficiency of prices is unclear
ex-ante. On one hand, the rule proposal could harm the efficiency of
prices of the underlying assets of acquired funds because, as described
above, the redemption limit could slow down the incorporation of
negative information about the underlying assets of the acquired funds.
On the other hand, the rule proposal could have a positive impact on
the efficiency of the prices of acquired funds and their underlying
assets. Proposed rule 12d1-4 could (i) increase the diversity of funds
of funds by increasing funds' investment flexibility; \323\ (ii)
increase the number of available funds of funds by eliminating the need
to apply for an exemptive order, by creating a more consistent and more
efficient regulatory framework, and by reducing the cost of setting up
a fund of funds; and (iii) enhance investor protection against undue
influence, duplicative and excessive fees, and complex structures. The
potential increase in the diversity and number of funds of funds and
the enhancement of investor protection could increase the
attractiveness of funds of funds, and thus could increase investors'
demand for funds of funds. The increased investor demand for funds of
funds could increase investment rates, increase investments in
acquiring funds, and thus increase investments in the acquired funds
and the acquired funds' underlying assets (i.e., stocks, bonds, etc.).
An increased investment in the acquired funds and the acquired funds'
underlying assets could increase trading interest for those assets.
Higher trading interest could lead to higher liquidity, lower trading
costs, improved information production, and thus more efficient prices
for those assets.\324\
---------------------------------------------------------------------------

    \323\ As discussed in section VI.C.1.a above, the net effect of
the proposed rule on funds' investment flexibility is unclear. To
the extent that the proposed rule would decrease funds' investment
flexibility, it could decrease the diversity of available funds of
funds.
    \324\ See, e.g., Anat R. Admati & Paul Pfleiderer, A Theory of
Intraday Patterns: Volume and Price Variability, 1 Rev. of Fin.
Stud., 3 (Spring 1988); Tarun Chordia, Richard Roll & Avanidhar
Subrahmanyam, Liquidity and Market Efficiency, 87 J. of Fin. Econ.,
249 (Feb. 2008).
---------------------------------------------------------------------------

    In addition, the rule proposal could increase the price efficiency
of listed acquired funds (i.e., ETFs, ETMFs, listed closed-end funds,
and listed BDCs) because investors could increase their investments in
those funds through investments in funds of funds rather than investing
directly in those funds. Consequently, the funds' investor base could
shift from individual investors to acquiring funds. The investment
advisers of acquiring funds are arguably more sophisticated than
individual investors. A shift of certain funds' investor base to more
sophisticated investors could in turn result in more efficient prices
for listed acquired funds, because noise trading would decrease.\325\
---------------------------------------------------------------------------

    \325\ See, e.g., Eli Bartov, Suresh Radhakrishnan, & Itzhak
Krinsky, Investor Sophistication and Patterns in Stock Returns after
Earnings Announcements, 75 The Acc. Rev., 43 (Jan. 2000); Joseph D.
Piotroski & Darren T. Roulstone, The Influence of Analysts,
Institutional Investors, and Insiders on the Incorporation of
Market, Industry, and Firm[hyphen]Specific Information into Stock
Prices, 79 The Acc. Rev., 1119 (Oct. 2004); Ekkehart Boehmer & Eric
K. Kelley, Institutional Investors and the Informational Efficiency
of Prices, 22 Rev. of Fin. Stud., 3563 (Sept. 2009).
---------------------------------------------------------------------------

b. Competition
    The impact of the rule proposal on fund competition is unclear ex-
ante. On one hand, the rule proposal could promote competition in the
fund industry for the following reasons. First, to the extent that
proposed rule 12d1-4 would increase acquiring funds' investment
flexibility, the proposed rule could promote competition in the fund
industry because it would increase the diversity of available funds of
funds.\326\ Second, the rule proposal would level the playing field for
funds by expanding the scope of permissible acquiring and

acquired funds and mandating the same conditions for similar funds of
funds.\327\ A more level playing field could increase competition in
the fund industry because it would allow various funds to operate under
similar conditions. Third, the rule proposal would contribute towards
leveling the playing field for affiliated and unaffiliated acquired
funds by imposing a limit on fund redemptions for both affiliated and
unaffiliated acquired funds. Fourth, the rule proposal would create a
more consistent and efficient regulatory framework than the current
regulatory framework for funds of funds. To the extent that regulatory
inefficiencies and inconsistencies could hamper funds' investment and
growth, an increase in regulatory consistency and efficiency could
result in the creation of more funds of funds, which could increase
competition in the fund industry. Fifth, proposed rule 12d1-4 would
remove the need to apply for an exemptive order and thus would decrease
the cost of setting up a fund of funds. A decrease in the cost of
setting up a fund of funds would lower the barriers to entry for new
funds of funds, and thus could increase competition in the fund
industry.
---------------------------------------------------------------------------

    \326\ Funds can choose to compete through prices or through
product differentiation. See, e.g., Avner Shaked & John Sutton,
Relaxing Price Competition Through Product Differentiation, 49 Rev.
of Econ. Stud., 3 (Jan. 1982).
    \327\ As discussed in supra section I, the combination of
statutory exemptions, Commission rules, and the exemptive orders has
created a regime where substantially similar funds of funds are
subject to different conditions. The rule proposal would level the
playing field for funds because it would create a regime where
similar funds of funds are subject to the same conditions. At the
same time, any effects of leveling the playing field would be
limited by the fact that different funds face different levels of
restrictions on their investments that are unrelated to proposed
rule 12d1-4 (see, e.g., supra footnote 37 for restrictions on BDC
investments).
---------------------------------------------------------------------------

    On the other hand, to the extent that the rule proposal would
decrease funds' investment flexibility, it could harm competition among
funds of funds because it would decrease the diversity of available
funds of funds. In addition, proposed rule 12d1-4 would have a
differential impact on publicly listed versus unlisted and large versus
small funds, and this differential impact could harm competition in the
fund industry. Specifically, the redemption limit under proposed rule
12d1-4 could provide an advantage to listed and large acquired funds
because the redemption limit would be less binding for listed and large
acquired funds. By providing a potential advantage to listed and large
acquired funds and to the extent that there are economies of scale in
fund operations, the proposed rule could have a negative effect on fund
competition.
c. Capital Formation
    The impact of the rule proposal on capital formation is unclear ex-
ante. On one hand, the rule proposal could have a positive effect on
capital formation. Specifically, the potential increase in fund
investment flexibility, the potential leveling of the playing field as
a result of the rule proposal, the increase in regulatory consistency
and efficiency, and the decrease in the operating costs of prospective
funds of funds as a result of removing the need to apply for an
exemptive order could increase the number and diversity of funds of
funds. An increase in the number and diversity of funds of funds could
increase the demand for funds of funds, increase investor saving rates,
increase investments in funds of funds, and ultimately increase demand
for the funds of funds' underlying securities. Investor demand for
funds of funds also could increase as a result of the new conditions of
the proposed rule, which would enhance investor protection. As a result
of the increased demand for the firms' equity and debt securities,
companies would be able to issue new debt and equity at higher prices,
which could lead to a decrease in the cost of capital of firms, and
thus facilitate capital formation.\328\ Nevertheless, we expect that
any positive effects of the proposed rule on capital formation would be
small.
---------------------------------------------------------------------------

    \328\ Academic literature provides evidence consistent with the
idea that higher demand for a firm's securities could lead to lower
cost of capital. See, e.g., Douglas W. Diamond & Robert E.
Verrecchia, Disclosure, Liquidity, and the Cost of Capital, 46 J. of
Fin., 1325 (Sept. 1991).
---------------------------------------------------------------------------

    On the other hand, assuming that single-tier funds and funds of
funds are purely substitute investments, an increase in investors'
demand for funds of funds could decrease the demand for single-tier
fund structures. Consequently, under that assumption, there would be no
change in the amount of money that flows to corporations and there
would be no impact on capital formation as a result of the rule
proposal.

D. Reasonable Alternatives

1. Retention of Existing Exemptive Relief
    As discussed in section V above, we are proposing to rescind rule
12d1-2 and certain exemptive orders in connection with proposed rule
12d1-4 and amended rule 12d1-1. Alternatively, we could allow existing
funds of funds to choose whether to operate under the existing
regulatory framework or the new regulatory framework, and require only
new funds of funds to comply with the new regulatory framework. The
benefit of such an alternative would be that existing funds of funds
would not incur the one-time switching costs from the existing
regulatory framework to the new framework. At the same time, however,
this alternative would subject existing funds of funds and new funds of
funds to different sets of conditions. For example, existing funds of
funds would be exempt from the proposal's new requirements relating to
redemption limits, multi-tier structures, and duplicative and excessive
fees. Consequently, unlike the proposal, this alternative would
establish a less uniform regulatory framework governing fund of funds
arrangements.
2. Allow Private and Unregistered Investment Companies To Rely on
Proposed Rule 12d1-4
    As discussed above, proposed rule 12d1-4 is based in part on
previously granted exemptive relief and would permit registered funds
and BDCs to invest in registered funds and BDCs beyond the limits in
section 12(d)(1). Alternatively, we could expand the scope of the
proposed rule to allow private funds and unregistered investment
companies to rely on the rule as acquiring funds. Expanding the
proposed rule in this manner would increase investment flexibility for
those funds, would level the playing field for those funds, and would
broaden the funding opportunities for acquired funds because private
funds and unregistered investment companies could increase their
investments in them.
    Nevertheless, we preliminarily believe that there are risks
associated with expanding proposed rule 12d1-4 to acquiring private
funds and unregistered investment companies. First, private funds and
unregistered investment companies are not registered with the
Commission and would not be subject to the same reporting requirements
(i.e., Forms N-CEN and N-PORT) as the proposed acquiring funds.\329\
Second, private funds and unregistered investment companies are not
subject to recordkeeping requirements under the Investment Company Act,
and therefore, may not maintain the same records as a registered
investment company. Third, unregistered foreign funds' investments in
U.S. registered funds have raised concerns of abuse and undue influence
in the past, which gave raise to

Congress's amendments to section 12(d)(1) in 1970.
---------------------------------------------------------------------------

    \329\ See supra footnote 47.
---------------------------------------------------------------------------

3. Codify Current Conditions in Existing Exemptive Orders
    As discussed above, proposed rule 12d1-4 would omit certain
conditions contained in current exemptive orders that we believe are no
longer necessary to prevent the abuses that section 12(d)(1) seeks to
curtail in light of the new conditions being proposed. Proposed rule
12d1-4 also would include new conditions to address the potential for
undue influence, complex structures, or duplicative and excessive fees.
Alternatively, we could codify the conditions contained in existing
exemptive orders rather than replacing certain conditions with
alternative conditions as contained in the proposal.
    This alternative approach would not impose the costs associated
with the new conditions in the proposed rule, but it might impose costs
to the extent that the conditions in the orders on which some funds of
funds rely might not be identical to the conditions in this alternative
proposed rule because of cross-sectional variation in the conditions of
the exemptive orders. For example, this alternative would not limit an
acquiring fund's ability to quickly redeem or tender a large volume of
acquired fund shares to mitigate undue influence, which could impose
liquidity constraints and restrict funds' investment flexibility. At
the same time, this alternative would not result in cost savings
associated with removing certain conditions that are no longer
necessary in light of the new conditions, such as removing the need to
enter into participation agreements. Nevertheless, we believe that this
alternative approach would not be as effective at preventing the abuses
that section 12(d)(1) seeks to curtail while eliminating conditions
that are no longer necessary in light of the new conditions of proposed
rule 12d1-4.
4. Restrict the Ability of an Acquiring Fund and Its Advisory Group To
Invest in an Acquired Fund Above a Lower or Higher Limit Than the
Proposed Control Limit
    As discussed in section II.C.1 above, to address concerns about one
fund exerting undue influence over another fund, proposed rule 12d1-4
is not available when an acquiring fund together with its advisory
group controls the acquired fund. The proposed rule relies on the
definition of ``control'' in the Act, including the rebuttable
presumption that any person who directly or indirectly beneficially
owns more than 25% of the voting securities of a company controls that
company. The proposed rule includes an exception for funds that are in
the same group of investment companies. The proposed rule also includes
an exception when the acquiring fund's investment sub-adviser or any
person controlling, controlled by, or under common control with such
investment sub-adviser acts as the acquired fund's investment adviser
or depositor.
    As an alternative means of preventing undue influence, we could
instead restrict the ability of an acquiring fund and its advisory
group to invest in an acquired fund above a lower limit than the 25%
limit used to define ``control'' in the Act. A lower limit could
provide additional assurance that the proposed rule would protect
investors from the abusive practices that section 12(d)(1) was designed
to prevent because a lower percentage of ownership would reduce the
risk that the acquiring fund could exercise undue influence over the
acquired fund's strategy, management, or governance.\330\ However, we
expect that a lower limit could hamper the acquiring fund's ability to
allocate its assets in an efficient and cost effective manner.\331\
---------------------------------------------------------------------------

    \330\ As discussed in section II.B. above, section 17 of the Act
generally restricts a fund's ability to enter into transactions with
affiliated persons and thus provides some protection to acquired
funds from acquiring funds' undue influence. Proposed rule 12d1-4
also contains a number of conditions aimed at protecting acquired
funds from acquiring funds' undue influence.
    \331\ The control condition could, for example, limit an
acquiring fund from obtaining the optimal level of risk exposure to
another fund. Acquiring funds potentially could obtain similar
levels of risk exposure at a higher cost by investing in multiple
funds.
---------------------------------------------------------------------------

    We also could impose a lower limit while narrowing the scope of
entities that would be assessed for the purposes of the ownership
threshold. In particular, the ownership limit could apply only to the
acquiring fund and other funds advised by the same adviser or by the
adviser's control affiliates. As a result, acquiring funds would not be
required to consider their non-fund affiliates' holdings when assessing
whether they control an acquired fund, which would lessen compliance
burdens for the acquiring funds. Nevertheless, our exemptive orders
define control in terms of a fund and its advisory group. Consequently,
funds likely have established already policies and procedures to
monitor compliance with the aggregation requirement embedded in the
proposed rule's definition of an acquiring fund's ``advisory group.''
In addition, other provisions of the Act and our rules also extend to
affiliated persons of an investment adviser, and so funds (or their
advisers) have experience developing compliance policies and procedures
in those circumstances. Lastly, the risk of undue influence over an
acquired fund would be more effectively addressed by requiring all
entities within an advisory group to aggregate their holdings for
purposes of the control condition because entities in the same advisory
group could potentially coordinate to exercise undue influence over the
acquired funds.\332\
---------------------------------------------------------------------------

    \332\ For example, a family of target date funds tends to invest
in different proportional allotments of the same underlying funds.
---------------------------------------------------------------------------

    Further, as an alternative, we could impose a limit lower than 25%,
while imposing no limits on fund redemptions. The lower limit
potentially would protect acquired funds from acquiring funds undue
influence while allowing acquiring funds greater flexibility to
liquidate their investments in acquired funds. As proposed, however,
rule 12d1-4 balances these concerns by allowing acquiring funds to
invest to a greater extent in acquired funds, subject to the proposed
redemption limit.
    Similarly, we could impose a limit higher than 25%, which would
provide acquiring funds with greater investment flexibility. This
alternative, however, would diverge from how control has been defined
in the past under the Act. Moreover, we believe that a limit higher
than 25% would be more likely to give rise to the abuses that section
12(d)(1) was designed to prevent because it would make it more likely
that the acquiring fund could control the acquired fund and thus
potentially could influence the acquired fund for the benefit of the
acquiring fund's shareholders, advisers, or sponsors. Lastly, given the
proposed rule's 3% redemption limit, acquiring funds likely would not
take advantage of a higher limit because it would take an acquiring
fund longer to unwind a larger position in an acquired fund.
5. Alternative Approaches to the Redemption Limit
a. Do Not Impose Redemption Limit
    As discussed above, proposed rule 12d1-4 would prohibit an
acquiring fund that acquires more than 3% of an acquired fund's
outstanding shares from redeeming, submitting for redemption, or
tendering for repurchase more than 3% of an acquired fund's total
outstanding shares in any 30-day period. The purpose of this
prohibition is to address concerns that an acquiring fund could
threaten large-scale redemptions to unduly influence an

acquired fund. The proposed rule's 3% limit on fund redemptions in any
30-day period, however, could impose liquidity and investment
flexibility constraints on current and prospective acquiring funds
because acquiring funds would be unable to quickly liquidate their
investments in funds if they hold more than 3% of the acquired fund's
outstanding shares.
    Alternatively, we could impose no limits on the redemptions of an
acquired fund's shares. Instead, we could adopt conditions that
generally require the acquired and acquiring fund boards to make
certain findings and adopt procedures to prevent overreaching and undue
influence by the acquiring fund and its affiliates once the acquired
fund's investment exceeds the section 12(d)(1) limits, and also require
the acquiring and acquired funds to enter into participation
agreements. Similar, to section 12(d)(1)(F), we also could make rule
12d1-4's redemption provision permissive, by giving the acquired fund
or its board the option to limit redemptions.
    We believe that a redemption limit, together with the proposed
control and voting conditions, are more protective of acquired funds
because they provide protection against a broader set of circumstances
than the targeted and prescriptive provisions in our exemptive orders.
In addition, the redemption limit, together with the proposed control
and voting conditions, may be more objectively tested as part of a
fund's compliance program than the conditions currently found in our
orders because they are based on numerical thresholds that are easily
observable and verifiable.
b. Do Not Impose Redemption Limit for Funds Within the Same Group of
Investment Companies
    Proposed rule 12d1-4 imposes a redemption limit on all acquiring
funds relying on the rule if they hold more than 3% of an acquired
fund's outstanding voting securities. Alternatively, we could impose
the redemption limit only on acquiring funds when: (i) The acquiring
fund is not in the same group of investment companies as the acquired
fund and (ii) the acquiring fund's investment sub-adviser is different
from, and not in a control relationship with, the acquired fund's
investment adviser or depositor. Such an approach would be similar to
the exceptions to the control and voting conditions under proposed rule
12d1-4.
    The benefit of such an alternative is that it would limit any costs
associated with the redemption limit because any costs would be borne
by only a subset of the acquiring funds.\333\ In addition, such an
alternative potentially would maintain investor protection because fund
of funds arrangements involving control affiliates do not raise the
same concerns regarding undue influence as other types of fund of funds
arrangements. In circumstances where the acquiring fund and acquired
fund share the same adviser or subadviser, the adviser or subadviser
would owe a fiduciary duty to both funds, serving to protect the best
interests of each fund. In addition, in cases where the arrangement
involves funds that are advised by advisers that are control
affiliates, the acquiring fund adviser is less likely to seek to
benefit the acquiring fund at the expense of the acquired fund, nor do
we believe that the acquiring fund would seek to influence the
acquiring fund through its ownership interest in the acquired fund.
---------------------------------------------------------------------------

    \333\ Acquiring funds that invest in acquired funds beyond the
limits of section 12(d)(1) when: (i) The acquiring fund is within
the same group of investment companies as the acquired fund or (ii)
the acquiring fund's investment sub-adviser or any person
controlling, controlled by, or under common control with such
investment sub-adviser acts as the acquired fund's investment
adviser or depositor currently are not subject to redemption limits
under section 12(d)(1)(G) and the exemptive orders.
---------------------------------------------------------------------------

    Nevertheless, acquiring funds that fall within the exceptions in
rule 12d1-4(b)(1)(iii) are not constrained in their ability to control
a fund and could acquire more than 25% of an acquiring fund's
outstanding voting securities. As a result, we propose to subject these
types of acquiring funds to the redemption limitation in proposed rule
12d1-4(b)(2).
c. Impose Aggregate Redemption Limit on Acquiring Fund and Its Advisory
Group
    As discussed above, the proposed 3% redemption limit in proposed
rule 12d1-4 only would apply to individual acquiring funds and thus
would not apply to entities within an acquiring fund's advisory
group.\334\ Hence, the proposed redemption limit would provide limited
protection to acquired funds when the shares of the acquired funds are
held by multiple acquiring funds within the acquiring fund's advisory
group.
---------------------------------------------------------------------------

    \334\ As discussed above, the control conditions in proposed
rule 12d1-4 would apply to an acquiring fund's advisory group. See
supra section II.C.1.
---------------------------------------------------------------------------

    Alternatively, we could impose a 3% or higher aggregate redemption
limit applicable to an acquiring fund and its advisory group. To the
extent that these entities could coordinate their redemptions to
exercise undue influence on acquired funds through the threat of large
scale redemptions, this proposed alternative would better protect
acquired funds from acquiring funds' undue influence. Nevertheless, we
believe that imposing a 3% aggregate redemption limit on an acquiring
fund and its advisory group could significantly harm the liquidity and
investment flexibility of acquiring funds, and could impose a higher
monitoring burden on acquiring funds. Hence, we are not proposing to
impose a 3% aggregate redemption limit on acquiring funds and their
advisory group.
6. Permit Multi-Tier Fund Structures
    As discussed above, proposed rule 12d1-4 would limit the creation
of multi-tier structures. As an alternative, we could allow certain
multi-tier fund structures by allowing funds to invest in an acquiring
fund or by allowing acquired funds to invest in other funds beyond the
limits in section 12(d)(1)(A). While this alternative would provide
additional flexibility to funds to meet their investment objectives, it
could potentially lead to duplicative and excessive fees and investor
confusion.\335\ In particular, the organizational complexity of multi-
tier fund structures could make it difficult for acquired fund
investors to understand who really controls the fund. Additionally, we
believe that the proposed rule's exceptions to the multi-tier
structures prohibition provide sufficient investment and funding
flexibility to acquiring and acquired funds.
---------------------------------------------------------------------------

    \335\ Concerns of investor confusion are mitigated by fund
disclosure requirements, such as prospectus and shareholder reports.
---------------------------------------------------------------------------

VII. Paperwork Reduction Act

A. Introduction

    Proposed new rule 12d1-4 contains a ``collection of information''
within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\336\ In addition, proposed rule 12d1-4 would affect the
current collection of information burden of rule 0-2 under the
Act.\337\ The proposed amendments to Form N-CEN also would affect the
collection of information burden under that form.\338\
---------------------------------------------------------------------------

    \336\ 44 U.S.C. 3501 through 3521.
    \337\ 17 CFR 270.0-2.
    \338\ Form N-CEN [referenced in 17 CFR 274.101] under the
Investment Company Act.
---------------------------------------------------------------------------

    The title for the new collection of information for rule 12d1-4
would be: ``Rule 12d1-4 Under the Investment Company Act of 1940, Fund
of Funds Arrangements.'' The titles for the existing collections of
information are: ``Rule 0-2 under the Investment

Company Act of 1940, General Requirements of Papers and Applications''
(OMB Control No. 3235-0636); and ``Form N-CEN'' (OMB Control No. 3235-
0730). The Commission is submitting these collections of information to
the Office of Management and Budget (``OMB'') for review in accordance
with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid control number.
    We published notice soliciting comments on the collection of
information requirements in the 2008 Proposing Release and submitted
the proposed collections of information to OMB for review and approval
in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.\339\ We
received no comments on the collection of information requirements.
---------------------------------------------------------------------------

    \339\ See 2008 Proposing Release, supra footnote 13.
---------------------------------------------------------------------------

    We discuss below the collection of information burdens associated
with proposed rule 12d1-4 and its impact on rule 0-2, as well as
proposed amendments to Form N-CEN.

B. Rule 12d1-4

    Proposed rule 12d1-4 would permit registered funds and BDCs that
satisfy certain conditions to acquire shares of another fund in excess
of the limits of section 12(d)(1) of the Act without obtaining an
exemptive order from the Commission. The rule is designed to create a
consistent and streamlined regulatory framework applicable to fund of
funds arrangements while addressing investor protection concerns. The
proposed rule would require an acquiring fund to disclose certain
information in its registration statement, require an acquiring fund to
follow certain procedures for voting an acquired fund's securities if
certain ownership thresholds are met, require an acquiring fund's
adviser (if the fund is a management company) or its principal
underwriter or depositor (if the fund is a UIT) to make certain
findings, require an acquiring fund (if the fund is a separate account
funding a variable insurance contract) to obtain a certification from
an insurance company issuing separate accounts, and require an
acquiring fund to maintain certain records. These requirements are
collections of information under the PRA.
    The respondents to proposed rule 12d1-4 would be registered funds
or BDCs. The collection of information would be mandatory only for
entities that wish to rely on the new rule. Information provided to the
Commission in connection with staff examinations or investigations
would be kept confidential subject to the provisions of applicable law.
1. Disclosure Requirements
    Under the proposed rule, a fund that relies on rule 12d1-4 (or
intends to preserve flexibility to rely on rule 12d1-4) would be
required to disclose in its registration statement that it is or may be
an acquiring fund for purposes of rule 12d1-4.\340\ The Commission
staff estimates that complying with these disclosure requirements would
impose a one-time internal hour burden of four hours, and an ongoing
internal hour burden of one hour, on each acquiring fund to determine
the disclosures appropriate to the fund and ensure that the appropriate
disclosures are set forth in the fund's registration statement.\341\
Additionally, the Commission staff estimates that these disclosure
requirements would impose a one-time external cost burden of $5,470
\342\ and an ongoing external cost burden of $2,735 on each acquiring
fund relating to board review and consultation with outside
counsel.\343\ Amortized over three years, the internal hour burden
would be two hours per acquiring fund \344\ and the annual external
cost burden would be $3,647 per acquiring fund.\345\
---------------------------------------------------------------------------

    \340\ See proposed rule 12d1-4(b)(4).
    \341\ Monetized, the one-time four-hour internal burden
translates to $1,602 and the ongoing one-hour internal burden
translates to $400. These estimates are based on the following
calculations: 4 hours x blended hourly rate of assistant general
counsel (2 hours at $449/hour) and compliance attorney (2 hours at
$352/hour) = $1,602; $400 = $1,602/4. See supra footnote 287 for the
source of salary data.
    \342\ This estimate is based on the following calculation: 1
hour x $400 hourly rate of outside counsel + 1 hour x $5,070 hourly
rate for board of directors = $5,470. See supra footnote 287 for the
source of salary data.
    \343\ This estimate is based on the following calculation: 0.5
hour x $400 hourly rate of outside counsel + 0.5 hour x $5,070
hourly rate for board of directors = $2,735. See supra footnote 287
for the source of salary data.
    \344\ This estimate is based on the following calculation: (4
hours + 1 hour + 1 hour)/3 = 2 hours.
    \345\ This estimate is based on the following calculation:
($5,470 + $2,735 + $2,735)/3 = $3,647.
---------------------------------------------------------------------------

2. Voting Provisions
    Under proposed rule 12d1-4, where an acquiring fund and its
advisory group (in the aggregate) hold more than 3% of the outstanding
voting securities of an acquired fund, the acquiring fund would be
required to vote those securities using either pass-through voting or
mirror voting, unless the acquiring fund is covered by certain
exceptions to the requirement.\346\ This provision is designed to
minimize the influence that an acquiring fund and its advisory group
may exercise over an underlying fund through voting.
---------------------------------------------------------------------------

    \346\ See proposed rule 12d1-2(b)(1)(ii). As described above, in
pass-through voting, the acquiring fund seeks voting instructions
from its security holders and votes such proxies in accordance with
their instructions. In mirror voting, the acquiring fund votes the
shares it holds in the same proportion as the vote of all other
holders.
---------------------------------------------------------------------------

    For purposes of this analysis, we estimate that approximately 809
funds would be acquiring funds holding more than 3% of the outstanding
voting securities of an acquired fund, and would not fall within any of
the proposed exceptions to the voting requirement, and thus would be
subject to the voting requirement.\347\ We further estimate that each
of these acquiring funds invests in, on average, approximately 11
underlying funds.\348\
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    \347\ This estimate is based on data from the Morningstar
Investment Company Holdings database.
    \348\ Id. This estimate of the average number of acquired funds
per acquiring fund is based on the investments of the 4,342
acquiring funds summarized in Table 1, supra section VI.B.1. For
purposes of this analysis, we assume that all existing acquiring
funds would rely on proposed rule 12d1-4.
---------------------------------------------------------------------------

    As discussed above, acquiring funds subject to the proposed voting
condition would have the option of using either pass-through voting or
mirror voting to vote their shares of the underlying fund. We estimate
that approximately 98% of the funds that become subject to the voting
condition would choose to implement mirror voting. Accordingly, we
estimate that a total of approximately 793 acquiring funds, investing
in a total of approximately 7,930 underlying funds, would use mirror
voting. We further estimate that approximately 16 acquiring funds (2%
of the 809 funds described above), investing in a total of
approximately 160 underlying funds, would use pass-through voting. For
this analysis, we estimate that each acquiring fund subject to the
voting provision will participate in one vote on the securities of each
acquired fund every three years.\349\
---------------------------------------------------------------------------

    \349\ This estimate takes into account the different voting
frequencies of the types of acquired funds included in these
calculations. For example, closed-end funds typically hold one vote
per year, while mutual funds typically seek shareholder votes less
frequently.
---------------------------------------------------------------------------

    We estimate that all funds subject to the voting condition of
proposed rule 12d1-4 would incur a one-time internal burden of 3 hours,
monetized to $1,176 and amortized to $392 annually over 3 years, to
update their proxy voting policies and related proxy voting

disclosures to reflect that the fund is subject to the voting
procedures required under the rule.\350\ In the aggregate, we estimate
that funds subject to the proposed voting provision would incur a one-
time internal burden of 2,427 hours, at a monetized value of
$951,384.\351\ Amortized over three years, the estimated burdens are
one hour per fund, at a monetized value of $1,951.33. In the aggregate,
amortized over three years, these estimated burdens equate to 809 hours
and $951,384.\352\ We further estimate that all funds subject to the
voting condition of proposed rule 12d1-4 would incur a one-time
external cost of $5,070 associated with the condition, or $1,690
amortized over 3 years.\353\
---------------------------------------------------------------------------

    \350\ See, e.g., 17 CFR 270.30b1-4 (rule 30b1-4 under the Act).
This estimate of the one-time annual hour burden consists of 3 hours
x $392 hourly rate for an in-house attorney. See supra footnote 287
for the source of salary data. 3 x $392 = $1,176 per fund. We do not
believe that funds subject to the proposed voting provision would
incur any ongoing time or cost burdens associated with proxy voting
policies and procedures or related disclosures.
    \351\ These estimates are based on the following calculations:
809 acquiring funds x 3 hours = 2,427 hours; 809 acquiring funds x
$1,176 = $951,384.
    \352\ These estimates are based on the following calculations:
2,427 hours/3 = 809 hours; $951,384/3 = $317,128.
    \353\ These estimates are based on the following calculations: 1
hour x $5,070 hourly rate for board of directors = $5070; 5,070/3 =
$1,690. See supra footnote 287 for the source of salary data.
---------------------------------------------------------------------------

    We estimate that each instance of mirror voting under the proposed
voting condition would impose an annual internal burden of 3 hours on
the acquiring fund to evaluate the votes of the other acquired fund's
shareholders and submit its own votes, at a monetized internal cost of
$1,176.\354\ We further estimate that each instance of pass-through
voting would impose an internal burden of 30 hours, which would include
identifying the shareholders of record and their holdings, providing
proxy statements to and otherwise communicating with those shareholders
regarding the vote, compiling shareholder responses, and voting
accordingly, at a monetized internal cost of $11,760.\355\
---------------------------------------------------------------------------

    \354\ This estimate is based on the following calculations: 3
hours x $392 hourly rate for in-house attorney = $1,176. See supra
footnote 287 for the source of salary data.
    \355\ This estimate is based on the following calculations: 30
hours x $392 hourly rate for in-house attorney = $11,760. See supra
footnote 287 for further explanation of salary data.
---------------------------------------------------------------------------

    We estimate that compliance with the proposed voting condition also
would impose external costs. For each instance of mirror voting, we
estimate a cost of $400.\356\ For each instance of pass-through voting,
we estimate 10 hours of outside professional time, at a cost of
$4,000.\357\
---------------------------------------------------------------------------

    \356\ This estimate is based on the following calculations: 1
hour x hourly rate for outside counsel of $400 = $400. See supra
footnote 287 for further explanation of salary data.
    \357\ This estimate is based on the following calculations: 10
hours x hourly rate for outside counsel of $400 = $4,000. See supra
footnote 287 for further explanation of salary data.
---------------------------------------------------------------------------

    Accordingly, each year after the adoption of the proposed rule, in
the aggregate, mirror voting by acquiring funds subject to the voting
condition would impose an estimated internal annual burden of 8,564.4
hours with an external cost of $1,141,920.\358\ Pass-through voting by
acquiring funds would impose an estimated annual burden of 1,932 hours
with an external cost of $230,400.\359\ In the aggregate, the voting
provision of proposed rule 12d1-4 therefore would impose an estimated
internal annual burden of 10,292.4 hours with an external cost of
$1,372,320.\360\
---------------------------------------------------------------------------

    \358\ These estimates are based on the following calculations:
793 acquiring funds x 3.6 mirror votes per year x 3 hours per mirror
vote = 8,564.4 hours; 793 acquiring funds x 3.6 mirror votes per
year x $400 per mirror vote = $1,141,920. (3.6 mirror votes per year
= 11 (average number of acquired funds in which each acquiring fund
invests)/3 years.) See supra footnote 348.
    \359\ These estimates are based on the following calculations:
16 acquiring funds x 3.6 pass-through votes per year x 30 hours per
pass-through vote = 1,728 hours; 16 acquiring funds x 3.6 pass-
through votes per year x $4,000 per pass-through vote = $230,400.
(3.6 pass-through votes per year = 11 (average number of acquired
funds in which each acquiring fund invests)/3 years.) See supra
footnote 348.
    \360\ These estimates are based on the following calculations:
8,564.4 hours + 1,728 hours = 10,292.4 hours; $1,141,920 + $230,400
= $1,372,320.
---------------------------------------------------------------------------

3. Management Companies--Adviser Evaluations and Board Oversight
    In addition, in cases where the acquiring fund is a management
company, proposed rule 12d1-4 would require the acquiring fund's
adviser to evaluate the complexity of the structure and aggregate fees
associated with the acquiring fund's investment in acquired funds, and
find that it is in the best interest of the acquiring fund to invest in
the acquired fund.\361\
---------------------------------------------------------------------------

    \361\ Proposed rule 12d1-4(b)(3)(i).
---------------------------------------------------------------------------

    Further, in cases where the acquiring fund is a management company,
the proposed rule requires the acquiring fund's adviser to report to
the acquiring fund's board of directors its finding that it is in the
best interest of the acquiring fund to invest in the acquired fund and
the basis for that finding.\362\ The proposed rule requires this
reporting before investing in acquired funds in reliance on the rule,
and with such frequency as the board of directors of the acquiring fund
deems reasonable and appropriate thereafter, but in any case, no less
frequently than annually.\363\
---------------------------------------------------------------------------

    \362\ Id.
    \363\ Id.
---------------------------------------------------------------------------

    Finally, an acquiring fund that is a management company would be
required to maintain and preserve for a period of not less than five
years, the first two years in an easily accessible place: (i) A written
record of the adviser's finding that it is in the best interest of the
acquiring fund to invest in the acquired funds; (ii) the basis for such
finding; and (iii) any related reports provided by the adviser to the
board of directors.\364\
---------------------------------------------------------------------------

    \364\ Proposed rule 12d1-4(c).
---------------------------------------------------------------------------

    These evaluations would impose both initial and ongoing burdens on
management companies, related to both the evaluations themselves and
the creation, review and maintenance of the aforementioned written
materials associated with the evaluations. The Commission staff
estimates the evaluations would impose an initial internal burden of 30
hours per fund.\365\ Amortized over three years, this initial burden
would equate to 10 hours per fund.\366\ Because the rule requires
ongoing evaluations with such frequency as the board of directors of
the acquiring fund deems reasonable and appropriate, but in any case,
no less frequently than annually, the Commission staff estimates that
the evaluations (including the creation, review and maintenance of
written materials associated with the evaluations) would impose an
ongoing internal burden of 16 hours per fund.\367\ Additionally, the
staff estimates that these evaluations would impose an initial external
cost of $17,610 \368\ and external annual ongoing costs of

$5,870 \369\ per fund on management companies, relating to the need for
board review and consultation with outside counsel.
---------------------------------------------------------------------------

    \365\ These burden hours translate to a monetized cost of
$11,005 per fund. This estimate is based on the following
calculation: 15 hours x $352 hourly rate for compliance attorney +
10 hours x $317 hourly rate for senior portfolio manager + 5 hours x
$511 hourly rate for chief compliance officer = $11,005. See supra
footnote 287 for the source of salary data. Amortized over three
years, the monetized annual cost of the initial hour burden would be
$3,590. This estimate is based on the following calculation:
$11,005/3 = $3,669.
    \366\ This estimate is based on the following calculation: 30
hours/3 years = 10 hours per year.
    \367\ These 16 burden hours translate to a monetized annual cost
of $2,887 per fund. This estimate is based on the following
calculations: 6 hours x $352 hourly rate for compliance attorney =
$2,112; 5 hours x $61 hourly rate for general clerk = $305; 5 hours
x $94 hourly rate for senior computer operator = $470. See supra
footnote 287 for the source of salary data.
    \368\ This estimate is based on the following calculation: 3
hours x $5,070 hourly rate for board of directors + 6 hours x $400
hourly rate for outside counsel = $17,610. See supra footnote 287
for the source of salary data.
    \369\ This estimate is based on the following calculation: 1
hour x $5,070 hourly rate for board of directors + 2 hours x $400
hourly rate for outside counsel = $5,870. See supra footnote 287 for
the source of salary data.
---------------------------------------------------------------------------

4. UITs--Principal Underwriter or Depositor Evaluations
    The proposed rule would also require that, in cases where the
acquiring fund is a registered UIT, the UIT's principal underwriter or
depositor must evaluate the complexity of the structure and the
aggregate fees associated with the UIT's investment in acquired funds,
and find that the UIT's fees do not duplicate the fees of the acquired
funds that the UIT holds or will hold at the date of deposit.\370\ This
evaluation must take place on or before of the date of initial deposit
of portfolio securities into the UIT.\371\
---------------------------------------------------------------------------

    \370\ Proposed rule 12d1-4(b)(3)(ii).
    \371\ Id.
---------------------------------------------------------------------------

    An acquiring fund that is a UIT also would be required to maintain
and preserve for a period of not less than five years, the first two
years in an easily accessible place, the UIT's principal underwriter or
depositor's finding that the UIT's fees do not duplicate the fees of
the acquired funds and the basis for such finding.\372\
---------------------------------------------------------------------------

    \372\ Proposed rule 12d1-4(c).
---------------------------------------------------------------------------

    These evaluations would impose both initial and ongoing burdens on
UITs, related to both the evaluations themselves and the creation,
review and maintenance of the aforementioned written materials
associated with the evaluations. The Commission staff estimates the
evaluations would impose an initial internal burden of 30 hours per
fund.\373\ Amortized over three years, this initial burden would equate
to 10 hours per fund.\374\ Because the rule requires ongoing
maintenance of written materials, the Commission staff estimates that
the evaluations would impose an ongoing burden of five hours per fund,
due to recordkeeping obligations related to the evaluations.\375\ The
Commission staff further estimates that these evaluations would impose
an initial external cost of $2,400 for consultation with outside
counsel.\376\ In contrast to the external annual ongoing costs noted
above for management companies, the Commission staff estimates that
these evaluations would impose no external annual ongoing costs on
UITs, because the rule would only require each UIT to make a single
determination on or before of the date of initial deposit of portfolio
securities into the UIT.\377\
---------------------------------------------------------------------------

    \373\ These burden hours translate to a monetized cost of
$11,005 per fund. This estimate is based on the following
calculation: 15 hours x $352 hourly rate for compliance attorney +
10 hours x $317 hourly rate for senior portfolio manager + 5 hours x
$511 hourly rate for chief compliance officer = $11,005. See supra
footnote 287 for the source of salary data. Amortized over three
years, the monetized annual cost of the initial hour burden would be
$3,590. This estimate is based on the following calculation:
$11,005/3 = $3,669.
    \374\ This estimate is based on the following calculation: 30
hours/3 years = 10 hours per year.
    \375\ These five burden hours translate to a monetized annual
cost of $388 per fund. This estimate is based on the following
calculation: 2.5 hours x $61 hourly rate for general clerk + 2.5
hours x $94 hourly rate for senior computer operator = $388. See
supra footnote 287 for the source of salary data.
    \376\ This estimate is based on the following calculation: 6
hours x $400 hourly rate for outside counsel = $2,400. Amortized
over three years, this initial cost is equal to $800 (based on a
calculation of $2,400/3). See supra footnote 287 for the source of
salary data.
    \377\ Proposed rule 12d1-4(b)(3)(ii).
---------------------------------------------------------------------------

5. Separate Accounts Funding Variable Insurance Contracts--Certificates
    Additionally, the proposed rule would require that, with respect to
a separate account funding variable insurance contracts that invests in
an acquiring fund, the acquiring fund must obtain a certification from
the insurance company offering the separate account that the insurance
company has determined that the fees borne by the separate account,
acquiring fund and acquired fund, in the aggregate, are consistent with
the standard set forth in section 26(f)(2)(A) of the Act (15 U.S.C.
80a-26(f)(2)(A)).\378\ The acquiring fund would also be subject to the
proposed rule's recordkeeping provisions.\379\ An insurance company
already is required to make these fee-related determinations, but
obtaining the aforementioned certifications and maintaining the
certifications for recordkeeping purposes would impose new burdens on
the acquiring fund.
---------------------------------------------------------------------------

    \378\ Proposed rule 12d1-4(b)(3)(iii).
    \379\ Proposed rule 12d1-4(c).
---------------------------------------------------------------------------

    The Commission staff estimates that obtaining these certifications
and maintaining them for recordkeeping purposes would impose a one-time
internal hour burden of four hours, then an ongoing internal hour
burden of one hour, on each acquiring fund. Amortized over three years,
the internal hour burden would be two hours per acquiring fund.\380\
The staff estimates that obtaining and maintaining the certifications
would not require board review or consultation with outside counsel,
and would therefore impose no additional external costs on these
acquiring funds.
---------------------------------------------------------------------------

    \380\ This estimate is based on the following calculation: (4
hours + 1 hour + 1 hour)/3 = 2 hours. These two burden hours
translate to a monetized annual cost of $155 per fund. This estimate
is based on the following calculation: 1 hour x $61 hourly rate for
general clerk + 1 hour x $94 hourly rate for senior computer
operator = $155. See supra footnote 287 for the source of salary
data.
---------------------------------------------------------------------------

C. Rule 0-2

    Section 6(c) of the Act provides the Commission with authority to
conditionally or unconditionally exempt persons, securities or
transactions from any provision 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. Rule 0-2 under the
Act, entitled ``General Requirements of Papers and Applications,''
prescribes general instructions for filing an application seeking
exemptive relief with the Commission.\381\ We currently estimate for
rule 0-2 a total hour burden of 5,340 hours at an annual time cost of
$2,029,200.60 and the total annual external cost burden is
$14,090,000.\382\
---------------------------------------------------------------------------

    \381\ See Supporting Statement of Rule 0-2 under the Investment
Company Act of 1940, General Requirements of Paper Applications
(Nov. 23, 2016) (summarizing how applications are filed with the
Commission in accordance with the requirements of rule 0-2),
available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201602-3235-008.
    \382\ This estimate is based on the last time the rule's
information collection was submitted for PRA renewal in 2016.
---------------------------------------------------------------------------

    Proposed rule 12d1-4 would permit acquiring funds to invest in
acquired funds beyond the limits in section 12(d)(1) of the Act subject
to several conditions that are designed to limit the acquiring funds'
control over the acquired funds, limit the potential for duplicative or
excessive fees, and limit the construction of complex structures that
may confuse investors. Many of these fund of funds arrangements are
permitted under current Commission exemptive orders. Therefore,
proposed rule 12d1-4 would alleviate some of the burdens associated
with rule 0-2 because it would reduce the number of entities that
require exemptive relief in order to operate. The Commission staff
estimates that this reduction would decrease the annual aggregate
burden by approximately $5,400,000 (approximately 33.5%).\383\
Therefore, in the aggregate, we estimate that proposed rule 12d1-4
would result in a decrease of the annual burden of rule 0-2 to
approximately 3,551 \384\ hours at an

annual time cost of $1,349,418 \385\ and an annual external cost of
$9,369,850.\386\
---------------------------------------------------------------------------

    \383\ See supra footnote 267 and accompanying text. $5,400,000/
($2,029,200.60 + $14,090,000) = 0.335.
    \384\ This estimate is based on the following calculation: 5,340
hours-(5,340 hours x 0.335) = 3,551 hours.
    \385\ This estimate is based on the following calculation:
$2,029,200.60-($2,029,200.60 x 0.335) = $1,349, 418.40.
    \386\ This estimate is based on the following calculation:
$14,090,000-($14,090,000 x 0.335) = $9,369,850.
---------------------------------------------------------------------------

D. Form N-CEN

    Form N-CEN is a structured form that requires registered funds to
provide census-type information to the Commission on an annual
basis.\387\ Today, the Commission is proposing an amendment to Form N-
CEN to require management companies and UITs to report whether they
relied on section 12(d)(1)(G) or rule 12d1-4 during the reporting
period.\388\
---------------------------------------------------------------------------

    \387\ See Reporting Modernization Adopting Release, supra
footnote 48. The compliance date for Form N-CEN is June 1, 2018.
    \388\ Item C.7.a. of Form N-CEN currently requires funds to
disclose if they are relying on rule 12d1-1. The Commission is
proposing to add to Form N-CEN requirements that funds report if
they are relying on section 12(d)(1)(G) or rule 12d1-4. See Proposed
Items C.7.l. and m. of Form N-CEN (relating to management companies)
and Proposed Items F.18 and F.19 (relating to UITs).
---------------------------------------------------------------------------

    In the Reporting Modernization Adopting Release, we estimated that
the Commission would receive an average of 3,113 reports on Form N-
CEN.\389\ We estimated that the average annual hour burden per response
for Form N-CEN for the first year to be 32.37 hours and 12.37 hours in
subsequent years.\390\ Amortizing the burden over three years, we
estimated the average annual hour burden per fund per year to be 19.04
hours and the total aggregate annual hour burden to be 59,272
hours.\391\ Finally, we estimated that all applicable funds will incur,
in the aggregate, external annual costs of $2,088,176 to prepare and
file reports on Form N-CEN.\392\
---------------------------------------------------------------------------

    \389\ See Reporting Modernization Adopting Release, supra
footnote 48 at text accompanying n.1524.
    \390\ See Reporting Modernization Adopting Release, supra
footnote 48 at text accompanying nn.1531-1532.
    \391\ See Reporting Modernization Adopting Release, supra
footnote 48 at text accompanying nn.1533-1534.
    \392\ See Reporting Modernization Adopting Release, supra
footnote 48 at text accompanying n.1538.
---------------------------------------------------------------------------

    Based on Commission staff experience, we believe that our proposal
to require management companies and UITs to report whether they relied
on section12(d)(1)(G) or rule 12d1-4 during the reporting period would
increase the estimated burden hours associated with Form N-CEN by
approximately 0.1 hours,\393\ both initially and on an ongoing
basis.\394\ Therefore, in the aggregate, we estimate that management
companies and UITs will incur an annual burden of an additional 303.8
hours, to comply with the proposed amendments to Form N-CEN.\395\ We
estimate that there are no additional external costs associated with
this collection of information.
---------------------------------------------------------------------------

    \393\ This estimate stems from the Commission staff's
understanding of the time it takes to complete initially complete
and review items on Form N-CEN.
    \394\ We also have revised our estimate of the number of reports
on Form N-CEN per year down from 3,113 reports to 3,038 reports to
reflect updates to the industry data figures that were utilized in
the Reporting Modernization Release. This estimate is based on the
number of entities as of December 2017 that we expect will be
required to make filings on Form N-CEN. See Reporting Modernization
Adopting Release, supra footnote 48 at text accompanying n.1524.
    \395\ This estimate is based on the following calculation: 0.1
hours x 3,038 filers = 303.8 hours.
---------------------------------------------------------------------------

E. Request for Comments

    We request comment on whether our estimates for burden hours and
any external costs as described above are reasonable. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i)
Evaluate whether the proposed collections of information are necessary
for the proper performance of the functions of the Commission,
including whether the information will have practical utility; (ii)
evaluate the accuracy of the Commission's estimate of the burden of the
proposed collections of information; (iii) determine whether there are
ways to enhance the quality, utility, and clarity of the information to
be collected; and (iv) determine whether there are ways to minimize the
burden of the collections of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
    The agency is submitting the proposed collections of information to
OMB for approval. Persons wishing to submit comments on the collection
of information requirements of the proposed rule should direct them to
the Office of Management and Budget, Attention Desk Officer for the
Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Washington, DC 20503, and should send a copy to
Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-1090, with reference to File No. S7-27-
18. OMB is required to make a decision concerning the collections of
information between 30 and 60 days after publication of this release;
therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days after publication of this release.
Requests for materials submitted to OMB by the Commission with regard
to these collections of information should be in writing, refer to File
No. S7-27-18, and be submitted to the Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736.

VIII. Initial Regulatory Flexibility Analysis

    The Commission has prepared the following Initial Regulatory
Flexibility Analysis (``IRFA'') in accordance with section 3(a) of the
Regulatory Flexibility Act (``RFA'').\396\ It relates to proposed rule
12d1-4 and the proposed amendments to Form N-CEN under the Investment
Company Act.
---------------------------------------------------------------------------

    \396\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Proposed Actions

    Proposed rule 12d1-4 would permit registered funds and BDCs that
satisfy certain conditions to acquire shares of another fund in excess
of the limits of section 12(d)(1) of the Act without obtaining an
exemptive order from the Commission. The rule is designed to streamline
and enhance the regulatory framework applicable to fund of funds
arrangements. In addition, we propose to rescind rule 12d1-2 under the
Act and individual exemptive orders for certain fund of funds
arrangements to create a consistent and efficient rules-based regime
for the formation and oversight of funds of funds. We also propose to
amend rule 12d1-1 to allow funds that rely on section 12(d)(1)(G) to
invest in money market funds that are not part of the same group of
investment companies in reliance on that rule. Finally, our proposed
amendments to Form N-CEN would allow the Commission to better monitor
funds' reliance on rule 12d1-4 and section 12(d)(1)(G), and would
assist the Commission with its accounting, auditing, and oversight
functions.

B. Legal Basis

    The Commission is proposing new rule 12d1-4 pursuant to the
authority set forth in sections 6(c), 12(d)(1)(G) and (J), 17(b), and
38(a) of the Investment Company Act [15 U.S.C. 80a-6(c), 80a-
12(d)(1)(G) and (J), 80a-17(b), and 80a-37(a)]. The Commission is
proposing amendments to Form N-CEN under the authority set forth
sections 8(b), 30(a), and 38(a) of the Investment Company Act [15
U.S.C. 80a-8(b), 80a-29(a), and 80a-37(a)].

C. Small Entities Subject to the Proposed Requirements

    An investment company is a small entity if, together with other
investment companies in the same group of related investment companies,
it has net assets of $50 million or less as of the end of its most
recent fiscal year.\397\ Commission staff estimates that, as of June
2018, there were 59 open-end funds (including 10 ETFs), 32 closed-end
funds, 6 UITs, and 19 BDCs that would be considered small entities that
may be subject to proposed rule 12d1-4.\398\ For the purposes of this
analysis, we estimate that, of those 116 total entities, 8 entities (3
open-end funds, 4 closed-end funds, and 1 UIT) invest in other funds
and thus may be subject to the proposed rule.\399\
---------------------------------------------------------------------------

    \397\ See rule 0-10(a) under the Investment Company Act.
    \398\ This estimate is derived an analysis of data obtained from
Morningstar Direct as well as data reported to the Commission for
the period ending June 30, 2018. There are currently no ETMFs or
face-amount certificate companies that would be considered small
entities. We estimate that no BDCs that are small entities invest in
other funds.
    \399\ Id.
---------------------------------------------------------------------------

D. Projected Board Reporting, Recordkeeping, and Other Compliance
Requirements

    We are proposing new rule 12d1-4 to streamline and enhance the
regulatory framework applicable to fund of funds arrangements, the
rescission of rule 12d1-2 and individual exemptive orders for certain
fund of funds arrangements in order to create a consistent and
efficient rules-based regime for the formation and oversight of fund of
funds, and amendments to Form N-CEN to allow the Commission to better
monitor funds' reliance on rule 12d1-4 and section 12(d)(1)(G) and
assist the Commission with its accounting, auditing, and oversight
functions.
    A fund that relies on rule 12d1-4 (or intends to preserve
flexibility to rely on rule 12d1-4) would be required to disclose in
its registration statement that it is or at times may be an acquiring
fund for purposes of rule 12d1-4. In addition, under proposed rule
12d1-4, where an acquiring fund and its advisory group (in the
aggregate) hold more than 3% of the outstanding voting securities of an
acquired fund, the acquiring fund would be required to vote those
securities using either pass-through voting or mirror voting, unless
the acquiring fund is covered by certain exceptions to the requirement.
In cases where the acquiring fund is a management company, proposed
rule 12d1-4 would require the acquiring fund's adviser to evaluate the
complexity of the structure and aggregate fees associated with the
acquiring fund's investment in acquired funds, and find that it is in
the best interest of the acquiring fund to invest in the acquired
funds. Proposed rule 12d1-4 also would require that, in cases where the
acquiring fund is a registered UIT, the UIT's principal underwriter or
depositor must evaluate the complexity of the structure and the
aggregate fees associated with the UIT's investment in acquired funds,
and find that the UIT's fees do not duplicate the fees of the acquired
funds that the UIT holds or will hold at the date of deposit.
Additionally, the proposed rule would require that, with respect to a
separate account funding variable insurance contracts that invests in
an acquiring fund, the acquiring fund must obtain a certification from
the insurance company offering the separate account that the insurance
company has determined that the fees borne by the separate account,
acquiring fund and acquired fund, in the aggregate, are consistent with
the standard set forth in section 26(f)(2)(A) of the Act.
    To harmonize the overall regulatory structure in view of proposed
rule 12d1-4, we are proposing to rescind existing exemptive orders (as
discussed below) and rule 12d1-2, which would eliminate the flexibility
of funds relying on section 12(d)(1)(G) to: (i) Acquire the securities
of other funds that are not part of the same group of investment
companies, subject to the limits in section 12(d)(1)(A) or 12(d)(1)(F);
and (ii) invest directly in stocks, bonds and other securities. We also
propose to amend rule 12d1-1 to allow funds relying on section
12(d)(1)(G) to invest in money market funds that are not part of the
same group of investment companies in reliance on that rule. Finally,
we are proposing an amendment to Form N-CEN to require management
companies and UITs to report whether they relied on section 12(d)(1)(G)
or rule 12d1-4 during the reporting period.
    Proposed new rule 12d1-4, the rescission of rule 12d1-2, and the
amendments to rule 12d1-1 and Form N-CEN would change current reporting
requirements for small entities that choose to rely on the rule.
Entities eligible to rely on proposed rule 12d1-4 would be required to
comply with the requirements of the rule only if they wish to rely on
the rule's exemptions. Additionally, entities that are management
companies or UITs and are relying on rule 12d1-4 would be required to
report this reliance on Form N-CEN. For purposes of this analysis,
Commission staff estimates, based on outreach conducted with a variety
of funds, that small fund groups will incur approximately the same
initial and ongoing costs as large fund groups. As discussed above, we
estimate that each entity that relies on proposed rule 12d1-4 (and is
subject to rule 12d1-4's voting provision) would incur the following
annual time and cost burdens (with initial burdens amortized over the
initial three years): (a) Two internal burden hours and $3,647 in
external costs to satisfy new disclosure requirements; \400\ (b) 1
internal burden hour and $800 in external costs to satisfy the proposed
voting requirement; \401\ (c) for management companies, 26 internal
burden hours and $11,740 in external costs to satisfy the proposed
complex structure and aggregate fees analysis requirement,\402\ and for
UITs, 15 internal burden hours and $800 in external costs to satisfy
the proposed complex structure and aggregate fees analysis.\403\
Furthermore, as discussed above, we estimate that each entity that
relies on the proposed new rule would incur an additional annual time
burden of 0.1 hours to comply with the amendments to Form N-CEN.\404\
---------------------------------------------------------------------------

    \400\ See supra footnotes 340 through 345 and accompanying text.
    \401\ See supra footnotes 349 through 356 and accompanying text.
We expect that small entities subject to the voting requirement
would choose to use mirror voting rather than pass-through voting,
and thus use our estimates for mirror voting here.
    \402\ See supra footnotes 365 through 369 and accompanying text.
    \403\ See supra footnotes 373 through 377 and accompanying text.
    \404\ See supra footnotes 393 through 394 and accompanying text.
---------------------------------------------------------------------------

    Therefore, in the aggregate, we estimate that small entities would
incur an annual internal burden of 221 additional hours and an annual
external cost burden of $118,556 to comply with the requirements of
proposed rule 12d1-4.\405\ Furthermore, in the aggregate, we estimate
that small entities would incur an annual burden of an additional 0.8
hours to comply with the amendments to Form N-CEN.\406\
---------------------------------------------------------------------------

    \405\ This estimate is based on the following calculations:
     (2 internal burden hours and $3,647 in external costs) x 8
total small entities for disclosure requirements + (1 internal
burden hour and $800 in external costs) x 8 total small entities for
voting requirements + (26 internal burden hours and $11,740 in
external costs) x 7 management company small entities for fee-
related requirements + (15 internal burden hours and $800 in
external costs) x 1 UIT small entity for fee-related requirements =
221 internal burden hours and $118,556.
    \406\ This estimate is based on the following calculations: 0.1
hours x 8 small entities = 0.8 hours.

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

    In addition, the economic effects of proposed rule 12d1-4's
redemption limit, discussed above in section VI.C.1.d, may
disproportionately affect smaller entities by creating an incentive for
acquiring funds to invest in larger acquired funds rather than smaller
acquired funds. This may reduce the flow of capital to smaller
potential acquired funds. We do not otherwise expect the proposal to
generate significant economic impacts on smaller entities that are
disproportionate to the general economic impacts, including compliance
costs and burdens, discussed in sections VI and VII above.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission has not identified any federal rules that duplicate,
overlap, or conflict with the proposed fund of funds regulations.

F. Significant Alternatives

    The RFA directs the Commission to consider significant alternatives
that would accomplish our stated objectives, while minimizing any
significant economic impact on small entities. We considered the
following alternatives for small entities in relation to the proposed
disclosure, findings, board reporting, and recordkeeping requirements:
(i) Exempting small entities from some or all of the proposed
requirements to rely on proposed rule 12d1-4, or establishing different
disclosure or reporting requirements, or different disclosure
frequency, for small entities to account for different levels of
resources available to small entities; (ii) clarifying, consolidating,
or simplifying the compliance requirements under proposed rule 12d1-4
for small entities; and (iii) using performance rather than design
standards.
    We do not believe that exempting or establishing different
requirements for any subset of funds, including funds that are small
entities, from proposed rule 12d1-4 or the proposed amendments to rule
12d1-1 and Form N-CEN or the proposed rescission of rule 12d1-2 and
certain existing exemptive relief would permit us to achieve our stated
objectives.\407\ Nor do we believe that clarifying, consolidating or
simplifying the various aspects of the proposal for small entities
would satisfy those objectives. In particular, we do not believe that
the interest of investors would be served by these alternatives. We
believe that all investors, including investors in entities that are
small entities, would benefit from the proposed rule and form
amendments. We believe that our proposal strikes the right balance
between allowing funds to engage in fund of funds arrangements while
protecting such entities from the abuses that Congress sought to
curtail in adopting section 12(d)(1). We believe that our proposed
requirements are vital to that balance and important to all investors,
irrespective of the size of the entity. We note that the current
exemptive orders do not distinguish between small entities and other
funds. Finally, we determined to use performance rather than design
standards for all funds, regardless of size, because we believe that
providing funds with the flexibility to determine how to implement the
requirements of the rule allows them the opportunity to tailor these
obligations to the facts and circumstances of the entities themselves.
---------------------------------------------------------------------------

    \407\ This includes exempting or establishing any different
requirements relating to proposed rule 12d1-4's redemption limits.
See supra section VI.C.1.d.
---------------------------------------------------------------------------

G. General Request for Comment

    The Commission requests comments regarding this analysis. We
request comment on the number of small entities that would be subject
to the proposed rules and whether the proposed rules would have any
effects on small entities that have not been discussed. We request that
commenters describe the nature of any effects on small entities subject
to the proposed rules and provide empirical data to support the nature
and extent of such effects. We also request comment on the estimated
compliance burdens of the proposed rules and how they would affect
small entities.

IX. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \408\ we must advise OMB whether a proposed
regulation constitutes a ``major'' rule. Under SBREFA, a rule is
considered ``major'' where, if adopted, it results in or is likely to
result in: (1) An annual effect on the economy of $100 million or more;
(2) a major increase in costs or prices for consumers or individual
industries; or (3) significant adverse effects on competition,
investment or innovation.
---------------------------------------------------------------------------

    \408\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    We request comment on the potential impact of the proposed rule and
form amendments on the economy on an annual basis. Commenters are
requested to provide empirical data and other factual support for their
views to the extent possible.

X. Statutory Authority

    The Commission is proposing new rule 12d1-4 pursuant to the
authority set forth in sections 6(c), 12(d)(1)(G) and (J), 17(b) and
38(a) of the Investment Company Act [15 U.S.C. 80a-6(c), 80a-
12(d)(1)(G) and (J), 80a-17(b), and 80a-37(a)]. The Commission is
proposing an amendment to Form N-CEN under the authority set forth
sections 8(b), 30(a), and 38(a) of the Investment Company Act [15
U.S.C. 80a-8(b), 80a-29(a), and 80a-37(a)].

List of Subjects in 17 CFR Parts 270 and 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.

Text of Proposed Rules and Form Amendments

    For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is proposed to be amended as follows:

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
1. The authority citation for part 270 continues to read, in part, as
follows:

    Authority:  15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39,
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010) unless
otherwise noted.
* * * * *
0
2. Amend section 270.12d1-1 by revising paragraph (a) to read as
follows:

Sec.  270.12d1-1   Exemptions for investments in money market funds.

    (a) Exemptions for acquisition of money market fund shares. If the
conditions of paragraph (b) of this section are satisfied,
notwithstanding sections 12(d)(1)(A), 12(d)(1)(B), 12(d)(1)(G), 17(a),
and 57 of the Act (15 U.S.C. 80a-12(d)(1)(A), 80a-12(d)(1)(B), 80a-
12(d)(1)(G), 80a-17(a), and 80a-56)) and Sec.  270.17d-1:
    (1) An investment company (``acquiring fund'') may purchase and
redeem shares issued by a money market fund; and
    (2) A money market fund, any principal underwriter thereof, and a
broker or a dealer may sell or otherwise dispose of shares issued by
the money market fund to any acquiring fund.
* * * * *

Sec.  270.12d1-2   [Removed and Reserved]

0
3. Remove and reserve section 270.12d1-2.
0
4. Section 270.12d1-4 is added to read as follows:

Sec.  270.12d1-4  Exemptions for investments in certain investment
companies.

    (a) Exemptions for acquisition and sale of acquired fund shares. If
the conditions of paragraph (b) of this section are satisfied,
notwithstanding sections 12(d)(1)(A), 12(d)(1)(B), 12(d)(1)(C), 17(a),
and 57 of the Act (15 U.S.C. 80a-12(d)(1)(A), 80a-12(d)(1)(C), 80a-
17(a) and 80a-56):
    (1) A registered investment company (other than a face-amount
certificate company) or business development company (an ``acquiring
fund'') may purchase or otherwise acquire the securities issued by
another registered investment company (other than a face-amount
certificate company) or business development company (an ``acquired
fund''); and
    (2) An acquired fund, any principal underwriter thereof, and any
broker or dealer registered under the Securities Exchange Act of 1934
may sell or otherwise dispose of the securities issued by the acquired
fund to any acquiring fund and any acquired fund may redeem or
repurchase any securities issued by the acquired fund from any
acquiring fund.
    (b) Conditions.
    (1) Control.
    (i) The acquiring fund and its advisory group will not control
(individually or in the aggregate) an acquired fund; and
    (ii) If the acquiring fund and its advisory group, in the
aggregate, hold more than 3% of the outstanding voting securities of an
acquired fund, each of those holders will vote its securities in the
manner prescribed by section 12(d)(1)(E)(iii)(aa) of the Act (15 U.S.C.
80a-12(d)(1)(E)(iii)(aa));
    (iii) The conditions in paragraphs (b)(1)(i) and (ii) of this
section do not apply when:
    (A) The acquiring fund is in the same group of investment companies
as an acquired fund; or
    (B) The acquiring fund's investment sub-adviser or any person
controlling, controlled by, or under common control with such
investment sub-adviser acts as an acquired fund's investment adviser or
depositor.
    (2) Limited redemption. An acquiring fund that holds shares of an
acquired fund in excess of the limits of section 12(d)(1)(A)(i) of the
Act (15 U.S.C. 80a-12(d)(1)(A)(i)) does not redeem or submit for
redemption, or tender for repurchase, any of those shares in an amount
exceeding 3% of the acquired fund's total outstanding shares during any
thirty-day period in which the acquiring fund holds the acquired fund's
shares in excess of that limit.
    (3) Fees and other considerations.
    (i) Management companies. If the acquiring fund is a management
company, before investing in an acquired fund in reliance on this
section, and with such frequency as the acquiring fund's board of
directors deems reasonable and appropriate thereafter, but in any case,
no less frequently than annually, the acquiring fund's investment
adviser must evaluate the complexity of the structure and aggregate
fees associated with the acquiring fund's investment in the acquired
fund, and find that it is in the best interest of the acquiring fund to
invest in the acquired fund. The acquiring fund's investment adviser
must report its finding and the basis for the finding to the acquiring
fund's board of directors.
    (ii) Unit investment trusts. If the acquiring fund is a unit
investment trust and the date of initial deposit of portfolio
securities into a registered UIT occurs after the effective date of
this section, the UIT's principal underwriter or depositor must
evaluate the complexity of the structure and the aggregate fees
associated with the UIT's investment in acquired funds and, on or
before such date of initial deposit, find that the UIT's fees do not
duplicate the fees of the acquired funds that the UIT holds or will
hold at the date of deposit.
    (iii) Separate account funding variable insurance contracts. With
respect to a separate account funding variable insurance contracts that
invests in an acquiring fund, the acquiring fund must obtain a
certification from the insurance company offering the separate account
that the insurance company has determined that the fees borne by the
separate account, acquiring fund and acquired fund, in the aggregate,
are consistent with the standard set forth in section 26(f)(2)(A) of
the Act (15 U.S.C. 80a-26(f)(2)(A)).
    (4) Complex fund structures.
    (i) An investment company must disclose in its registration
statement that it is (or at times may be) an acquiring fund for
purposes of this section;
    (ii) No investment company may rely on section 12(d)(1)(G) of the
Act (15 U.S.C. 80a-12(d)(1)(G)) or this section to purchase or
otherwise acquire, in excess of the limits in section 12(d)(1)(A) of
the Act (15 U.S.C. 80a-12(d)(1)(A)), the outstanding voting securities
of another investment company that discloses in its most recent
registration statement that it may be an acquiring fund under this
section; and
    (iii) An acquired fund must not acquire the securities of another
investment company (or companies that would be investment companies
under section 3(a) of the Act but for the exclusions from that
definition provided for in section 3(c)(1) or section 3(c)(7) of the
Act (15 U.S.C. 80a-3(c)(1) or 80a-3(c)(7)) in excess of the limits in
section 12(d)(1)(A) of the Act (15 U.S.C. 80a-12(d)(1)(A)) unless the
acquired fund's investment is:
    (A) In reliance on section 12(d)(1)(E) of the Act (15 U.S.C. 80a-
12(d)(1)(E));
    (B) For short-term cash management purposes pursuant to Sec.
270.12d1-1 or exemptive relief from the Commission;
    (C) In a subsidiary that is wholly-owned and controlled by the
acquired fund;
    (D) The receipt of securities as a dividend or as a result of a
plan of reorganization of a company; or
    (E) The acquisition of securities of another investment company
pursuant to exemptive relief from the Commission to engage in interfund
borrowing and lending transactions.
    (c) Recordkeeping. The acquiring fund must maintain and preserve
for a period of not less than five years, the first two years in an
easily accessible place, a written record of:
    (1) The finding required by paragraph (b)(3)(i) of this section and
the basis for such finding, and the reports provided to the board of
directors pursuant to paragraph (b)(3)(i) of this section;
    (2) The finding required by paragraph (b)(3)(ii) of this section
and the basis for such finding; and
    (3) The certification from each insurance company required by
paragraph (b)(3)(iii) of this section.
    (d) Definitions. For purposes of this section:
    Advisory group means either:
    (1) An acquiring fund's investment adviser or depositor, and any
person controlling, controlled by, or under common control with such
investment adviser or depositor; or
    (2) An acquiring fund's investment sub-adviser and any person
controlling, controlled by, or under common control with such
investment sub-adviser.
    Group of investment companies means any two or more registered
investment companies or business development companies that hold
themselves out to investors as related companies for purposes of
investment and investor services.
* * * * *

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
5. The general authority citation for part 274 continues to read as
follows, and the sectional authorities for Sec. Sec.  274.101 and
274.130 are removed:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8,

80a-24, 80a-26, 80a-29, and Pub. L. 111-203, sec. 939A, 124 Stat.
1376 (2010), unless otherwise noted.
* * * * *
0
6. Amend Form N-CEN [(referenced in Sec.  274.101), by:
0
a. In Part C, revising Item C.7. and adding paragraphs k. and l.; and
0
b. In Part F, adding Item F.18. and Item F.19.

    Note:  The text of Form N-CEN does not and the amendments will
not appear in the Code of Federal Regulations.

    The revisions and additions read as follows:
FORM N-CEN
ANNUAL REPORT FOR REGISTERED INVESTMENT COMPANIES
* * * * *
Part C. Additional Questions for Management Investment Companies
* * * * *
    Item C.7. Reliance on certain statutory exemption and rules. Did
the Fund rely on the following statutory exemption or any of the rules
under the Act during the reporting period? (check all that apply)
* * * * *
    k. Rule 12d1-4 (17 CFR 270.12d1-4): ___
    l. Section 12(d)(1)(G) of the Act (15 U.S.C. 80a-12(d)(1)(G)): ___
* * * * *
Part F. Additional Questions for Unit Investment Trusts
* * * * *
    Item F.18. Reliance on rule 12d1-4. Did the Registrant rely on rule
12d1-4 under the Act (17 CFR 270.12d1-2) during the reporting period?
[Y/N]
    Item F.19. Reliance on section 12(d)(1)(G). Did the Registrant rely
on the statutory exception in section 12(d)(1)(G) of the Act (15 U.S.C.
80a-12(d)(1)(G)) during the reporting period? [Y/N]
* * * * *

    By the Commission.

    Dated: December 19, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-27924 Filed 1-31-19; 8:45 am]
 BILLING CODE 8011-01-P


From: 	"Pickett, Tim (GE Infra, Water)"<EMAIL_ADDRESS>PRIVATE

To<EMAIL_ADDRESS> Date: 	Thu, Mar 8, 2007  5:42 PM

Subject: 	FGD paper

TJ,

Attached is a paper describing the ABMet process in more detail.

Before the technology was acquired by GE, it was sold by Applied

Biosciences.

Regards,

Tim Pickett

Tim Pickett

GE

Water & Process Technologies

ABMet(r) Technology Manager

ZENON Membrane Solutions

T<PHONE_NUMBER>

F<PHONE_NUMBER>

E<EMAIL_ADDRESS> www.zenon.com

265 Crossroads Square

Salt Lake City, Utah 84115

Please note that my email address has been changed to<EMAIL_ADDRESS> <EMAIL_ADDRESS>