[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51584-51585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20824]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
Extension:
Rule 10f-3; SEC File No. 270-237; OMB Control No. 3235-0226.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget a request for extension and approval of the collections of
information discussed below.
Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a)
(the ``Act'') prohibits a registered investment company (``fund'') from
purchasing any security during an underwriting or selling syndicate if
the fund has certain relationships with a principal underwriter for the
security. Congress enacted this provision in 1940 to protect funds and
their shareholders by preventing underwriters from ``dumping''
unmarketable securities on affiliated funds.
Rule 10f-3 (17 CFR 270.10f-3) permits a fund to engage in a
securities transaction that otherwise would violate section 10(f) if,
among other things: (i) Each transaction effected under the rule is
reported on Form N-SAR; (ii) the fund's directors have approved
procedures for purchases made in reliance on the rule, regularly review
fund purchases to determine whether they comply with these procedures,
and approve necessary changes to the procedures; and (iii) a written
record of each transaction effected under the rule is maintained for
six years, the first two of which in an easily accessible place. The
written record must state: (i) From whom the securities were acquired;
(ii) the identity of the underwriting syndicate's members; (iii) the
terms of the transactions; and (iv) the information or materials on
which the fund's board of directors has determined that the purchases
were made in compliance with procedures established by the board.
The rule also conditionally allows managed portions of fund
portfolios to purchase securities offered in otherwise off-limits
primary offerings. To qualify for this exemption, rule 10f-3 requires
that the subadviser that is advising the purchaser be contractually
prohibited from providing investment advice to any other portion of the
fund's portfolio and consulting with any other of the fund's advisers
that is a principal underwriter or affiliated person of a principal
underwriter concerning the fund's securities transactions.
These requirements provide a mechanism for fund boards to oversee
compliance with the rule. The required recordkeeping facilitates the
Commission staff's review of rule 10f-3 transactions during routine
fund inspections and, when necessary, in connection with enforcement
actions.
The staff estimates that approximately 300 funds engage in a total
of approximately 3,700 rule 10f-3 transactions each year.\1\ Rule 10f-3
requires that the purchasing fund create a written record of each
transaction that includes, among other things, from whom the securities
were purchased and the terms of the transaction. The staff estimates
\2\ that it takes an average fund approximately 30 minutes per
transaction and approximately 1,850 hours \3\ in the aggregate to
comply with this portion of the rule.
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\1\ These estimates are based on staff extrapolations from
filings with the Commission.
\2\ Unless stated otherwise, the information collection burden
estimates are based on conversations between the staff and
representatives of funds.
\3\ This estimate is based on the following calculation: (0.5
hours x 3,700 = 1,850 hours).
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The funds also must maintain and preserve these transactional
records in accordance with the rule's recordkeeping requirement, and
the staff estimates that it takes a fund approximately 20 minutes per
transaction and that annually, in the aggregate, funds spend
approximately 1,233 hours \4\ to comply with this portion of the rule.
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\4\ This estimate is based on the following calculations: (20
minutes x 3,700 transactions = 74,000 minutes; 74,000 minutes/60 =
1,233 hours).
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In addition, fund boards must, no less than quarterly, examine each
of these transactions to ensure that they comply with the fund's
policies and procedures. The information or materials upon which the
board relied to come to this determination also must be maintained and
the staff estimates that it takes a fund 1 hour per quarter and, in the
aggregate, approximately 1,200 hours \5\ annually to comply with this
rule requirement.
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\5\ This estimate is based on the following calculation: (1 hour
per quarter x 4 quarters x 300 funds = 1,200 hours).
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The staff estimates that reviewing and revising as needed written
procedures for rule 10f-3 transactions takes, on average for each fund,
two hours of a compliance attorney's time per year.\6\ Thus, annually,
in the aggregate, the staff estimates that funds spend a total of
approximately 600 hours \7\ on monitoring and revising rule 10f-3
procedures. Based on an analysis of fund filings, the staff estimates
that approximately 775 fund portfolios enter into subadvisory
agreements each year.\8\ Based on discussions with industry
representatives, the staff estimates that it will require approximately
3 attorney hours to draft and execute additional clauses in new
subadvisory contracts in order for funds and subadvisers to be able to
rely on the exemptions in rule 10f-3. Because these additional clauses
are identical to the clauses that a fund would need to insert in their
subadvisory contracts to rely on rules 12d3-1, 17a-10, and 17e-1, and
because we believe that funds that use one such rule generally use all
of these rules, we apportion this 3 hour time burden equally to all
four rules. Therefore, we estimate that the burden allocated to rule
10f-3 for this contract change would be 0.75 hours.\9\ Assuming that
all 775 funds that enter into new subadvisory contracts each year make
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the modification to their contract required by the rule, we estimate
that the rule's contract modification requirement will result in 581
burden hours annually.\10\
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\6\ These averages take into account the fact that in most
years, fund attorneys and boards spend little or no time modifying
procedures and in other years, they spend significant time doing so.
\7\ This estimate is based on the following calculation: (300
funds x 2 hours = 600 hours).
\8\ Based on information in Commission filings, we estimate that
44.4 percent of funds are advised by subadvisers.
\9\ This estimate is based on the following calculation (3 hours
/ 4 rules = .75 hours).
\10\ These estimates are based on the following calculations:
(0.75 hours x 775 portfolios = 581 burden hours).
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The staff estimates, therefore, that rule 10f-3 imposes an
information collection burden of 5,665 hours.\11\ This estimate does
not include the time spent filing transaction reports on Form N-SAR,
which is encompassed in the information collection burden estimate for
that form.
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\11\ This estimate is based on the following calculation: (1,850
hours + 1,233 hours + 1,200 hours + 600 hours + 581 hours + 201
hours = 5,665 total burden hours).
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The collection of information required by rule 10f-3 is necessary
to obtain the benefits of the rule. Responses will not be kept
confidential. 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 OMB control number.
The public may view the background documentation for this
information collection at the following Web site, www.reginfo.gov.
Comments should be directed to: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 10102, New Executive Office
Building, Washington, DC 20503, or by sending an email to: [email protected]; and (ii) Thomas Bayer, Director/Chief Information
Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon,
6432 General Green Way, Alexandria, VA 22312 or send an email to: [email protected]. Comments must be submitted to OMB within 30 days of
this notice.
Dated: August 20, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20824 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P