[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Notices]
[Pages 21789-21790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08992]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-188, OMB Control No. 3235-0212]
Proposed Collection; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE., Washington, DC
20549-2736.
Extension:
Rule 12b-1.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (the ``Commission'') is soliciting comments on the
collection of information summarized below. The Commission plans to
submit this existing collection of information to the Office of
Management and Budget for extension and approval.
Rule 12b-1 under the Investment Company Act of 1940 (17 CFR
270.12b-1) permits a registered open-end investment company (``fund''
or ``mutual fund'') to bear expenses associated with the distribution
of its shares, provided that the mutual fund complies with certain
requirements, including, among other things, that it adopt a written
plan (``rule 12b-1 plan'') and that it has in writing any agreements
relating to the rule 12b-1 plan. The rule in part requires that (i) The
adoption or material amendment of a rule 12b-1 plan be approved by the
mutual fund's directors, including its independent directors, and, in
certain circumstances, its shareholders; (ii) the board review
quarterly reports of amounts spent under the rule 12b-1 plan; and (iii)
the board, including the independent directors, consider continuation
of the rule 12b-1 plan and any related agreements at least annually.
Rule 12b-1 also requires mutual funds relying on the rule to preserve
for six years, the first two years in an easily accessible place,
copies of the rule 12b-1 plan and any related agreements and reports,
as well as minutes of board meetings that describe the factors
considered and the basis for adopting or continuing a rule 12b-1 plan.
Rule 12b-1 also prohibits funds from paying for distribution of
fund shares with brokerage commissions on their portfolio transactions.
The rule requires funds that use broker-dealers that sell their shares
to also execute their portfolio securities transactions, to implement
policies and procedures reasonably designed to prevent: (i) the persons
responsible for selecting broker-dealers to effect transactions in fund
portfolio securities from taking into account broker-dealers'
promotional or sales efforts when making those decisions; and (ii) a
fund, its adviser or principal underwriter, from entering into any
agreement under which the fund directs brokerage transactions or
revenue generated by those transactions to a broker-dealer to pay for
distribution of the fund's (or any other fund's) shares.
The board and shareholder approval requirements of rule 12b-1 are
designed to ensure that fund shareholders and directors receive
adequate information to evaluate and approve a rule 12b-1 plan and,
thus, are necessary for investor protection. The requirement of
quarterly reporting to the board is designed to ensure that the rule
12b-1 plan continues to benefit the fund and its shareholders. The
recordkeeping requirements of the rule are necessary to enable
Commission staff to oversee compliance with the rule. The requirement
that funds or their advisers implement, and fund boards approve,
policies and procedures in order to prevent persons charged with
allocating fund brokerage from taking distribution efforts into account
is designed to ensure that funds' selection of brokers to effect
portfolio securities transactions is
[[Page 21790]]
not influenced by considerations about the sale of fund shares.
Based on information filed with the Commission by funds, Commission
staff estimates that there are approximately 7837 mutual fund
portfolios that have at least one share class subject to a rule 12b-1
plan.\1\ However, many of these portfolios are part of an affiliated
group of funds, or mutual fund family, that is overseen by a common
board of directors. Although the board must review and approve the rule
12b-1 plan for each fund separately, we have allocated the costs and
hourly burden related to rule 12b-1 based on the number of fund
families that have at least one fund that charges rule 12b-1 fees,
rather than on the total number of mutual fund portfolios that
individually have a rule 12b-1 plan.\2\ Based on information filed with
the Commission, the staff estimates that there are approximately 330
fund families with common boards of directors that have at least one
fund with a rule 12b-1 plan.
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\1\ This estimate is based on information from the Commission's
NSAR database.
\2\ This allocation is based on previous conversations with fund
representatives on how fund boards comply with the requirements of
rule 12b-1. Despite this allocation of hourly burdens and costs, the
number of annual responses each year will continue to depend on the
number of fund portfolios with rule 12b-1 plans rather than the
number of fund families with rule 12b-1 plans. The staff estimates
that the number of annual responses per fund portfolio will be four
per year (quarterly, with the annual reviews taking place at one of
the quarterly intervals). Thus, we estimate that funds will make
31,348 responses (7837 fund portfolios x 4 responses per fund
portfolio = 31,348 responses) each year.
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Based on previous conversations with fund representatives,
Commission staff estimates that for each of the 330 mutual fund
families with a portfolio that has a rule 12b-1 plan, the average
annual burden of complying with the rule is 425 hours. This estimate
takes into account the time needed to prepare quarterly reports to the
board of directors, the board's consideration of those reports, and the
board's initial or annual consideration of whether to continue the
plan.\3\ We therefore estimate that the total hourly burden per year
for all funds to comply with current information collection
requirements under rule 12b-1, is 140,250 hours (330 fund families x
425 hours per fund family = 140,250 hours).
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\3\ We do not estimate any costs or time burden related to the
recordkeeping requirements in rule 12b-1, as funds are either
required to maintain these records pursuant to other rules or would
keep these records in any case as a matter of business practice.
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If a currently operating fund seeks to (i) adopt a new rule 12b-1
plan or (ii) materially increase the amount it spends for distribution
under its rule 12b-1 plan, rule 12b-1 requires that the fund obtain
shareholder approval. As a consequence, the fund will incur the cost of
a proxy.\4\ Based on previous conversations with fund representatives,
Commission staff estimates that approximately three funds per year
prepare a proxy in connection with the adoption or material amendment
of a rule 12b-1 plan. Funds typically hire outside legal counsel and
proxy solicitation firms to prepare, print, and mail such proxies. The
staff further estimates that the cost of each fund's proxy is $34,372.
Thus the total annual cost burden of rule 12b-1 to the fund industry is
$103,116 (3 funds requiring a proxy x $34,372 per proxy).
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\4\ In general, a fund adopts a rule 12b-1 plan before it begins
operations. Therefore, the fund is not required to obtain the
approval of its public shareholders because the fund's shares have
not yet been offered to the public.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act, and is not derived from a
comprehensive or even a representative survey or study of the costs of
Commission rules and forms.
The collections of information required by Rule 12b-1 are necessary
to obtain the benefits of the rule. Notices to the Commission 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 control number.
Written comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (b) the accuracy of the Commission's estimate
of the burden of the collection of information; (c) ways to enhance the
quality, utility, and clarity of the information collected; and (d)
ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology. Consideration will
be given to comments and suggestions submitted in writing within 60
days of this publication.
Please direct your written comments to Pamela Dyson, Director/Chief
Information Officer, Securities and Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE., Washington, DC 20549; or send an email
to: [email protected].
Dated: April 15, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015-08992 Filed 4-17-15; 8:45 am]
BILLING CODE 8011-01-P