[Federal Register Volume 66, Number 172 (Wednesday, September 5, 2001)]
[Notices]
[Pages 46485-46487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22238]


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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 Filings and Information Services, Washington, 
DC 20549
Extension:
    Rule 17j-1--SEC File No. 270-239, OMB Control No. 3235-0224

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange 
Commission (the ``Commission'') has submitted to the Office of 
Management and Budget (``OMB'') a request for extension and approval of 
the collection of information discussed below.
    Rule 17j-1 [17 CFR 270.17j-1] under the Investment Company Act of 
1940 (15 U.S.C. 80a) (the ``Investment Company Act''), which the 
Commission adopted in 1980 \1\ and amended in 1999,\2\ implements 
section 17(j) of the Act, which makes it unlawful for persons 
affiliated with a registered investment company or with the investment 
company's investment adviser or principal underwriter (each, a ``17j-1 
organization''), in connection with the purchase or sale of securities

[[Page 46486]]

held or to be acquired by the investment company, to engage in any 
fraudulent, deceptive, or manipulative act or practice in contravention 
of the Commission's rules and regulations. Section 17(j) also 
authorizes the Commission to promulgate rules requiring the rule 17j-1 
organizations to adopt codes of ethics.
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    \1\ Prevention of Certain Unlawful Activities With Respect To 
Registered Investment Companies, Investment Company Act Release No. 
11421 (Oct. 31, 1980) [45 FR 73915 (Nov. 7, 1980)].
    \2\ Personal Investment Activities of Investment Company 
Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999) 
[64 FR 46821-01 (Aug. 27, 1999)].
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    In order to implement section 17(j), rule 17j-1 imposes certain 
requirements on 17j-1 organizations and ``Access Persons'' \3\ of those 
organizations. The rule prohibits fraudulent, deceptive or manipulative 
acts by persons affiliated with a rule 17j-1 organization in connection 
with their personal securities transactions in securities held or to be 
acquired by the fund. The rule requires each 17j-1 organization, unless 
it is a money market fund or a fund that does not invest in Covered 
Securities,\4\ to: (i) Adopt a written code of ethics, (ii) submit the 
code and any material changes to the code, along with a certification 
that it has adopted procedures reasonably necessary to prevent access 
Persons from violating the code of ethics, to the fund board for 
approval, (iii) use reasonable diligence and institute procedures 
reasonably necessary to prevent violations of the code, (iv) submit a 
written report to the fund describing any issues arising under the code 
and procedures and certifying that the 17j-1 entity has adopted 
procedures reasonably necessary to prevent Access Persons from 
violating the code, (v) identify Access Persons and notify them of 
their reporting obligations, and (vi) maintain and make available to 
the Commission for review certain records related to the code of ethics 
and transaction reporting by Access Persons.
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    \3\ Rule 17j-1(a)(1) defines an ``access person'' as ``any 
director, officer, general partner, or advisory person of a fund or 
of a fund's investment adviser'' and as ``any director, officer, or 
general partner of a principal underwriter who, in the ordinary 
course of business, makes, participates in or obtains information 
regarding, the purchase or sale of Covered Securities by the Fund 
for which the principal underwriter acts, or whose functions or 
duties in the ordinary course of business relate to the making of 
any recommendation to the Fund regarding the purchase or sale of 
Covered Securities.''
    \4\ A ``Covered Security'' is any security that falls within the 
definition in section 2(a)(36) of the Act, except for direct 
obligations of the U.S. Government, bankers' acceptances, bank 
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements, and shares 
issued by open-end funds. Rule 17j-1(a)(4).
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    The rule requires each Access Person of a fund (other than a money 
market fund or a fund that does not invest in Covered Securities) and 
of an investment adviser or principal underwriter of the fund, who is 
not subject to an exception,\5\ to file: (i) Within ten days of 
becoming an Access Person, a dated initial holdings report that sets 
forth certain information with respect to the access person's 
securities and accounts, (ii) within ten days of the end of each 
calendar quarter, a dated quarterly transaction report providing 
certain information with respect to any securities transactions during 
the quarter and any account established by the Access Person in which 
any securities were held during the quarter, and (iii) dated annual 
holding reports providing information with respect to each covered 
security the Access Person beneficially owns and accounts in which 
securities are held for his or her benefit. In addition, rule 17j-1 
requires investment personnel of a fund or its investment adviser, 
before acquiring beneficial ownership in securities through an initial 
public offering (IPO) or in a private placement, to obtain approval 
from the fund or the fund's investment adviser.
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    \5\ Rule 17j-1(d)(2) exempts Access Persons from reporting in 
five instances in which reporting would be duplicative or would not 
serve the purposes of the rule.
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    The requirements that the management of a rule 17j-1 organization 
provide the fund's board with new and amended codes of ethics and an 
annual issues and certification report are intended to enhance board 
oversight of personal investment policies applicable to the fund and 
the personal investment activities of access persons. The requirements 
that Access Persons, who are not subject to an exception, provide 
initial holdings reports, quarterly transaction reports, and annual 
holdings reports and request approval for purchases of securities 
through IPOs and private placements are intended to help fund 
compliance personnel and the Commission's examinations staff monitor 
potential conflicts of interest and detect potentially abusive 
activities. The requirement that each rule 17j-1 organaization maintain 
certain records is intended to assist rule 17j-1 organizations and the 
Commission's examinations staff in determining whether there have been 
violations of rule 17j-1.
    The Commission estimates that each year a total of 80,706 Access 
Persons and 17j-1 organizations are subject to the rule's reporting 
requirements.\6\ Respondents provide approximately 113,896 responses 
each year. Each initial holdings report takes approximately forty-two 
minutes for each of the approximately 10,400 new Access Person each 
year to prepare. We estimate that each year Access Persons file 
approximately 30,000 quarterly transaction reports, each of which takes 
approximately twenty minutes to prepare. We estimate that each year 
approximately 75,000 Access Persons file annual holdings reports, each 
of which takes approximately forty-two minutes to prepare. We estimate 
that Access Persons file approximately 680 requests for preapproval of 
purchases of securities through initial public offerings and private 
placements, each of which takes approximately twenty-six minutes to 
prepare. In the aggregate, Access Persons spend approximately 70,000 
hours per year complying with the reporting requirements under the 
rule.
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    \6\ Funds that are money market funds or that invest only in 
securities excluded from the definition of ``security'' in rule 17j-
1, and any investment advisers, principal underwriters, and Access 
Persons to these funds, do not have to comply with the rule's 
requirements concerning codes of ethics, quarterly transaction 
reports, and initial holdings reports. The estimated number of 
respondents reported in this section may therefore overstate the 
number of entities actually required to comply with the rule's 
requirements.
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    We estimate that the industry spends approximately 37,000 hours 
notifying Access Persons of their reporting obligations and overseeing 
the reporting. We estimate that the industry spends approximately 3,600 
hours per year preparing the annual reports regarding issues under the 
code of ethics and accompanying certifications to fund boards. We 
estimate that the industry spends approximately 2,500 hours a year 
preparing new codes of ethics for presentation to fund boards and 
approximately 1,200 hours per year preparing amendments for 
presentation to fund boards. We estimate that the industry spends 
approximately 370 hours per year documenting its approval of requests 
to purchase securities through initial public offerings or private 
placements. We estimate that the industry spends approximately 146,500 
hours each year maintaining rule 17j-1 records and 13,500 hours 
maintaining and upgrading their electronic reporting and recordkeeping 
systems related to rule 17j-1. In the aggregate, 17j-1 organizations 
spend approximately 204,300 hours per year complying with their 
reporting and recordkeeping requirements under the rule and ensuring 
that Access Persons fulfill their reporting obligations.
    The total annual burden of the rule's paperwork requirements is, 
therefore, estimated to be approximately 274,300 hours.\7\
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    \7\ This estimate represents an increase from the approximately 
156,700 burden hours estimated in connection with the Commission's 
last request for a PRA extension for rule 17j--1. The increase in 
burden hours is attributable to updated information about the number 
of affected respondents, and revised estimates of the component 
parts of the burden estimate in light of the industry's experience 
in implementing the recent amendments to the rule.

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[[Page 46487]]

    These burden hour estimates are based upon the Commission staff's 
experience and discussions with the fund industry. The estimates of 
average burden hours are made solely for the purposes of the Paperwork 
Reduction Act. These estimates are not derived from a comprehensive or 
even a representative survey or study of the costs of Commission rules.
    Compliance with the collection of information requirements of the 
rule is mandatory and is necessary to comply with the requirements of 
the rule in general. 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.
    Please direct general comments regarding the above information to 
the following persons: (i) Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Office of 
Management and Budget, Room 3208, New Executive Office Building, 
Washington, DC 20503; and (ii) Michael E. Bartell, Associate Executive 
Director, Office of Information Technology, Securities and Exchange 
Commission, Mail Stop 0-4, 450 5th Street, NW., Washington, DC 20549. 
Comments must be submitted to OMB within 30 days of this notice.

    Dated: August 28, 2001.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-22238 Filed 9-4-01; 8:45 am]
BILLING CODE 8010-01-M