[Federal Register Volume 67, Number 94 (Wednesday, May 15, 2002)]
[Notices]
[Pages 34737-34739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12111]



[[Page 34737]]

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SECURITIES AND EXCHANGE COMMISSION

Existing Collection;


Comment Request

    [Extension: Rule 17f-5, SEC File No. 270-259, OMB Control No. 3235-
0269; Rule 17f-7, SEC File No. 270-470, OMB Control No. 3235-0529; Form 
N-17D-1, SEC File No. 270-231, OMB Control No. 3235-0229; Rule 18f-1 
and Form N-18F-1, SEC File No. 270-187, OMB Control No. 3235-0211; Rule 
19b-1, SEC File No. 270-312, OMB Control No. 3235-0354]
    Upon written request, copies available from: Securities and 
Exchange Commission, Office of Filings and Information Services, 450 
Fifth Street, NW, Washington, DC 20549.

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 USC 3501-3520), the Securities and Exchange Commission 
(``Commission'') is soliciting comments on the collections of 
information summarized below. The Commission plans to submit these 
existing collections of information to the Office of Management and 
Budget (``OMB'') for extension and approval.
    Rule 17f-5 under the Investment Company Act of 1940 [15 USC 80a] 
(``Investment Company Act'' or ``Act'') governs the custody of the 
assets of registered management investment companies (``funds'') with 
custodians outside the United States. Under Rule 17f-5, the fund's 
board of directors must find that it is reasonable to rely on each 
delegate it selects to act as the fund's foreign custody manager. The 
delegate must agree to provide written reports that notify the board 
when the fund's assets are placed with a foreign custodian and when any 
material change occurs in the fund's custody arrangements. The delegate 
must agree to exercise reasonable care, prudence, and diligence, or to 
adhere to a higher standard of care. When the foreign custody manager 
selects an eligible foreign custodian, it must determine that the 
fund's assets will be subject to reasonable care if maintained with 
that custodian, and that the written contract that governs each custody 
arrangement will provide reasonable care for fund assets. The contract 
must contain certain specified provisions or others that provide at 
least equivalent care. The foreign custody manager must establish a 
system to monitor the contract and the appropriateness of continuing to 
maintain assets with the eligible foreign custodian.
    The collection of information requirements in rule 17f-5 are 
intended to provide protection for fund assets maintained with a 
foreign bank custodian whose use is not authorized by statutory 
provisions that govern fund custody arrangements,\1\ and is not subject 
to regulation and examination by U.S. regulators. The requirement that 
the fund board determine that it is reasonable to rely on each delegate 
is intended to ensure that the board carefully considers each 
delegate's qualifications to perform its responsibilities. The 
requirement that the delegate provide written reports to the board is 
intended to ensure that the delegate notifies the board of important 
developments concerning custody arrangements so that the board may 
exercise effective oversight. The requirement that the delegate agree 
to exercise reasonable care is intended to provide assurances to the 
fund that the delegate will properly perform its duties.
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    \1\ See section 17(f) of the Investment Company Act [15 USC 80a-
17(f)].
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    The requirements that the foreign custody manager determine that 
fund assets will be subject to reasonable care with the eligible 
foreign custodian and under the custody contract, and that each 
contract contain specified provisions or equivalent provisions, are 
intended to ensure that the delegate has evaluated the level of care 
provided by the custodian, that it weighs the adequacy of contractual 
provisions, and that fund assets are protected by minimal contractual 
safeguards. The requirement that the foreign custody manager establish 
a monitoring system is intended to ensure that the manager periodically 
reviews each custody arrangement and takes appropriate action if 
developing custody risks may threaten fund assets.
    The Commission's staff estimates that each year, approximately 160 
registrants \2\ could be required to make an average of one response 
per registrant under rule 17f-5, requiring approximately 2 hours of 
director time per response, to make the necessary findings concerning 
foreign custody managers. The total annual burden associated with these 
requirements of the rule would be up to approximately 320 hours (160 
registrants  x  2 hours per registrant). The staff further estimates 
that during each year, approximately 15 global custodians \3\ would be 
required to make an average of 4 responses per custodian concerning the 
use of foreign custodians other than depositories, requiring 
approximately 800 total hours annually per custodian.\4\ The total 
annual burden associated with these requirements of the rule would be 
approximately 12,000 hours (15 global custodians  x  800 hours per 
global custodian). Therefore, the total annual burden of all collection 
of information requirements of rule 17f-5 is estimated to be up to 
12,320 hours (320 + 12,000). The total annual cost of burden hours is 
estimated to be $6,760,000 (12,320 hours  x  $500/hour for director 
time, plus 12,000 hours  x  $50/hour of professional time).
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    \2\ This figure is an estimate of the number of new funds each 
year, based on data reported by funds in 2001 on Form N-1A and Form 
N-2 [17 CFR 274.101]. In practice, not all funds will use foreign 
custody managers, and the actual figure may be smaller.
    \3\ This estimate is the same used in connection with the 
adoption of the amendments to rule 17f-5 and of rule 17f-7 in 1999, 
based on staff review of custody contracts and other research. The 
number of global custodians has not changed significantly since 
1999.
    \4\ These estimates are based on a survey of global custodians.
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    Rule 17f-7 permits funds to maintain their assets in foreign 
securities with depositories under certain conditions. The rule 
contains some ``collection of information'' requirements. An eligible 
securities depository has to meet minimum standards for a depository. 
The fund or its investment adviser generally determines whether the 
depository complies with those requirements based on information 
provided by the fund's primary custodian (a bank that acts as global 
custodian). The depository custody arrangement has to meet certain risk 
limiting requirements. The fund can obtain indemnification or insurance 
arrangements that adequately protect the fund against custody risks. 
The fund or its investment adviser generally determines whether 
indemnification or insurance provisions are adequate. If the fund does 
not rely on indemnification or insurance, the fund's contract with its 
primary custodian is required to state that the custodian will provide 
to the fund or its investment adviser a custody risk analysis of each 
depository, monitor risks on a continuous basis, and promptly notify 
the fund or its adviser of material changes in risks. The primary 
custodian and other custodians also are required to agree to exercise 
reasonable care.
    The collection of information requirements in rule 17f-7 are 
intended to provide workable standards that protect funds from the 
risks of using securities depositories while assigning appropriate 
responsibilities to the fund's primary custodian and investment adviser 
based on their capabilities. The requirement that the depository meet 
specified minimum standards is intended to ensure that the depository 
is subject to basic safeguards deemed appropriate for all depositories. 
The requirement that the custody

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contract state that the fund's primary custodian will provide an 
analysis of the custody risks of depository arrangements, monitor the 
risks, and report on material changes is intended to provide essential 
information about custody risks to the fund's investment adviser as 
necessary for it to approve the continued use of the depository. The 
requirement that the primary custodian agree to exercise reasonable 
care is intended to provide assurances that its services and the 
information it provides will meet an appropriate standard of care. The 
alternative requirement that the fund obtain adequate indemnification 
or insurance against the custody risks of depository arrangements is 
intended to provide another, potentially less burdensome means to 
protect assets held in depository arrangements.
    The staff estimates that approximately 900 investment advisers \5\ 
would make an average of 4 responses annually per adviser under the 
proposed rule, requiring a total of approximately 20 hours for each 
adviser, to address depository compliance with minimum requirements, 
any indemnification or insurance arrangements, and reviews of risk 
analyses or notifications. The total annual burden associated with 
these requirements of the rule would be approximately 18,000 hours (900 
advisers  x  20 hours per adviser). The staff further estimates that 
during each year, approximately 15 global custodians would make an 
average of 4 responses per custodian under the rule, requiring 
approximately 800 hours annually per custodian.\6\ The total annual 
burden associated with these requirements of the new rule would be 
approximately 12,000 hours (15 custodians  x  800 hours). Therefore, 
the staff estimates that the total annual burden associated with all 
collection of information requirements of the rule would be 30,000 
hours (18,000 + 12,000). The total annual cost of burden hours is 
estimated to be $1,500,000 (30,000 hours  x  $50/hour of professional 
time).
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    \5\ This figure is based on an estimate by the staff that there 
are approximately 3,650 registered funds within approximately 900 
fund complexes. A fund complex is a group of funds with the same 
adviser.
    \6\ These estimates are based on a survey of global custodians.
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    Section 17(d) [15 U.S.C. 80a-17(d)] of the Investment Company Act 
authorizes the Commission to adopt rules that protect investment 
companies and their security holders from overreaching by affiliated 
persons when the fund and the affiliated person participate in any 
joint enterprise or other joint arrangement or profit-sharing plan. 
Rule 17d-1 under the Act [17 CFR 270.17d-1] prohibits funds and their 
affiliated persons from participating in a joint enterprise, unless an 
application regarding the transaction has been filed with and approved 
by the Commission. Subparagraph (d)(3) of the rule provides an 
exemption from this requirement for any loan or advance of credit to, 
or acquisition of securities or other property of, a small business 
concern, or any agreement to do any of the foregoing (``investments'') 
made by a small business investment company (``SBIC'') and an 
affiliated bank, provided that reports about the investments are made 
on forms the Commission may prescribe. Rule 17d-2 [17 CFR 270.17d-2] 
designates Form N-17D-1 as the form for reports required by rule 17d-
1(3).
    SBICs and their affiliated banks use Form N-17D-1 to report any 
contemporaneous investments in a small business concern. The form 
provides shareholders and persons seeking to make an informed decision 
about investing in an SBIC an opportunity to learn about transactions 
of the SBIC that have the potential for self dealing and other forms of 
overreaching by affiliated persons of the SBIC at the shareholders' 
expense.
    Form N-17D-1 requires SBIC's and their affiliated banks to report 
identifying information about the small business concern and the 
affiliated bank. The report includes, among other things, the SBIC's 
and affiliated bank's outstanding investments in the small business 
concern, the use of the proceeds of the investments made during the 
reporting period, any changes in the nature and amount of the 
affiliated bank's investment, the name of any affiliated person of the 
SBIC or the affiliated bank (or any affiliated person of an affiliated 
person of the SBIC or affiliated bank) who has any interest in the 
transactions, the basis of the affiliation, the nature of the interest, 
and the consideration the affiliated person has received or will 
receive.
    Up to seven SBICs may file the form in any year.\7\ The Commission 
estimates the burden of filling out the form is approximately one hour 
per response and would likely be completed by an accountant or other 
professional. Based on past filings, the Commission estimates that no 
more than one SBIC is likely to use the form each year. The total 
annual burden of filling out the form is one hour and the total annual 
cost is approximately $38.\8\
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    \7\ As of December 31, 2001, seven SBICs were registered with 
the Commission.
    \8\ Commission staff estimates that the annual burden would be 
incurred by accounting professionals with an average hourly wage 
rate of $37.50 per hour. See Securities Industry Association, Report 
on Management and Professional Earnings in the Securities Industry--
2000 (2000) (reporting median salary paid to senior accountants 
outside New York).
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    Rule 18f-1 [17 CFR 270.18f-1] enables a registered open-end 
management investment company that may redeem its securities in-kind, 
by making a one-time election, to commit to make cash redemptions 
pursuant to certain requirements without violating section 18(f) of the 
Investment Company Act [15 U.S.C. 80a-18(f)]. A fund relying on the 
rule must file Form N-18F-1 [17 CFR 274.51] to notify the Commission of 
this election. The Commission staff estimates that approximately 70 
funds file Form N-18F-1 annually, and that each response takes 
approximately one hour. Based on these estimates, the total annual 
burden hours associated with the rule is estimated to be 70 hours.
    Rule 19b-1 is entitled ``Frequency of Distribution of Capital 
Gains.'' The rule prohibits registered investment companies from 
distributing long-term capital gains more than once every twelve months 
unless certain conditions are met. Rule 19b-1(c) permits unit 
investment trusts (``UITs'') engaged exclusively in the business of 
investing in certain eligible fixed-income securities to distribute 
long-term capital gains more than once every twelve months, if (i) the 
capital gains distribution falls within one of several categories 
specified in the rule [rule 19b-1(c)(1)] and (ii) the distribution is 
accompanied by a report to the unit holder that clearly describes the 
distribution as a capital gains distribution [rule 19b-1(c)(2)] (the 
``notice requirement''). The purpose of this notice requirement is to 
ensure that unit holders understand that the source of the distribution 
is long-term capital gains.
    Rule 19b-1(e) permits a fund to apply for permission to distribute 
long-term capital gains more than once a year if the fund did not 
foresee the circumstances that created the need for the distribution. 
The application must set forth the pertinent facts and explain the 
circumstances that justify the distribution. An application that meets 
those requirements is deemed to be granted unless the Commission denies 
the request within 15 days after the Commission receives the 
application. The Commission uses the information required by rule 19b-
1(e) to facilitate the processing of requests from funds for 
authorization to make a distribution that would not otherwise be 
permitted by the rule.

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    The Commission staff estimates that the time required to prepare an 
application under rule 19b-1(e) is approximately four hours. The staff 
estimates that on average one fund files one application per year under 
this rule. Based on these estimates, the total paperwork burden is 4 
hours for paragraph (e) of rule 19b-1. The Commission staff estimates 
that there is no hour burden associated with rule 19b-1(c).
    There is, however, a cost burden associated with rule 19b-1(c). The 
staff estimates that there are approximately 8,800 fixed-income UITs, 
which may rely on rule 19b-1(c) to make capital gains distributions. We 
estimate that on average each of these UITs relies on rule 19b-1(c) 
once a year to make a capital gains distribution.\9\ We estimate that a 
UIT incurs a cost of $50, which is encompassed within the fee the UIT 
pays its trustee, to prepare a notice for a capital gains distribution 
under rule 19b-1(c)(2). Because the notices are mailed with the capital 
gains distribution, there is no separate mailing cost. Thus, the staff 
estimates that the notice requirement imposes an annual cost on UITs of 
approximately $440,000.
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    \9\ The number of times UITs rely on the rule to make capital 
gains distributions depends on a wide range of factors and, thus, 
can vary greatly across years.
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    Based on these calculations, the total number of respondents for 
rule 19b-1 is estimated to be 8,801 (8,800 UIT portfolios + 1 fund 
filing an application under rule 19b-1(e)), the total hour burden is 
estimated to be 4 hours, and the total cost burden is estimated to be 
$440,000.
    The collections of information required by 19b-1(c) and 19b-1(e) 
are necessary to obtain the benefits described above.
    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. 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.
    Written comments are invited on: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information has 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. The Commission will consider comments 
and suggestions submitted in writing within 60 days of this 
publication.
    Please direct your written comments to Michael E. Bartell, 
Associate Executive Director, Office of Information Technology, 
Securities and Exchange Commission, 450 5th Street, NW, Washington, DC 
20549.

    Dated: May 3, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12111 Filed 5-14-02; 8:45 am]
BILLING CODE 8010-01-P