[Federal Register Volume 67, Number 141 (Tuesday, July 23, 2002)]
[Notices]
[Pages 48225-48228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18565]


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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, 450 Fifth 
Street, NW., Washington, DC 20549.
Extension:
    Rule 17f-5, SEC File No. 270-259,

[[Page 48226]]

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
    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 (``OMB'') requests for extension of the previously approved 
collections of information discussed below.
    Rule 17f-5 under the Investment Company Act of 1940s [15 U.S.C. 
80a] (``Investment Company Act'' or ``Act'') governs the custody of the 
assets of registered management investment companies (``funds'') with 
custodians outside the United States. The Commission amended the rule 
in 1997 to modernize its conditions. In 1998, representatives of funds 
and bank custodians informed the Commission that some conditions of the 
rule presented serious problems for the use of foreign securities 
depositories. They asserted that many funds had been unable to 
establish foreign custody arrangements under the amendments because of 
significant unforeseen problems with the evaluation and use of 
depositories.
    In 1999, the Commission proposed a new rule 17f-7 and amendments to 
rule 17f-5, which together would permit funds to maintain their assets 
in foreign securities depositories based on conditions that reflect the 
operations and role of these depositories.\1\ Rule 17f-7, adopted in 
2000, established new provisions for the use of foreign 
depositories.\2\ The amendments to rule 17f-5, adopted in 1999, removed 
custody arrangements with foreign securities depositories from rule 
17f-5.\3\ The amendments did not substantively change the requirements 
of the rule, including requirements that call for the ``collection of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
[44 U.S.C. 3501--3502]. These requirements continue to apply when a 
registered management investment company maintains its assets with a 
foreign bank custodian. In general, the amendments to rule 17f-5 
reduced its information collection burdens by removing depository 
arrangements from its scope, while new rule 17f-7 added new burdens.
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    \1\ Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. IC-23815 (April 29, 1999) 
[64 FR 24489 (May 6, 1999)] (``Proposing Release'').
    \2\ Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. IC-24424 (April 27, 2000) 
[65 FR 25630 (May 3, 2000)] (``Adopting Release'').
    \3\ Id.
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    The requirements of amended rule 17f-5 that may call for the 
collection of information are substantially the same as under the rule 
prior to the amendments. 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,\4\ 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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    \4\ See section 17(f) of the Investment Company Act [15 U.S.C. 
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 \5\ 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 \6\ would be 
required to make an average of 5 responses per custodian concerning the 
use of foreign custodians other than depositories, requiring 
approximately 1000 total hours annually per custodian.\7\ The total 
annual burden associated with these requirements of the rule would be 
approximately 15,000 hours (15 global custodians x 1000 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 
15,320 hours (320 + 15,000). The total annual cost of burden hours is 
estimated to be $910,000 (320 hours x $500/hour for director time, plus 
15,000 hours x $50/hour of professional time).
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    \5\ 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.
    \6\ 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.
    \7\ These estimates are based on a survey of global custodians.
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    In 1999, the Commission proposed a new rule 17f-7 and amendments to 
rule 17f-5, which together would permit funds to maintain their assets 
in foreign

[[Page 48227]]

securities depositories based on conditions that reflect the operations 
and role of these depositories.\8\ Rule 17f-7, adopted in 2000, 
established new provisions for the use of foreign depositories.\9\ The 
amendments to rule 17f-5, adopted in 1999, removed custody arrangements 
with foreign securities depositories from rule 17f-5.\10\ The 
amendments did not substantively change the requirements of the rule, 
including requirements that call for the ``collection of information'' 
within the meaning of the Paperwork Reduction Act of 1995. These 
requirements continue to apply when a registered management investment 
company maintains its assets with a foreign bank custodian. In general, 
the amendments to rule 17f-5 reduced its information collection burdens 
by removing depository arrangements from its scope, while new rule 17f-
7 added new burdens.
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    \8\ Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. IC-23815 (April 29, 1999) 
[64 FR 24489 (May 6, 1999)] (``Proposing Release'').
    \9\ Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. IC-24424 (April 27, 2000) 
[65 FR 25630 (May 3, 2000)] (``Adopting Release'').
    \10\ Id.
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    Rule 17f-7 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 also must meet certain conditions. The fund or its 
adviser must receive from the primary custodian (or its agent) an 
initial risk analysis of the depository arrangements, and the fund's 
contract with its primary custodian must state that the custodian will 
monitor risks 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 fund or its adviser must receive from the 
primary custodian (or its agent) an initial risk analysis of the 
depository arrangements, and the fund's contract with its primary 
custodian must state that the custodian will monitor risks and promptly 
notify the fund or its adviser of material changes in risks, 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 staff estimates that approximately 900 investment advisers \11\ 
would make an average of 5 responses annually per adviser under the 
rule, requiring a total of approximately 20 hours for each adviser. 
Each of these ``responses'' by an adviser may address depository 
compliance with the minimum requirements of the rule, and require the 
adviser to review risk analyses or notifications of material changes in 
the risks related to a depository. 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 5 responses per custodian under the rule, requiring 
approximately 1000 hours annually per custodian.\12\ The total annual 
burden associated with these requirements of the rule would be 
approximately 15,000 hours (15 custodians x 1000 hours). Therefore, the 
staff estimates that the total annual burden associated with all 
collection of information requirements of the rule would be 33,000 
hours (18,000 + 15,000). The total annual cost of burden hours is 
estimated to be $1,650,000 (33,000 hours xnum; $50/hour of professional 
time).
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    \11\ 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.
    \12\ These estimates are based on a survey of global custodians.
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    Compliance with the collection of information requirements of the 
rule is necessary to obtain the benefit of relying on the rule's 
permission for funds to maintain their assets in foreign custodians.
    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).
    SBIC's 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 at the expense of shareholders.
    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 must include, 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 the 
affiliated person of the SBIC or the 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 SBIC's may file the form in any year.\13\ 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

[[Page 48228]]

total annual burden of filling out the form is one hour and the total 
annual cost is approximately $38.\14\ The Commission will not keep 
responses on Form N-17D-1 confidential.
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    \13\ As of December 31, 2001, seven SBICs were registered with 
the Commission.
    \14\ Commission staff estimate 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.
    The collection of information required by rule 18f-1 is necessary 
to obtain the benefits of the rule. Responses to the collection of 
information will not be kept confidential.
    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.
    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.\15\ 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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    \15\ 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. Responses will 
not be kept confidential.
    These estimates of average burden hours and costs are made solely 
for purposes of the Paperwork Reduction Act. 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 10202, New Executive Office Building, 
Washington, DC 20503; and (ii) Michael E. Bartell, Associate Executive 
Director, Office of Information Technology, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549. Comments must 
be submitted to OMB within 30 days of this notice.

    Dated: July 16, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18565 Filed 7-22-02; 8:45 am]
BILLING CODE 8010-01-P