[Federal Register Volume 70, Number 60 (Wednesday, March 30, 2005)]
[Notices]
[Pages 16311-16312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1396]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

    Upon written request, copies available from: Securities and 
Exchange Commission, Office of Filings and Information Services, 
Washington, DC 20549.
    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'') is soliciting comments on the collections 
of information discussed below. The Commission plans to submit these 
existing collections of information to the Office of Management and 
Budget (``OMB'') for extension and approval.
    Section 10(f) of the Investment Company Act of 1940 (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 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 200 funds engage in a total 
of approximately 1,000 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 500 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 
earlier data.
    \2\ Unless stated otherwise, the information collection burden 
estimates contained in this Supporting Statement are based on 
conversations between the staff and representatives of funds.
    \3\ This estimate is based on the following calculation: (30 
minutes x 1,000 = 500 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 333 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 1,000 transactions = 20,000 minutes; 20,000 minutes / 60 = 
333 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 800 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 200 funds = 800 hours).
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    The staff estimates that approximately half of the boards of funds 
that engage in rule 10f-3 transactions that deem it necessary to revise 
the fund's written policies and procedures for rule 10f-3 and that 
complying with this requirement takes each of these funds on average, 
25 hours of a compliance attorney's time and, in the aggregate, 
approximately 2,500 hours \6\ annually.
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    \6\ This estimate is based on the following calculation: (100 
funds x 25 hours = 2,500 hours).
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    The Commission staff estimates that 3,028 portfolios of 
approximately 2,126 investment companies use the services of one or 
more subadvisers. Based on discussions with industry representatives, 
the staff estimates that it will require approximately 6 hours to draft 
and execute revised subadvisory contracts (5 staff attorney hours, 1 
supervisory attorney hour), in order for funds and subadvisers to be 
able to rely on the exemption in rule 10f-3. The staff assumes that all 
of these funds amended their advisory contracts when rule 10f-3 was 
amended in 2002 by

[[Page 16312]]

conditioning certain exemptions upon such contractual alterations.\7\
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    \7\ Rules 12d3-1, 10f-3, 17a-10, and 17e-1 require virtually 
identical modifications to fund advisory contracts. The Commission 
staff assumes that funds would rely equally on the exemptions in 
these rules, and therefore the burden hours associated with the 
required contract modifications should be apportioned equally among 
the four rules.
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    Based on an analysis of investment company filings, the staff 
estimates that approximately 200 new funds register annually. Assuming 
that the number of these funds that will use the services of 
subadvisers is proportionate to the number of funds that currently use 
the services of subadvisers, approximately 46 new funds will enter into 
subadvisory agreements each year.\8\ The Commission staff estimates, 
based on an analysis of investment company filings, that an additional 
10 funds, currently in existence, will employ the services of 
subadvisers for the first time each year. Thus, the staff estimates 
that a total of 56 funds, with a total of 78 portfolios,\9\ will enter 
into subadvisory agreements each year. Assuming that each of these 
funds enters into a contract that permits it to rely on the exemption 
in rule 10f-3, we estimate that the rule's contract modification 
requirement will result in 117 burden hours annually.\10\
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    \8\ Approximately 23 percent of funds are advised by 
subadvisers.
    \9\ Based on existing statistics, we assume that each fund has 
1.4 portfolios advised by a subadviser.
    \10\ This estimate is based on the following calculations: (78 
portfolios x 6 hours = 468 burden hours for rules 12d3-1, 10f-3, 
17a-10, and 17e-1; 468 total burden hours for all of the rules / 
four rules = 117 annual burden hours per rule).
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    The staff estimates, therefore, that rule 10f-3 imposes an 
information collection burden of 4,250 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 calculations: (500 
hours + 333 hours + 800 hours + 2,500 hours + 117 hours = 4,250 
total burden hours).
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    Written comments are invited on: (a) Whether the collections of 
information are 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 burdens 
of the collections of information; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burdens of the collections 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 R. Corey Booth, Director/
Chief Information Officer, Office of Information Technology, Securities 
and Exchange Commission, 450 5th Street, NW., Washington, DC 20549.

    Dated: March 23, 2005.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1396 Filed 3-29-05; 8:45 am]
BILLING CODE 8010-01-P