[Federal Register Volume 73, Number 130 (Monday, July 7, 2008)]
[Notices]
[Pages 38473-38474]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-15200]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Investor Education and Advocacy, Washington, DC 
20549-0213.

Extension: Rule 17f-5, SEC File No. 270-259, OMB Control No. 3235-
0269.

    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 collection of 
information summarized below. The Commission plans to submit the 
existing collection of information to the Office of Management and 
Budget for extension and approval.
    Rule 17f-5 under the Investment Company Act of 1940 (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.\1\ 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.
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    \1\ 17 CFR 270.17f-5. All references to rules 17f-5, 17f-7, 17d-
1, or 19b-1 in this notice are to 17 CFR 270.17f-5, 17 CFR 270.17f-
7, 17 CFR 270.17d-1, and 17 CFR 270.19b-1, respectively.
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    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,\2\ and that 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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    \2\ 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 159 
registrants \3\ could be required to make an average of one response 
per registrant under rule 17f-5, requiring approximately 2 hours of 
board 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 318 
hours (159 registrants x 2 hours per registrant). The staff further 
estimates that during each year, approximately 15 global custodians \4\ 
would be required to make an average of 4 responses per custodian 
concerning the use of foreign custodians other than depositories. The 
staff

[[Page 38474]]

estimates that each response would take approximately 262 hours, 
requiring approximately 1048 total hours annually per custodian. The 
total annual burden associated with these requirements of the rule 
would be approximately 15,720 hours (15 global custodians x 1048 hours 
per custodian). Therefore, the total annual burden of all collection of 
information requirements of rule 17f-5 is estimated to be up to 16,038 
hours (318 + 15,720). The total annual cost of burden hours is 
estimated to be $3,214,080 (318 hours x $2000/hour for board of 
director's time, plus 15,720 hours x $164/hour for a trust 
administrator's time).\5\ 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.
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    \3\ This figure is an estimate of the number of new funds each 
year, based on data reported by funds in 2007 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.
    \4\ This estimate is based on staff research.
    \5\ The $164/hour figure for a trust administrator is from 
SIFMA's Management & Professional Earnings in the Securities 
Industry 2007, modified to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead. The $2000/hr board of director time is from 
industry sources.
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    The estimate of average burden hours is made solely for the 
purposes of the Paperwork Reduction Act. The estimate is not derived 
from a comprehensive or even a representative survey or study of the 
costs of Commission rules and forms. 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.
    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. 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, Securities and Exchange Commission, c/o 
Shirley Martinson, 6432 General Green Way, Alexandria, VA 22312; or 
send an e-mail to: [email protected].

    Dated: June 26, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15200 Filed 7-3-08; 8:45 am]
BILLING CODE 8010-01-P