[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Notices]
[Pages 13272-13274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6656]


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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 12d1-1; SEC File No. 270-526; OMB Control No. 3235-0584.

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (the ``Commission'') is soliciting comments on the 
collection of information summarized below. The Commission plans to 
submit this existing collection of information to the Office of 
Management and Budget for extension and approval.
    Under current law, an investment company (``fund'') is limited in 
the amount of securities the fund (``acquiring fund'') can acquire from 
another fund (``acquired fund''). In general under the Investment 
Company Act of 1940 (15 U.S.C. 80a) (the ``Investment Company Act'' or 
``Act''), a registered fund (and companies it controls) cannot: (i) 
Acquire more than three percent of another fund's securities; (ii) 
invest more than five percent of its own assets in another fund; or 
(iii) invest more than ten percent of its own assets in other funds

[[Page 13273]]

in the aggregate.\1\ In addition, a registered open-end fund, its 
principal underwriter, and any registered broker or dealer cannot sell 
that fund's shares to another fund if, as a result: (i) The acquiring 
fund (and any companies it controls) owns more than three percent of 
the acquired fund's stock; or (ii) all acquiring funds (and companies 
they control) in the aggregate own more than ten percent of the 
acquired fund's stock.\2\ Rule 12d1-1 under the Act (17 CFR 270.12d1-1) 
provides an exemption from these limitations for ``cash sweep'' 
arrangements, in which a fund invests all or a portion of its available 
cash in a money market fund rather than directly in short-term 
instruments. An acquiring fund relying on the exemption may not pay a 
sales load, distribution fee, or service fee on acquired fund shares, 
or if it does, the acquiring fund's investment adviser must waive a 
sufficient amount of its advisory fee to offset the cost of the loads 
or distribution fees.\3\ The acquired fund may be a fund in the same 
fund complex or in a different fund complex. In addition to providing 
an exemption from section 12(d)(1) of the Act, the rule provides 
exemptions from section 17(a) and rule 17d-1, which restrict a fund's 
ability to enter into transactions and joint arrangements with 
affiliated persons.\4\ These provisions could otherwise prohibit an 
acquiring fund from investing in a money market fund in the same fund 
complex,\5\ or prohibit a fund that acquires five percent or more of 
the securities of a money market fund in another fund complex from 
making any additional investments in the money market fund.\6\
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    \1\ See 15 U.S.C. 80a-12(d)(1)(A). If an acquiring fund is not 
registered, these limitations apply only with respect to the 
acquiring fund's acquisition of registered funds.
    \2\ See 15 U.S.C. 80a-12(d)(1)(B).
    \3\ See Rule 12d1-1(b)(1).
    \4\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d); 17 CFR 
270.17d-1.
    \5\ An affiliated person of a fund includes any person directly 
or indirectly controlling, controlled by, or under common control 
with such other person. See 15 U.S.C. 80a-2(a)(3)(C) (definition of 
``affiliated person''). Most funds today are organized by an 
investment adviser that advises or provides administrative services 
to other funds in the same complex. Funds in a fund complex are 
generally under common control of an investment adviser or other 
person exercising a controlling influence over the management or 
policies of the funds. See 15 U.S.C. 80a-2(a)(9). Not all advisers 
control funds they advise. The determination of whether a fund is 
under the control of its adviser, officers, or directors depends on 
all the relevant facts and circumstances. See Investment Company 
Mergers, Investment Company Act Release No. 25259 (Nov. 8, 2001) [66 
FR 57602 (Nov. 15, 2001)], at n.11. To the extent that an acquiring 
fund in a fund complex is under common control with a money market 
fund in the same complex, the funds would rely on the rule's 
exemptions from section 17(a) and rule 17d-1.
    \6\ See 15 U.S.C. 80a-2(a)(3)(A), (B).
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    The rule also permits a registered fund to rely on the exemption to 
invest in an unregistered money market fund that limits its investments 
to those in which a registered money market fund may invest under rule 
2a-7 under the Act (17 CFR 270.2a-7), and undertakes to comply with all 
the other provisions of rule 2a-7. In addition the acquiring fund must 
reasonably believe that the unregistered money market fund (i) operates 
in compliance with rule 2a-7, (ii) complies with sections 17(a), (d), 
(e), 18, and 22(e) of the Act \7\ as if it were a registered open-end 
fund, (iii) has adopted procedures designed to ensure that it complies 
with these statutory provisions, (iv) maintains the records required by 
rules 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-1(b)(9); \8\ and (v) 
preserves permanently, the first two years in an easily accessible 
place, all books and records required to be made under these rules.
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    \7\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d), 15 U.S.C. 80a-
17(e), 15 U.S.C. 80a-18, 15 U.S.C. 80a-22(e).
    \8\ See 17 CFR 270.31a-1(b)(2)(ii), 17 CFR 270.31a-1(b)(2)(iv), 
17 CFR 270.31a-1(b)(9).
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    Rule 2a-7 contains certain collection of information requirements. 
An unregistered money market fund that complies with rule 2a-7 would be 
subject to these collection of information requirements. In addition, 
the recordkeeping requirements under rule 31a-1 with which the 
acquiring fund reasonably believes the unregistered money market fund 
complies are collections of information for the unregistered money 
market fund. By allowing funds to invest in registered and unregistered 
money market funds, rule 12d1-1 is intended to provide funds greater 
options for cash management. In order for a registered fund to rely on 
the exemption to invest in an unregistered money market fund, the 
unregistered money market fund must comply with certain collection of 
information requirements for registered money market funds. These 
requirements are intended to ensure that the unregistered money market 
fund has established procedures for collecting the information 
necessary to make adequate credit reviews of securities in its 
portfolio, as well as other recordkeeping requirements that will assist 
the acquiring fund in overseeing the unregistered money market fund 
(and Commission staff in its examination of the unregistered money 
market fund's adviser).
    Commission staff estimates that registered funds currently invest 
in 60 unregistered money market funds in excess of the statutory limits 
under rule 12d1-1, and will invest in approximately 6 new unregistered 
money market funds each year \9\ Staff estimates that each of these 
unregistered money market funds spends 1220 hours to perform the record 
of credit risk analysis and other determinations annually, and each of 
the 6 unregistered money market funds in which an acquiring fund 
invests in for the first time under the rule will spend 21 hours to 
implement the board procedures. Finally, Commission staff estimates 
that 15 unregistered money market funds each spend 4.5 hours to review 
and amend procedures annually. The estimated total of annual responses 
under rule 12d1-1 is 10,713,\10\ and the estimate of burden hours 
associated with these responses is 80,714 hours.\11\
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    \9\ This estimate is based on the number of applications filed 
with the Commission in 2005 (40), increased by investment in 6 new 
funds each year since 2005 (18), and rounded to the nearest tenth 
(60). This estimate may be understated because applicants generally 
do not identify the name or number of unregistered money market 
funds in which registered funds intend to invest, and each 
application also applies to unregistered money market funds to be 
organized in the future.
    \10\ This estimate is based on the following calculation: (60 x 
162) + (6 x 162) + (6 x 1) + (15 x 1) = 10,713.
    \11\ This estimate is based on the following calculation: (60 x 
1220) + (6 x 1220) + (6 x 21) + (15 x 4.5) = 80,714.
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    Commission staff estimates that unregistered money market funds 
also incur costs to preserve records, as required under rule 2a-7. 
These costs will vary significantly for individual funds, depending on 
the amount of assets under fund management and whether the fund 
preserves its records in a storage facility in hard copy or has 
developed and maintains a computer system to create and preserve 
compliance records. In its rule 2a-7 Paperwork Reduction Act (``PRA'') 
submission, Commission staff estimated that the amount an individual 
money market fund may spend ranged from $100 per year to $300,000. We 
have no reason to believe the range is different for unregistered money 
market funds. The Commission does not have specific information on the 
amount of assets managed by unregistered money market funds. 
Accordingly, Commission staff estimates that an unregistered money 
market fund in which registered funds invest in reliance on rule 12d1-1 
have, on average, $380 million in assets under management.\12\ Based on 
a cost of $0.0000005 per dollar of assets under management for medium-
sized funds,

[[Page 13274]]

the staff estimates compliance with rule 2-7 costs each of these 
unregistered money market funds $11,400 annually.\13\ Commission staff 
estimates that unregistered money market funds will not incur any 
capital costs to create computer programs for maintaining and 
preserving compliance records for rule 2a-7.\14\
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    \12\ This estimate is based on the average of assets under 
management of medium-sized registered money market funds ($50 
million to $999 million).
    \13\ This estimate was based on the following calculation: 60 
unregistered money market funds x $380 million in assets under 
management x $0.0000005 = $11,400. The estimate of cost per dollar 
of assets is the same as that used for medium-sized funds in the 
rule 2a-7 PRA submission.
    \14\ This estimate is based on information Commission staff 
obtained in its survey for the rule 2a-7 PRA submission. Of the 
funds surveyed, no medium-sized funds incurred this type of capital 
cost. The funds either maintained record systems using a program the 
fund would be likely to have in the ordinary course of business 
(such as Excel) or the records were maintained by the fund's 
custodian.
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    The collections of information required for unregistered money 
market funds by rule 12d1-1 are necessary in order for acquiring funds 
to be able to obtain the benefits described above. Notices to the 
Commission will not be kept confidential. 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.
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency'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 Charles Boucher, Director/
CIO, Securities and Exchange Commission, C/O Shirley Martinson, 6432 
General Green Way, Alexandria, VA 22312; or send an e-mail to: [email protected].

    Dated: March 18, 2009.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6656 Filed 3-25-09; 8:45 am]
BILLING CODE 8010-01-P