[Federal Register Volume 76, Number 73 (Friday, April 15, 2011)]
[Notices]
[Pages 21415-21416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9189]


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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 Investor Education and Advocacy, 
Washington, DC 20549-0213.

Extension:
    Rule 17d-1; SEC File No. 270-505; OMB Control No. 3235-0562.

    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 (``Commission'') has submitted to the Office of Management 
and Budget (``OMB'') a request for extension of the previously approved 
collection of information discussed below.
    Section 17(d) (15 U.S.C. 80a-17(d)) of the Investment Company Act 
of 1940 (15 U.S.C. 80a et seq.) (the ``Act'') prohibits first- and 
second-tier affiliates of a fund, the fund's principal underwriters, 
and affiliated persons of the fund's principal underwriters, acting as 
principal, to effect any transaction in which the fund or a company 
controlled by the fund is a joint or a joint and several participant in 
contravention of the Commission's rules. Rule 17d-1 (17 CFR 270.17d-1) 
prohibits an affiliated person of or principal underwriter for any fund 
(a ``first-tier affiliate''), or any affiliated person of such person 
or underwriter (a ``second-tier affiliate''), acting as principal, from 
participating in or effecting any transaction in connection with a 
joint enterprise or other joint arrangement in which the fund is a 
participant, unless prior to entering into the enterprise or 
arrangement ``an application regarding [the transaction] has been filed 
with the Commission and has been granted by an order.'' In reviewing 
the proposed affiliated transaction, the rule provides that the 
Commission will consider whether the proposal is (i) consistent with 
the provisions, policies, and purposes of the Act, and (ii) on a basis 
different from or less advantageous than that of other participants in 
determining whether to grant an exemptive application for a proposed 
joint enterprise, joint arrangement, or profit-sharing plan.
    Rule 17d-1 also contains a number of exceptions to the requirement 
that a fund must obtain Commission approval prior to entering into 
joint transactions or arrangements with affiliates. For example, funds 
do not have to obtain Commission approval for certain employee 
compensation plans, certain tax-deferred employee benefit plans, 
certain transactions involving small business investment companies, the 
receipt of securities or cash by certain affiliates pursuant to a plan 
of reorganization, certain arrangements regarding liability insurance 
policies and transactions with ``portfolio affiliates'' (companies that 
are affiliated with the fund solely as a result of the fund (or an 
affiliated fund) controlling them or owning more than five percent of 
their voting securities) so long as certain other affiliated persons of 
the fund (e.g., the fund's adviser, persons controlling the fund, and 
persons under common control with the fund) are not parties to the 
transaction and do not have a ``financial interest'' in a party to the 
transaction. The rule excludes from the definition of ``financial 
interest'' any interest that the fund's board of directors (including a 
majority of the directors who are not interested persons of the fund) 
finds to be not material, as long as the board records the basis for 
its finding in their meeting minutes.
    Thus, the rule contains two filing and recordkeeping requirements 
that constitute collections of information. First, rule 17d-1 requires 
funds that wish to engage in a joint transaction or arrangement with 
affiliates to meet the procedural requirements for obtaining exemptive 
relief from the rule's prohibition on joint transactions or 
arrangements involving first- or second-tier affiliates. Second, rule 
17d-1 permits a portfolio affiliate to enter into a joint transaction 
or arrangement with the fund if a prohibited participant has a 
financial interest that the fund's board determines is not material and 
records the basis for this finding in their meeting minutes. These 
requirements of rule 17d-1 are designed to prevent fund insiders from 
managing funds for their own benefit, rather than for the benefit of 
the funds' shareholders.
    Based on an analysis of past filings, Commission staff estimates 
that 8 funds file applications under section 17(d) and rule 17d-1 per 
year. The staff understands that funds that file an application 
generally obtain assistance from outside counsel to prepare the 
application. The cost burden of using outside counsel is discussed 
below. Based on a limited survey of persons in the mutual fund 
industry, the Commission staff estimates that each applicant will spend 
an average of 154 hours to comply with the Commission's applications 
process. The Commission staff therefore estimates the annual burden 
hours per year for all funds under rule 17d-1's application process to 
be 1,232 hours at a cost of $445,328.\1\ The Commission, therefore, 
requests authorization to increase the inventory of total burden hours 
per year for all funds under rule 17d-1 from the current authorized 
burden of 616 hours to 1,232 hours. The increase is due to an increase 
in the number of funds that filed applications for exemptions under 
rule 17d-1.
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    \1\ The Commission staff estimates that a senior executive, such 
as the fund's chief compliance officer, will spend an average of 62 
hours and a mid-level compliance attorney will spend an average of 
92 hours to comply with this collection of information: 62 hours + 
92 hours = 154 hours. 8 funds x 154 burden hours = 1,232 burden 
hours. The Commission staff estimate that the chief compliance 
officer is paid $423 per hour and the compliance attorney is paid 
$320 per hour. ($423 per hour x 62 hours) + ($320 per hour x 92 
hours) = $55,666 per fund. $55,666 x 8 funds = $445,328. The $423 
and $320 per hour figures are based on salary information compiled 
by SIFMA's Management & Professional Earnings in the Securities 
Industry, 2010. The Commission staff has modified SIFMA's 
information to account for an 1800-hour work year and multiplied by 
5.35 to account for bonuses, firm size, employee benefits, and 
overhead.
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    As noted above, the Commission staff understands that funds that 
file an application under rule 17d-1 generally use outside counsel to 
assist in preparing the application.\2\ The staff estimates that, on 
average, funds spend an additional $93,131 for outside legal services 
in connection with seeking Commission approval of affiliated joint 
transactions. Thus, the staff estimates that the total annual cost 
burden imposed by the exemptive application requirements of rule 17d-1 
is $745,048.\3\ Based on staff discussions with fund representatives, 
we estimate that funds currently do not rely on the exemption from the 
term ``financial interest'' with respect to any interest that the 
fund's

[[Page 21416]]

board of directors (including a majority of the directors who are not 
interested persons of the fund) finds to be not material. Accordingly, 
we estimate that annually there will be no transactions under rule 17d-
1 that will result in this aspect of the collection of information.
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    \2\ This understanding is based on conversations with 
representatives from the fund industry.
    \3\ The estimate is based on the following calculation: $93,131 
x 8 funds = $745,048.
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    Based on these calculations, the total annual hour burden is 
estimated to be 1,232 hours and the total annual cost burden is 
estimated to be $745,048.
    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. Complying with these collections of 
information requirements is necessary to obtain the benefit of relying 
on rule 17d-1. Responses 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.
    The public may view the background documentation for this 
information collection at the following Web site, http//
www.reginfo.gov. Comments should be directed to: (i) Desk Officer for 
the Securities and Exchange Commission, Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10102, New 
Executive Office Building, Washington, DC 20503, or by sending an e-
mail to: [email protected]; and (ii) Thomas Bayer, Chief 
Information Officer, Securities and Exchange Commission, c/o Remi 
Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312 or send an 
e-mail to: [email protected]. Comments must be submitted to OMB 
within 30 days of this notice.

    April 11, 2011.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9189 Filed 4-14-11; 8:45 am]
BILLING CODE 8011-01-P