[Federal Register Volume 80, Number 105 (Tuesday, June 2, 2015)]
[Notices]
[Pages 31426-31427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13381]


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SECURITIES AND EXCHANGE COMMISSION

[Extension: Rule 10f-3; OMB Control No. 3235-0226, SEC File No. 270-
237]


Submission for OMB Review; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 
20549-2736.

    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 a request for extension and approval of the collections of 
information discussed below.
    Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a) 
(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 (17 CFR 270.10f-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

[[Page 31427]]

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 270 funds engage in a total 
of approximately 3,350 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 1,675 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 
filings with the Commission.
    \2\ Unless stated otherwise, the information collection burden 
estimates are based on conversations between the staff and 
representatives of funds.
    \3\ This estimate is based on the following calculation: (0.5 
hours x 3,350 = 1,675 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 1,117 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 3,350 transactions = 67,000 minutes; 67,000 minutes/60 = 
1,117 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 1,080 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 270 funds = 1,080 hours).
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    The staff estimates that reviewing and revising as needed written 
procedures for rule 10f-3 transactions takes, on average for each fund, 
two hours of a compliance attorney's time per year.\6\ Thus, annually, 
in the aggregate, the staff estimates that funds spend a total of 
approximately 540 hours \7\ on monitoring and revising rule 10f-3 
procedures.
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    \6\ These averages take into account the fact that in most 
years, fund attorneys and boards spend little or no time modifying 
procedures and in other years, they spend significant time doing so.
    \7\ This estimate is based on the following calculation: (270 
funds x 2 hours = 540 hours).
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    Based on an analysis of fund filings, the staff estimates that 
approximately 251 fund portfolios enter into subadvisory agreements 
each year.\8\ Based on discussions with industry representatives, the 
staff estimates that it will require approximately 3 attorney hours to 
draft and execute additional clauses in new subadvisory contracts in 
order for funds and subadvisers to be able to rely on the exemptions in 
rule 10f-3. Because these additional clauses are identical to the 
clauses that a fund would need to insert in their subadvisory contracts 
to rely on rules 12d3-1, 17a-10, and 17e-1, and because we believe that 
funds that use one such rule generally use all of these rules, we 
apportion this 3 hour time burden equally to all four rules. Therefore, 
we estimate that the burden allocated to rule 10f-3 for this contract 
change would be 0.75 hours.\9\ Assuming that all 251 funds that enter 
into new subadvisory contracts each year make the modification to their 
contract required by the rule, we estimate that the rule's contract 
modification requirement will result in 188 burden hours annually.\10\
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    \8\ Based on information in Commission filings, we estimate that 
38 percent of funds are advised by subadvisers.
    \9\ This estimate is based on the following calculation (3 hours 
/ 4 rules = .75 hours).
    \10\ These estimates are based on the following calculations: 
(0.75 hours x 251 portfolios = 188 burden hours).
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    The staff estimates, therefore, that rule 10f-3 imposes an 
information collection burden of 4,060 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 calculation: (1,675 
hours + 1,117 hours + 1,080 hours + 188 hours = 4,060 total burden 
hours).
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    The collection of information required by rule 10f-3 is necessary 
to obtain the benefits of the rule. 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 OMB control number.
    The public may view the background documentation for this 
information collection at the following Web site, 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 email to: 
[email protected]; and (ii) Pamela Dyson, Director/Chief 
Information Officer, Securities and Exchange Commission, c/o Remi 
Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or send an email 
to: [email protected]. Comments must be submitted to OMB within 30 
days of this notice.

    Dated: May 28, 2015.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13381 Filed 6-1-15; 8:45 am]
 BILLING CODE 8011-01-P