[Federal Register Volume 86, Number 137 (Wednesday, July 21, 2021)]
[Notices]
[Pages 38522-38523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15437]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-237, OMB Control No. 3235-0226]


Proposed Collection; Comment Request

Extension:
    Rule 10f-3

    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 (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 affiliated relationships with a principal 
underwriter for the security.\1\ Congress enacted this provision in 
1940 to protect funds and their shareholders by preventing underwriters 
from ``dumping'' unmarketable securities on affiliated funds.
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    \1\ 15 U.S.C. 80a-10(f).
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    Rule 10f-3 under the Act permits a fund to engage in a securities 
transaction that otherwise would violate Section 10(f) if, among other 
things: (i) 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 (ii) 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.\2\ 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.
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    \2\ 17 CFR 270.10f-3.
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    Rule 10f-3 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

[[Page 38523]]

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 953 funds engage in at least 
one Rule 10f-3 transaction each year, for a total of 953 such 
transactions.\3\ 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 that it takes an average fund 
approximately 30 minutes per transaction and, and, in the aggregate, 
approximately 477 hours \4\ for funds to comply with this portion of 
the rule.
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    \3\ These estimates are based on data from Form N-CEN filings 
with the Commission.
    \4\ This estimate is based on the following calculation: (0.5 
hours x 953 = 477 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, in the aggregate, approximately 318 hours \5\ 
annually for funds to comply with this portion of the rule.
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    \5\ This estimate is based on the following calculations: (20 
minutes x 953 transactions = 19,060 minutes; 19,060 minutes/60 = 318 
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 3,812 hours \6\ annually for funds to comply 
with this rule requirement.
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    \6\ This estimate is based on the following calculation: (1 hour 
per quarter x 4 quarters x 953 funds = 3,812 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.\7\ Thus, annually, 
in the aggregate, the staff estimates that funds spend a total of 
approximately 1,906 hours \8\ on monitoring and revising Rule 10f-3 
procedures.
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    \7\ 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.
    \8\ This estimate is based on the following calculation: (953 
funds x 2 hours = 1,906 hours).
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    Based on an analysis of Form N-CEN filings, the staff estimates 
that approximately 146 new funds enter into subadvisory agreements each 
year.\9\ The staff estimates that it will require approximately 0.75 
hours to draft and execute additional clauses in subadvisory contracts 
in order for new funds and subadvisers to be able to rely on the 
exemptions in Rule 10f-3.\10\ Assuming that all 146 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 110 burden hours annually for 
new funds.\11\
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    \9\ Based on information in Form N-CEN filings, we estimate that 
approximately 139 new open-end funds and 7 new closed-end funds, or 
a total of 146 new funds enter into new subadvisory agreements each 
year (139 + 7 = 146 new funds). We understand that existing funds 
may also enter into new subadvisory agreements, but in many cases 
would benefit from having previously drafted Rule 10f-3 clauses in 
prior or existing subadvisory contracts.
    \10\ Because such 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 (3 hours / 4 rules = 0.75 
hours).
    \11\ These estimates are based on the following calculations: 
(0.75 hours x 146 portfolios = 110 burden hours).
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    The staff estimates, therefore, that Rule 10f-3 imposes an 
information collection burden of 6,623 hours.\12\
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    \12\ This estimate is based on the following calculation: (477 
hours + 318 hours + 3,812 hours + 1,906 hours + 110 hours = 6,623 
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 David Bottom, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O Cynthia 
Roscoe, 100 F Street NE, Washington, DC 20549; or send an email to: 
[email protected].

    Dated: July 15, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15437 Filed 7-20-21; 8:45 am]
BILLING CODE 8011-01-P