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Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549
Rule 17j-1—SEC File No. 270-239, OMB Control No. 3235-0224
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange Commission (the “Commission”) has submitted to the Office of Management and Budget (“OMB”) a request for extension and approval of the collection of information discussed below.
Rule 17j-1 [17 CFR 270.17j-1] under the Investment Company Act of 1940 (15 U.S.C. 80a) (the “Investment Company Act”), which the Commission adopted in 1980  and amended in 1999, implements section 17(j) of the Act, which makes it unlawful for persons affiliated with a registered investment company or with the investment company's investment adviser or principal underwriter (each, a “17j-1 organization”), in connection with the purchase or sale of securities Start Printed Page 46486held or to be acquired by the investment company, to engage in any fraudulent, deceptive, or manipulative act or practice in contravention of the Commission's rules and regulations. Section 17(j) also authorizes the Commission to promulgate rules requiring the rule 17j-1 organizations to adopt codes of ethics.
In order to implement section 17(j), rule 17j-1 imposes certain requirements on 17j-1 organizations and “Access Persons”  of those organizations. The rule prohibits fraudulent, deceptive or manipulative acts by persons affiliated with a rule 17j-1 organization in connection with their personal securities transactions in securities held or to be acquired by the fund. The rule requires each 17j-1 organization, unless it is a money market fund or a fund that does not invest in Covered Securities, to: (i) Adopt a written code of ethics, (ii) submit the code and any material changes to the code, along with a certification that it has adopted procedures reasonably necessary to prevent access Persons from violating the code of ethics, to the fund board for approval, (iii) use reasonable diligence and institute procedures reasonably necessary to prevent violations of the code, (iv) submit a written report to the fund describing any issues arising under the code and procedures and certifying that the 17j-1 entity has adopted procedures reasonably necessary to prevent Access Persons from violating the code, (v) identify Access Persons and notify them of their reporting obligations, and (vi) maintain and make available to the Commission for review certain records related to the code of ethics and transaction reporting by Access Persons.
The rule requires each Access Person of a fund (other than a money market fund or a fund that does not invest in Covered Securities) and of an investment adviser or principal underwriter of the fund, who is not subject to an exception, to file: (i) Within ten days of becoming an Access Person, a dated initial holdings report that sets forth certain information with respect to the access person's securities and accounts, (ii) within ten days of the end of each calendar quarter, a dated quarterly transaction report providing certain information with respect to any securities transactions during the quarter and any account established by the Access Person in which any securities were held during the quarter, and (iii) dated annual holding reports providing information with respect to each covered security the Access Person beneficially owns and accounts in which securities are held for his or her benefit. In addition, rule 17j-1 requires investment personnel of a fund or its investment adviser, before acquiring beneficial ownership in securities through an initial public offering (IPO) or in a private placement, to obtain approval from the fund or the fund's investment adviser.
The requirements that the management of a rule 17j-1 organization provide the fund's board with new and amended codes of ethics and an annual issues and certification report are intended to enhance board oversight of personal investment policies applicable to the fund and the personal investment activities of access persons. The requirements that Access Persons, who are not subject to an exception, provide initial holdings reports, quarterly transaction reports, and annual holdings reports and request approval for purchases of securities through IPOs and private placements are intended to help fund compliance personnel and the Commission's examinations staff monitor potential conflicts of interest and detect potentially abusive activities. The requirement that each rule 17j-1 organaization maintain certain records is intended to assist rule 17j-1 organizations and the Commission's examinations staff in determining whether there have been violations of rule 17j-1.
The Commission estimates that each year a total of 80,706 Access Persons and 17j-1 organizations are subject to the rule's reporting requirements. Respondents provide approximately 113,896 responses each year. Each initial holdings report takes approximately forty-two minutes for each of the approximately 10,400 new Access Person each year to prepare. We estimate that each year Access Persons file approximately 30,000 quarterly transaction reports, each of which takes approximately twenty minutes to prepare. We estimate that each year approximately 75,000 Access Persons file annual holdings reports, each of which takes approximately forty-two minutes to prepare. We estimate that Access Persons file approximately 680 requests for preapproval of purchases of securities through initial public offerings and private placements, each of which takes approximately twenty-six minutes to prepare. In the aggregate, Access Persons spend approximately 70,000 hours per year complying with the reporting requirements under the rule.
We estimate that the industry spends approximately 37,000 hours notifying Access Persons of their reporting obligations and overseeing the reporting. We estimate that the industry spends approximately 3,600 hours per year preparing the annual reports regarding issues under the code of ethics and accompanying certifications to fund boards. We estimate that the industry spends approximately 2,500 hours a year preparing new codes of ethics for presentation to fund boards and approximately 1,200 hours per year preparing amendments for presentation to fund boards. We estimate that the industry spends approximately 370 hours per year documenting its approval of requests to purchase securities through initial public offerings or private placements. We estimate that the industry spends approximately 146,500 hours each year maintaining rule 17j-1 records and 13,500 hours maintaining and upgrading their electronic reporting and recordkeeping systems related to rule 17j-1. In the aggregate, 17j-1 organizations spend approximately 204,300 hours per year complying with their reporting and recordkeeping requirements under the rule and ensuring that Access Persons fulfill their reporting obligations.
The total annual burden of the rule's paperwork requirements is, therefore, estimated to be approximately 274,300 hours.Start Printed Page 46487
These burden hour estimates are based upon the Commission staff's experience and discussions with the fund industry. The estimates of average burden hours are made solely for the purposes of the Paperwork Reduction Act. These estimates are not derived from a comprehensive or even a representative survey or study of the costs of Commission rules.
Compliance with the collection of information requirements of the rule is mandatory and is necessary to comply with the requirements of the rule in general. 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.
Please direct general comments regarding the above information to the following persons: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 3208, New Executive Office Building, Washington, DC 20503; and (ii) Michael E. Bartell, Associate Executive Director, Office of Information Technology, Securities and Exchange Commission, Mail Stop 0-4, 450 5th Street, NW., Washington, DC 20549. Comments must be submitted to OMB within 30 days of this notice.Start Signature
Dated: August 28, 2001.
Jonathan G. Katz,
1. Prevention of Certain Unlawful Activities With Respect To Registered Investment Companies, Investment Company Act Release No. 11421 (Oct. 31, 1980) [45 FR 73915 (Nov. 7, 1980)].Back to Citation
2. Personal Investment Activities of Investment Company Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999) [64 FR 46821-01 (Aug. 27, 1999)].Back to Citation
3. Rule 17j-1(a)(1) defines an “access person” as “any director, officer, general partner, or advisory person of a fund or of a fund's investment adviser” and as “any director, officer, or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities.”Back to Citation
4. A “Covered Security” is any security that falls within the definition in section 2(a)(36) of the Act, except for direct obligations of the U.S. Government, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and shares issued by open-end funds. Rule 17j-1(a)(4).Back to Citation
5. Rule 17j-1(d)(2) exempts Access Persons from reporting in five instances in which reporting would be duplicative or would not serve the purposes of the rule.Back to Citation
6. Funds that are money market funds or that invest only in securities excluded from the definition of “security” in rule 17j-1, and any investment advisers, principal underwriters, and Access Persons to these funds, do not have to comply with the rule's requirements concerning codes of ethics, quarterly transaction reports, and initial holdings reports. The estimated number of respondents reported in this section may therefore overstate the number of entities actually required to comply with the rule's requirements.Back to Citation
7. This estimate represents an increase from the approximately 156,700 burden hours estimated in connection with the Commission's last request for a PRA extension for rule 17j—1. The increase in burden hours is attributable to updated information about the number of affected respondents, and revised estimates of the component parts of the burden estimate in light of the industry's experience in implementing the recent amendments to the rule.Back to Citation
[FR Doc. 01-22238 Filed 9-4-01; 8:45 am]
BILLING CODE 8010-01-M