

[Federal Register: September 8, 2006 (Volume 71, Number 174)]
[Notices]               
[Page 53139-53140]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08se06-80]                         

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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 Filings and Information Services, Washington, DC 
20549.

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'') has submitted to the Office of 
Management and Budget (``OMB'') a request for extension of the 
previously approved collection of information discussed below.
    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 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 (17 CFR 270.12d1-1) under the Act 
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-

[[Page 53140]]

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 31 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 40 unregistered money market funds in excess of the statutory limits 
under an exemptive order issued by the Commission, 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 in the first year after the rule's 
adoption, each will spend 21 hours to implement the board 
procedures.\10\ Finally, Commission staff estimates that 10 
unregistered money market funds spends 4.5 hours to review and amend 
procedures annually. The estimated total of annual responses under rule 
12d1-1 is 57,131.\11\
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    \9\ This estimate is based on the number of applications filed 
with the Commission in 2005. 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\ The Commission adopted rule 12d1-1 on June 20, 2006. See 
Fund of Funds Investments, Investment Company Act Release No. 27399 
(June 20, 2006).
    \11\ This estimate is based on the following calculation: (40 x 
1220) + (6 x 1220) + (40 x 21) + (6 x 21) + (10 x 4.5) = 57,131.
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    Commission staff estimates that in addition to the costs described 
in section 12, unregistered money market funds will 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 
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 would be different for unregistered 
money market funds. As noted before, we have no information on the 
amount of assets managed by unregistered money market funds. 
Accordingly, Commission staff has estimated that an unregistered money 
market fund in which registered funds would invest in reliance on rule 
12d1-1 would have, on average, $376.4 million in assets under 
management.\12\ Based on a cost of $0.0000005 per dollar of assets 
under management for medium-sized funds, the staff estimates compliance 
with rule 2-7 would cost these types of unregistered money market funds 
$8000 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: 46 
unregistered money market funds x $357.7 million in assets under 
management x $0.0000005 = $8227. The estimate of cost per dollar of 
assets is the same as that used for medium-sized funds in the Rule 
2a-7 submission.
    \14\ This estimate is based on information Commission staff 
obtained in its survey for the Rule 2a-7 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 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.
    General comments regarding the above information should be directed 
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 10102, New Executive Office 
Building, Washington, DC 20503 or e-mail to: 
David_Rostker@omb.eop.gov; and (ii) R. Corey Booth, Director/Chief 

Information Officer, Securities and Exchange Commission, c/o Shirley 
Martinson, 6432 General Green Way, Alexandria, Virginia 22312, or send 
an e-mail to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB 
within 30 days of this notice.

    Dated: August 30, 2006.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-14854 Filed 9-7-06; 8:45 am]

BILLING CODE 8010-01-P
