

[Federal Register: May 16, 2007 (Volume 72, Number 94)]
[Notices]               
[Page 27599-27601]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my07-113]                         

-----------------------------------------------------------------------

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 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. 350l-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.
    Conflicts of interest between investment company personnel (such as 
portfolio managers) and their funds can arise when these persons buy 
and sell securities for their own accounts (``personal investment 
activities''). These conflicts arise because fund personnel have the 
opportunity to profit from information about fund transactions, often 
to the detriment of fund investors. Beginning in the early 1960s, 
Congress and the Securities and Exchange Commission (``Commission'') 
sought to devise a regulatory scheme to effectively address these 
potential conflicts. These efforts culminated in the addition of 
section 17(j) to the Investment Company Act of 1940 (the ``Investment 
Company Act'') (15 U.S.C. 80a-17(j)) in 1970 and the adoption by the 
Commission of rule 17j-1 (17 CFR 270.17j-1) in 1980.\1\ The Commission 
proposed amendments to rule 17j-1 in 1995 in response to 
recommendations made in the first detailed study of fund policies 
concerning personal investment activities by the Commission's Division 
of Investment Management since rule 17j-1 was adopted. Amendments to 
rule

[[Page 27600]]

17j-1, which were adopted in 1999, enhanced fund oversight of personal 
investment activities and the board's role in carrying out that 
oversight.\2\ Additional amendments to rule 17j-1 were made in 2004, 
conforming rule 17j-1 to rule 204A-1 under the Investment Advisers Act 
of 1940 (15 U.S.C. 80b), avoiding duplicative reporting, and modifying 
certain definitions and time restrictions.\3\
---------------------------------------------------------------------------

    \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)).
    \2\ Personal Investment Activities of Investment Company 
Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999) 
(64 FR 46821-01 (Aug. 27, 1999)).
    \3\ Investment Adviser Codes of Ethics, Investment Advisers Act 
Release No. 2256 (Jul. 2, 2004) (66 FR 41696 (Jul. 9, 2004)).
---------------------------------------------------------------------------

    Section 17(j) makes it unlawful for persons affiliated with a 
registered investment company (``fund'') or with the fund's investment 
adviser or principal underwriter (each a ``17j-1 organization''), in 
connection with the purchase or sale of securities held 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 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'' \4\ of those 
organizations. The rule prohibits fraudulent, deceptive or manipulative 
acts by persons affiliated with a 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,\5\ to: (i) Adopt a written codes 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.
---------------------------------------------------------------------------

    \4\ Rule 17j-1(a)(1) defines an ``access person'' as ``Any 
advisory person of a Fund or of a Fund's investment adviser. If an 
investment adviser's primary business is advising Funds or other 
advisory clients, all of the investment adviser's directors, 
officers, and general partners are presumed to be Access Persons of 
any Fund advised by the investment adviser. All of a Fund's 
directors, officers, and general partners are presumed to be Access 
Persons of the Fund.'' The definition of Access Person also includes 
``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.'' Rule 
17j-1(a)(1).
    \5\ 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).
---------------------------------------------------------------------------

    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,\6\ to file: (i) Within 10 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) dated quarterly transaction reports within 30 days of 
the end of each calendar quarter 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.
---------------------------------------------------------------------------

    \6\ Rule 17j-1(d)(2) contains the following exceptions: (i) An 
Access Person need not file a report for transactions effected for, 
and securities held in, any account over which the Access Person 
does not have control; (ii) an independent director of the fund, who 
would otherwise not need to report and who does not have information 
with respect to the fund's transactions in a particular security, 
does not have to file an initial holdings report or a quarterly 
transaction report,; (iii) an Access Person of a principal 
underwriter of the fund does not have to file reports if the 
principal underwriter is not affiliated with the fund (unless the 
fund is a unit investment trust) or any investment adviser of the 
fund and the principal underwriter of the fund does not have any 
officer, director, or general partner who serves in one of those 
capacities for the fund or any investment adviser of the fund; (iv) 
an Access Person to an investment adviser need not make quarterly 
reports if the report would duplicate information provided under the 
reporting provisions of the Investment Adviser's Act; and (v) an 
Access Person need not make quarterly transaction reports if the 
information provided in the report would duplicate information 
received by the 17j-1 organization in the form of broker trade 
confirmations or account statements or information otherwise in the 
records of the 17j-1 organization.
---------------------------------------------------------------------------

    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 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 
organization maintain certain records is intended to assist the 
organization and the Commission's examinations staff in determining if 
there have been violations of rule 17j-1.
    We estimate that annually there are approximately 75,363 
respondents under rule 17j-1, of which 5,363 are rule 17j-1 
organizations and 70,000 are Access Persons. In the aggregate, these 
respondents make approximately 113,970 responses annually. We estimate 
that the total annual burden of complying with the information 
collection requirements in rule 17j-1 is approximately 169,950 hours. 
This hour burden represents time spent by Access Persons that must file 
initial and annual holdings reports and quarterly transaction reports, 
investment personnel that must obtain approval before acquiring 
beneficial ownership in any securities through an IPO or private 
placement, and the responsibilities of Rule 17j-1 organizations arising 
from information collection requirements under rule 17j-1. These 
include notifying Access Persons of their reporting obligations, 
preparing an annual rule 17j-1 report and certification for the board, 
documenting their approval or rejection of IPO and private placement 
requests, maintaining annual rule 17j-1 records, maintaining electronic 
reporting and recordkeeping systems, amending their codes of ethics

[[Page 27601]]

as necessary, and, for new fund complexes, adopting a code of ethics.
    In addition, we estimate that there is an additional annual cost 
burden of approximately $2,000 per fund complex, for a total of 
$1,100,000, associated with complying with the information collection 
requirements in rule 17j-1, aside from the cost of the burden hours 
discussed above.\7\ This represents the costs of purchasing and 
maintaining computers and software to assist funds in carrying out rule 
17j-1 recordkeeping.
---------------------------------------------------------------------------

    \7\ The cost burden associated with filing of new and amended 
codes of ethics on the Commission's Electronic Data Gathering, 
Analysis, and Retrieval system (EDGAR) is included in the Paperwork 
Reduction Act estimates for the relevant forms to which these codes 
must be appended.
---------------------------------------------------------------------------

    These burden hour and cost estimates are based upon the Commission 
staff's experience and discussions with the fund industry. The 
estimates of average burden hours and costs 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. Rule 17j-1 requires that 
records be maintained for at least five years in an easily accessible 
place.\8\
---------------------------------------------------------------------------

    \8\ If information collected pursuant to the rule is reviewed by 
the Commission's examination staff, it will be accorded the same 
level of confidentiality accorded to other responses provided to the 
Commission in the context of its examination and oversight program. 
See section 31(c) of the Investment Company Act (15 U.S.C. 80a-
30(c)).
---------------------------------------------------------------------------

    Please direct general comments regarding the above information to 
the following persons: (i) Desk Officer for the Securities and Exchange 
Commission, 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, VA, 22312; or send an 
email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB 
within 30 days of this notice.

    Dated: May 11, 2007.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-9370 Filed 5-15-07; 8:45 am]

BILLING CODE 8010-01-P
