
[Federal Register Volume 88, Number 220 (Thursday, November 16, 2023)]
[Notices]
[Pages 78802-78804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25360]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-578, OMB Control No. 3235-0639]


Proposed Collection; Comment Request; Extension: Rule 12d1-4

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 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.
    Rule 12d1-4 (17 CFR 270.12d1-4)under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) (``Investment Company Act'') permits 
certain registered funds and business development companies (``BDC'') 
(``acquiring fund') that satisfy certain conditions to acquire shares 
of other certain registered funds and BDCs (``acquired fund'') in 
excess of the limits of section 12(d)(1) of the Act without obtaining 
an exemptive order from the Commission.\1\ This collection of 
information is voluntary because rule

[[Page 78803]]

12d1-4 is an exemptive rule and, therefore, funds may choose not to 
rely on the proposed rule. 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 purpose of 
the information collection requirement in rule 12d1-4 is to ensure both 
that the concerns that led Congress to adopt section 12(d)(1) are 
mitigated and that funds relying upon the rule as an exemption from 
that section comply with the rule's requirements. The following 
estimates of average internal burden hours are made solely for purposes 
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and are 
not derived from a comprehensive or even representative survey or study 
of the cost of Commission rules and forms.
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    \1\ See 17 CFR 270.12d1-4.
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    Voting Provisions. With respect to voting provisions, Commission 
staff estimates that 446 acquiring funds will be subject to the 
requirements in rule 12d1-4(b)(ii), 436 of which will be utilizing 
mirror voting and 10 of which will be utilizing pass-through voting.\2\ 
With respect to mirror voting, Commission staff estimates that, on 
average, internal counsel for such funds will spend 3 hours updating 
proxy voting policies and disclosures for such funds and 3 hours 
conducting voting procedures. Thus, the staff estimates that the annual 
hour burden of the collection of information imposed by the mirror 
voting provisions to be 6 hours per fund, resulting in a total burden 
of 2,616 hours.\3\
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    \2\ 446 acquiring funds that will invest in open-end funds or 
UITs in reliance on rule 12d1-4 and beyond the 25% voting threshold 
= 4,061 series of management companies relying upon rule 12d1-4 or 
statutory exemption per Form N-CEN items C.7.l and C.7.m (based on 
data as of December 2022, as derived from N-CEN filings through July 
14, 2023) plus 37 acquiring BDCs (consistent with the prior renewal) 
and multiplied by 11% of acquiring funds that invest in at least one 
open-end fund or UIT beyond the 25% voting threshold of the rule (as 
estimated in the prior renewal). This estimate assumes that 
acquiring funds with current investments in other funds beyond the 
limits of section 12(d)(1) are subject to rule 12d1-4 at the same 
rate as the acquiring funds with current investments in other funds 
within the limits of section 12(d)(1). We lack structured data that 
would allow us to estimate the percentage of acquiring funds that 
are within the same group of investment companies as the acquired 
fund or the acquiring fund's investment sub-adviser or any person 
controlling, controlled by, or under common control with such 
investment sub-adviser acts as the acquired fund's investment 
adviser or depositor, and thus will be subject to the rule's voting 
condition. To avoid underestimating the costs associated with this 
aspect of rule 12d1-4, we assume that all the 446 acquiring funds 
will be subject to the rule's conditions. We estimate that of 10 
funds will utilize pass-through voting in limited circumstances. In 
circumstances where all holders of the outstanding voting securities 
of the acquired fund are required by rule 12d1-4 or otherwise under 
section 12(d)(1) to mirror vote the securities of the acquired fund, 
the acquiring fund may use pass-through instead of mirror voting. It 
is estimated that (consistent with the prior renewal) 2.2% of 
acquiring funds that will invest in open-end funds or UITs in 
reliance on rule 12d1-4 and beyond the 25% voting threshold will use 
pass-through voting (i.e., 2.2% of 446 acquiring funds equals 10 
funds using pass-through voting).
    \3\ This estimate is based on the following calculations: 2,616 
= 6 hours x 436 funds.
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    In addition to the mirror voting provisions of the rule, there are 
some circumstances in which the acquiring funds are the only 
shareholders of an acquired fund, and in such cases, pass-through 
voting may be used. Staff estimates that 10 funds will use pass-through 
voting. Staff estimates that internal counsel for such funds will spend 
3 hours updating proxy voting policies and disclosures and 30 hours 
communicating with shareholders and voting accordingly. Thus, the staff 
estimates that the annual hour burden of the collection of information 
imposed by the pass-through provisions to be 33 hours per fund, 
resulting in a total burden of 330 hours.\4\
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    \4\ This estimate is based on the following calculations: 330 
hours (33 hours x 10 funds).
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    Combining the estimates for the mirror voting and pass-through 
voting calculations, staff estimates that 446 funds will spend a total 
of 2,946 hours complying with the voting provisions of the rule.\5\
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    \5\ This estimate is based on the following calculations: 446 
(436 + 10; combined total of funds using mirror voting and funds 
using pass-through voting); 2,946 (2,616 hours plus 330 hours).
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    Fund of Funds Investment Agreements. With respect to the fund of 
funds investment agreement provisions, Commission staff estimates that 
12,900 funds that do not have the same investment adviser are subject 
to the requirement to enter into an agreement prior to the purchase of 
acquired fund shares in excess of section 12(d)(1)'s limits.\6\ 
Commission staff estimates, however, that the majority of affected 
funds have already complied with this requirement and staff assumes 
that, absent structured data to further calculate, 645 funds (5% of 
affected funds) would be newly subject to the rule on an annual 
basis.\7\ Commission staff estimates that such newly affected funds 
will spend 20 hours negotiating and memorializing the necessary 
agreements. Commission staff further estimates that newly affected 
funds will spend 6 hours establishing recordkeeping and policies and 
procedures. Accordingly, staff estimates that the annual burden solely 
for newly affected funds will be 26 hours.\8\ Commission staff further 
estimates that all affected funds will spend 12 hours on ongoing 
recordkeeping, resulting in a total annual hour burden of 171,570 
hours.\9\
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    \6\ This estimate is based on the number of acquiring-acquired 
fund pairs that do not share the same adviser as indicated in form 
N-PORT data between December 2022 and July 14, 2023 (18,695) and, 
consistent with the prior renewal, assumes that 69% of such 
acquiring-acquired fund pairs will be subject to rule 12d1-4 (i.e., 
12,900 = 18,695 x 0.69).
    \7\ This estimate is based on the following calculation: 645 = 
12,900 x 0.05.
    \8\ This estimate is based on the following calculations: 26 
hours = 20 + 6.
    \9\ This estimate is based on the following calculations: 
171,570 hours = (26 hours x 645 newly affected funds) + (12 hours x 
12,900 affected funds).
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    Management Companies--Fund Filings. With respect to the management 
company fund finding provisions, Commission staff estimates that 2,974 
acquired management companies will be subject to rule 12d1-4.\10\ 
Commission staff further estimates that 4,965 acquiring management 
companies will be subject to rule 12d1-4.\11\ This results in 7,939 
management companies being subject to rule 12d1-4.\12\ Commission staff 
estimates that such management companies will spend 18 hours conducting 
evaluations and creating, reviewing, and maintaining written materials 
pursuant to the rule, resulting in a total annual hour burden of 
142,902 hours.\13\
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    \10\ 2,974 acquired management companies that will be subject to 
rule 12d1-4 = 4,310 acquired management companies x 69% of acquired 
management companies that will be subject to rule 12d1-4 (as 
estimated in the prior renewal). Our calculation assumes that the 
estimate of acquiring funds that will be subject to rule 12d1-4 is 
also applicable to acquired funds. 4,310 acquired management 
companies = 3,170 acquired registered investment companies (based on 
data as of December 2022, as derived from N-PORT filings through 
July 14, 2023) x 17,546 registered investment companies (based on 
data as of December 2022, as derived from N-PORT filings through 
July 14, 2023)/12,906 management companies (based on data as of 
December 2022, as derived from N-CEN filings through July 14, 2023). 
This estimate assumes that acquired management companies with 
investments from acquiring funds beyond the limits of section 
12(d)(1) will be subject to rule 12d1-4 at the same rate as the 
acquired management companies with investments from acquiring funds 
within the limits of section 12(d)(1).
    \11\ 4,965 acquiring management companies that will be subject 
to rule 12d1-4 = 7,195 acquiring management companies (based on data 
as of December 2022, as derived from N-PORT filings through July 14, 
2023) x 69% of acquiring management companies that will be subject 
to rule 12d1-4 (consistent with the prior renewal). This estimate 
assumes that acquiring management companies with current investments 
in other funds beyond the limits of section 12(d)(1) will be subject 
to rule 12d1-4 at the same rate as the acquiring management 
companies with current investments in other funds within the limits 
of section 12(d)(1) following the rule adoption.
    \12\ 7,939 = 2,974 + 4,965.
    \13\ This estimate is based on the following calculations: 
142,902 = 18 hours x 7,939 funds.
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    UITs--Principal Underwriter or Depositor Evaluations. With respect 
to

[[Page 78804]]

the UIT principal underwriter or depositor evaluations, Commission 
staff estimates that 541 acquiring UITs will be subject to rule 12d1-
4.\14\ Commission staff estimates that such UITs will spend 5 hours 
annually conducting evaluations and creating, reviewing, and 
maintaining written materials.\15\ This results in a total annual hour 
burden of 2,705 hours.\16\
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    \14\ This estimate assumes that there are 1,353 series of UITs 
and that 40% of such UITS are acquiring UITs (as estimated in the 
prior renewal). The estimate of 1,353 series of UITs is based on 
data as of December 2022, as derived from N-CEN filings (items F.18 
and F.19) through July 14, 2023.
    \15\ This estimate assumes 2.5 hours of general clerk time and 
2.5 hours of senior computer operator time 5 hours = 2.5 + 2.5.
    \16\ This estimate is based on the following calculations: 2,705 
= 5 hours x 541 funds.
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    Separate Accounts Funding Variable Insurance Contracts. With 
respect to the separate account funding variable insurance contracts, 
Commission staff estimates that 186 acquiring separate accounts will be 
subject to rule 12d1-4.\17\ Commission staff estimates that separate 
accounts will spend 4 hours annually obtaining certificates and 
maintaining records, resulting in a total annual hour burden of 744 
hours.\18\
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    \17\ 186 acquiring separate accounts that will be subject to 
rule 12d1-4 = [418 variable annuity separate accounts registered as 
UITs + 240 variable life insurance separate accounts registered as 
UITs + 15 management company separate accounts (these figures are 
based on data as of December 2022, as derived from N-CEN filings 
through July 14, 2023)] x 40% of funds that are acquiring funds (as 
estimated in the prior renewal) x 69% of acquiring separate accounts 
that will be subject to rule 12d1-4 as estimated by a commenter (as 
estimated in the prior renewal).
    \18\ This estimate is based on the following calculations: 744 = 
4 hours x 186 funds.
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    The following estimates of external costs are made solely for 
purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.) and are not derived from a comprehensive or even representative 
survey or study of the cost of Commission rules and forms.
    Voting Provisions. The staff estimates that, on average, outside 
counsel will spend 1 hour per vote conducting voting procedures with 
respect to mirror voting at a cost of $565 per hour. Staff therefore 
estimates an annual external cost burden of $246,340 with respect to 
mirror voting.\19\ Staff further estimates that, with respect to pass-
through voting, outside counsel will spend 1 hour to assist funds in 
communicating with shareholders and voting accordingly at a rate of 
$565 per hour. Staff therefore estimates an annual external cost burden 
of $5,650 with respect to pass-through voting.\20\ Accordingly, staff 
estimates a total annual external cost of $251,990 for compliance with 
the voting provisions of the rule.\21\
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    \19\ $246,340 = ($565 x 1 hour) x 436.
    \20\ $5,650 = ($565 x 1 hour) x 10 funds subject to pass through 
voting.
    \21\ $251,990 = $246,340 + $5,650.
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    Fund of Funds Investment Agreement. Staff estimates that, on 
average, for funds newly subject to the rule, outside counsel will 
spend 2 hours negotiating and memorializing the necessary agreements 
under the rule at a cost of $565 per hour. Staff further estimates 
that, on average, for funds newly subject to the rule, outside counsel 
will spend 4 hours establishing recordkeeping policies and procedures. 
Accordingly, staff estimates a total annual external costs of 
$2,186,550 for compliance with the fund of funds investment agreement 
provisions of the rule.\22\
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    \22\ $2,186,550 = [($565 x 2) + ($565 x 4)] x 645 funds newly 
subject to the fund of funds investment agreement provisions of the 
rule. See footnote 7 for the calculation of funds newly subject to 
the rule.
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    Management Companies--Fund Filings. It is estimated that there is 
no external cost burden with respect to the management company findings 
provisions of the rule.
    UITs--Principal Underwriter or Depositor Evaluations. It is 
estimated that there is no external cost burden with respect to the UIT 
evaluation provisions of the rule.
    Separate Accounts Funding Variable Insurance Contracts. It is 
estimated that there is no external cost burden with respect to the 
separate account certification provisions of the rule.
    As outlined above, we estimate the total external cost burden to 
comply with rule 12d1-4 to be $2,438,540.\23\
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    \23\ $2,438,540 = $251,990 + $2,186,550.
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    Written comments are invited on: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimate of the burden of the collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information collected; 
and (d) ways to minimize the burden of the collection 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 by January 16, 2024.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: David Bottom, Acting 
Director/Chief Information Officer, Securities and Exchange Commission, 
c/o John Pezzullo, 100 F Street NE, Washington, DC 20549 or send an 
email to: [email protected].

    Dated: November 13, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25360 Filed 11-15-23; 8:45 am]
BILLING CODE 8011-01-P


