15006 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 

1 17 CFR 270.17f–5. All references to rules 17f– 

5, 17f–7, 17d–1, or 19b–1 in this notice are to 17 

CFR 270.17f–5, 17 CFR 270.17f–7, 17 CFR 270.17d– 

1, and 17 CFR 270.19b–1, respectively. 2See section 17(f) of the Investment Company Act 

(15 U.S.C. 80a–17(f)). 

3This figure is an estimate of the number of new 

funds each year, based on data reported by funds 

in 2010 on Form N–1A and Form N–2. In practice, 

not all funds will use foreign custody managers, 

and the actual figure may be smaller. 

4This estimate is based on staff research. 

5The board hourly rate is based on fund industry 

representations. The $220/hour figure for a trust 

administrator is from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2010, modified to account for an 1,800-hour workyear and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits and overhead. 

governs the custody of the assets of 

registered management investment 

companies (‘‘funds’’) with custodians 

outside the United States.1 Under Rule 

17f–5, the fund’s board of directors must 

find that it is reasonable to rely on each 

delegate it selects to act as the fund’s 

foreign custody manager. The delegate 

must agree to provide written reports 

that notify the board when the fund’s 

assets are placed with a foreign 

custodian and when any material 

change occurs in the fund’s custody 

arrangements. The delegate must agree 

to exercise reasonable care, prudence, 

and diligence, or to adhere to a higher 

standard of care. When the foreign 

custody manager selects an eligible 

foreign custodian, it must determine 

that the fund’s assets will be subject to 

reasonable care if maintained with that 

custodian, and that the written contract 

that governs each custody arrangement 

will provide reasonable care for fund 

assets. The contract must contain 

certain specified provisions or others 

that provide at least equivalent care. 

The foreign custody manager must 

establish a system to monitor the 

performance of the contract and the 

appropriateness of continuing to 

maintain assets with the eligible foreign 

custodian. 

The collection of information 

requirements in rule 17f–5 are intended 

to provide protection for fund assets 

maintained with a foreign bank 

custodian whose use is not authorized 

by statutory provisions that govern fund 

custody arrangements,2 and that is not 

subject to regulation and examination 

by U.S. regulators. The requirement that 

the fund board determine that it is 

reasonable to rely on each delegate is 

intended to ensure that the board 

carefully considers each delegate’s 

qualifications to perform its 

responsibilities. The requirement that 

the delegate provide written reports to 

the board is intended to ensure that the 

delegate notifies the board of important 

developments concerning custody 

arrangements so that the board may 

exercise effective oversight. The 

requirement that the delegate agree to 

exercise reasonable care is intended to 

provide assurances to the fund that the 

delegate will properly perform its 

duties. 

The requirements that the foreign 

custody manager determine that fund 

assets will be subject to reasonable care 

with the eligible foreign custodian and 

under the custody contract, and that 

each contract contain specified 

provisions or equivalent provisions, are 

intended to ensure that the delegate has 

evaluated the level of care provided by 

the custodian, that it weighs the 

adequacy of contractual provisions, and 

that fund assets are protected by 

minimal contractual safeguards. The 

requirement that the foreign custody 

manager establish a monitoring system 

is intended to ensure that the manager 

periodically reviews each custody 

arrangement and takes appropriate 

action if developing custody risks may 

threaten fund assets. 

Commission staff estimates that each 

year, approximately 135 registrants 3

could be required to make an average of 

one response per registrant under rule 

17f–5, requiring approximately 2.5 

hours of board of director time per 

response, to make the necessary 

findings concerning foreign custody 

managers. The total annual burden 

associated with these requirements of 

the rule is up to approximately 337.5 

hours (135 registrants × 2.5 hours per 

registrant). The staff further estimates 

that during each year, approximately 15 

global custodians 4 are required to make 

an average of 4 responses per custodian 

concerning the use of foreign custodians 

other than depositories. The staff 

estimates that each response will take 

approximately 270 hours, requiring 

approximately 1,080 total hours 

annually per custodian. The total 

annual burden associated with these 

requirements of the rule is 

approximately 16,200 hours (15 global 

custodians × 1,080 hours per custodian). 

Therefore, the total annual burden of all 

collection of information requirements 

of rule 17f–5 is estimated to be up to 

16,537.5 hours (337.5 + 16,200). The 

total annual cost of burden hours is 

estimated to be $4,914,000 (337.5 hours 

× $4,000/hour for board of director’s 

time, plus 16,200 hours × $220/hour for 

a trust administrator’s time).5

Compliance with the collection of 

information requirements of the rule is 

necessary to obtain the benefit of relying 

on the rule’s permission for funds to 

maintain their assets in foreign 

custodians. 

The estimate of average burden hours 

is made solely for the purposes of the 

Paperwork Reduction Act. The estimate 

is not derived from a comprehensive or 

even a representative survey or study of 

the costs of Commission rules and 

forms. 

Written comments are invited on: (a) 

Whether the collection of information is 

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 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 in 

writing within 60 days of this 

publication. 

Please direct your written comments 

to Thomas Bayer, Chief Information 

Officer, Securities and Exchange 

Commission, C/O Remi Pavlik-Simon, 

6432 General Green Way, Alexandria, 

VA 22312; or send an e-mail to: 

PRA_Mailbox@sec.gov. 

Dated: March 15, 2011. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–6365 Filed 3–17–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of Investor 

Education and Advocacy, 

Washington, DC 20549–0213. 

Extension: 

Rule 17f–7; SEC File No. 270–470; 

OMB Control No. 3235–0529. 

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 

summarized below. The Commission 

plans to submit these existing 

collections of information to the Office 

of Management and Budget (‘‘OMB’’) for 

extension and approval. 

Rule 17f–7 (17 CFR 270.17f–7) 

permits funds to maintain their assets in 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 15007 

1Custody of Investment Company Assets Outside 

the United States, Investment Company Act Release 

No. IC–23815 (April 29, 1999) (64 FR 24489 (May 

6, 1999)). 

2At the start of 2011, 836 investment advisers 

managed or sponsored open-end (including ETFs) 

portfolios and closed-end registered funds. 3These estimates are based on conversations with 

representatives of the fund industry. 4The salaries for a portfolio manager and a trust 

administrator are from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2010, modified to account for an 1800-hour workyear and multiplied by 5.35 to account for bonuses, 

firm size, employee benefits and overhead. 

foreign securities depositories based on 

conditions that reflect the operations 

and role of these depositories.1 Rule 

17f–7 contains some ‘‘collection of 

information’’ requirements. An eligible 

securities depository has to meet 

minimum standards for a depository. 

The fund or its investment adviser 

generally determines whether the 

depository complies with those 

requirements based on information 

provided by the fund’s primary 

custodian (a bank that acts as global 

custodian). The depository custody 

arrangement has to meet certain risk 

limiting requirements. The fund can 

obtain indemnification or insurance 

arrangements that adequately protect 

the fund against custody risks. The fund 

or its investment adviser generally 

determines whether indemnification or 

insurance provisions are adequate. If the 

fund does not rely on indemnification 

or insurance, the fund’s contract with its 

primary custodian is required to state 

that the custodian will provide to the 

fund or its investment adviser a custody 

risk analysis of each depository, monitor 

risks on a continuous basis, and 

promptly notify the fund or its adviser 

of material changes in risks. The 

primary custodian and other custodians 

also are required to agree to exercise 

reasonable care. 

The collection of information 

requirements in rule 17f–7 are intended 

to provide workable standards that 

protect funds from the risks of using 

securities depositories while assigning 

appropriate responsibilities to the 

fund’s primary custodian and 

investment adviser based on their 

capabilities. The requirement that the 

depository meet specified minimum 

standards is intended to ensure that the 

depository is subject to basic safeguards 

deemed appropriate for all depositories. 

The requirement that the custody 

contract state that the fund’s primary 

custodian will provide an analysis of 

the custody risks of depository 

arrangements, monitor the risks, and 

report on material changes is intended 

to provide essential information about 

custody risks to the fund’s investment 

adviser as necessary for it to approve the 

continued use of the depository. The 

requirement that the primary custodian 

agree to exercise reasonable care is 

intended to provide assurances that its 

services and the information it provides 

will meet an appropriate standard of 

care. The alternative requirement that 

the funds obtain adequate 

indemnification or insurance against the 

custody risks of depository 

arrangements is intended to provide 

another, potentially less burdensome 

means to protect assets held in 

depository arrangements. 

The staff estimates that each of 

approximately 836 investment advisers 2

will make an average of 8 responses 

annually under the rule to address 

depository compliance with minimum 

requirements, any indemnification or 

insurance arrangements, and reviews of 

risk analyses or notifications. The staff 

estimates each response will take 6 

hours, requiring a total of approximately 

48 hours for each adviser. The total 

annual burden associated with these 

requirements of the rule will be 

approximately 40,128 hours (836 

advisers × 48 hours per adviser). The 

staff further estimates that during each 

year, each of approximately 15 global 

custodians will make an average of 4 

responses to analyze custody risks and 

provide notice of any material changes 

to custody risk under the rule. The staff 

estimates that each response will take 

260 hours, requiring approximately 

1040 hours annually per custodian.3

The total annual burden associated with 

these requirements is approximately 

15,600 hours (15 custodians × 1040 

hours). Therefore, the staff estimates 

that the total annual burden associated 

with all collection of information 

requirements of the rule is 55,728 hours 

(40,128 + 15,600). The total annual cost 

of burden hours is estimated to be 

$14,948,736 (40,128 × $287 for a 

portfolio manager, plus 15,600 hours × 

$220/hour for a trust administrator’s 

time).4 The estimate of average burden 

hours is made solely for the purposes of 

the Paperwork Reduction Act. The 

estimate is not derived from a 

comprehensive or even a representative 

survey or study of the costs of 

Commission rules and forms. 

Compliance with the collection of 

information requirements of the rule is 

necessary to obtain the benefit of relying 

on the rule’s permission for funds to 

maintain their assets in foreign 

custodians. 

Written comments are invited on: (a) 

Whether the collection of information is 

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 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 in 

writing within 60 days of this 

publication. 

Please direct your written comments 

to Thomas Bayer, Chief Information 

Officer, Securities and Exchange 

Commission, c/o Remi Pavlik-Simon, 

6432 General Green Way, Alexandria, 

VA 22312; or send an e-mail to: 

PRA_Mailbox@sec.gov. 

Dated: March 15, 2011. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–6364 Filed 3–17–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of Investor 

Education and Advocacy, 

Washington, DC 20549–0213. 

Extension: 

Form N–17D–1; SEC File No. 270– 

231; OMB Control No. 3235–0229. 

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 

summarized below. The Commission 

plans to submit these existing 

collections of information to the Office 

of Management and Budget (‘‘OMB’’) for 

extension and approval. 

Section 17(d) (15 U.S.C. 80a–17(d)) of 

the Investment Company Act of 1940 

(‘‘Act’’) authorizes the Commission to 

adopt rules that protect funds and their 

security holders from overreaching by 

affiliated persons when the fund and the 

affiliated person participate in any joint 

enterprise or other joint arrangement or 

profit-sharing plan. Rule 17d–1 under 

the Act (17 CFR 270.17d–1) prohibits 

funds and their affiliated persons from 

participating in a joint enterprise, unless 

an application regarding the transaction 

has been filed with and approved by the 


Emcdonald on DSK2BSOYB1PROD with NOTICES