Federal Register / Vol. 72, No. 48 / Tuesday, March 13, 2007 / Notices 11405 

1Status of Investment Advisory Programs Under 

the Investment Company Act of 1940, Investment 

Company Act Release No. 22579 (Mar. 24, 1997) (62 

FR 15098 (Mar. 31, 1997)) (‘‘Adopting Release’’). In 

addition, there are no registration requirements 

under section 5 of the Securities Act of 1933 for 

these programs. See 17 CFR 270.3a–4, introductory 

note. 

2For purposes of rule 3a–4, the term ‘‘sponsor’’

refers to any person who receives compensation for 

sponsoring, organizing or administering the 

program, or for selecting, or providing advice to 

clients regarding the selection of, persons 

responsible for managing the client’s account in the 

program. 

3Clients specifically must be allowed to designate 

securities that should not be purchased for the 

account or that should be sold if held in the 

account. The rule does not require that a client be 

able to require particular securities be purchased for 

the account. 

4The sponsor also must provide a means by 

which clients can contact the sponsor (or its 

designee). 

5These estimates are based on statistical 

information on wrap fee and mutual fund wrap 

programs provided by Cerulli Associates in 2003. 

We request comment on whether the number of 

wrap programs and program sponsors has changed. 

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 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. 

Dated: March 5, 2007. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4458 Filed 3–12–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of Filings and 

Information Services, Washington, DC 

20549. 

Extension: 

Rule 3a–4, SEC File No. 270–401, OMB 

Control No. 3235–0459. 

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’’) is soliciting comments 

on the collections of information 

summarized below. The Commission 

plans to submit this existing collection 

of information to the Office of 

Management and Budget (‘‘OMB’’) for 

extension and approval. 

Rule 3a–4 (17 CFR 270.3a–4) under 

the Investment Company Act of 1940 

(15 U.S.C. 80a) (‘‘Investment Company 

Act’’ or ‘‘Act’’) provides a nonexclusive 

safe harbor from the definition of 

investment company under the Act for 

certain investment advisory programs. 

These programs, which include ‘‘wrap 

fee’’ and ‘‘mutual fund wrap’’ programs, 

generally are designed to provide 

professional portfolio management 

services to clients who are investing less 

than the minimum usually required by 

portfolio managers but more than the 

minimum account size of most mutual 

funds. Under wrap fee and similar 

programs, a client’s account is typically 

managed on a discretionary basis 

according to pre-selected investment 

objectives. Clients with similar 

investment objectives often receive the 

same investment advice and may hold 

the same or substantially the same 

securities in their accounts. Some of 

these investment advisory programs 

may meet the definition of investment 

company under the Act because of the 

similarity of account management. 

In 1997, the Commission adopted rule 

3a–4, which clarifies that programs 

organized and operated in a manner 

consistent with the conditions of rule 

3a–4 are not required to register under 

the Investment Company Act or comply 

with the Act’s requirements.1 These 

programs differ from investment 

companies because, among other things, 

they provide individualized investment 

advice to the client. The rule’s 

provisions have the effect of ensuring 

that clients in a program relying on the 

rule receive advice tailored to the 

client’s needs. 

Rule 3a–4 provides that each client’s 

account must be managed on the basis 

of the client’s financial situation and 

investment objectives and consistent 

with any reasonable restrictions the 

client imposes on managing the 

account. When an account is opened, 

the sponsor 2 (or its designee) must 

obtain information from each client 

regarding the client’s financial situation 

and investment objectives, and must 

allow the client an opportunity to 

impose reasonable restrictions on 

managing the account.3 In addition, the 

sponsor (or its designee) annually must 

contact the client to determine whether 

the client’s financial situation or 

investment objectives have changed and 

whether the client wishes to impose any 

reasonable restrictions on the 

management of the account or 

reasonably modify existing restrictions. 

The sponsor (or its designee) also must 

notify the client quarterly, in writing, to 

contact the sponsor (or the designee) 

regarding changes to the client’s 

financial situation, investment 

objectives, or restrictions on the 

account’s management.4

The program must provide each client 

with a quarterly statement describing all 

activity in the client’s account during 

the previous quarter. The sponsor and 

personnel of the client’s account 

manager who know about the client’s 

account and its management must be 

reasonably available to consult with the 

client. Each client also must retain 

certain indicia of ownership of all 

securities and funds in the account. 

Rule 3a–4 is intended primarily to 

provide guidance regarding the status of 

investment advisory programs under the 

Investment Company Act. The rule is 

not intended to create a presumption 

about a program that is not operated 

according to the rule’s guidelines. 

The requirement that the sponsor (or 

its designee) obtain information about 

the client’s financial situation and 

investment objectives when the account 

is opened is designed to ensure that the 

investment adviser has sufficient 

information regarding the client’s 

unique needs and goals to enable the 

portfolio manager to provide 

individualized investment advice. The 

sponsor is required to contact clients 

annually and provide them with 

quarterly notices to ensure that the 

sponsor has current information about 

the client’s financial status, investment 

objectives, and restrictions on 

management of the account. 

Maintaining current information enables 

the program manager to evaluate the 

client’s portfolio in light of the client’s 

changing needs and circumstances. The 

requirement that clients be provided 

with quarterly statements of account 

activity is designed to ensure the client 

receives an individualized report, which 

the Commission believes is a key 

element of individualized advisory 

services. 

The Commission staff estimates that 

approximately 64 wrap fee and mutual 

fund wrap programs administered by 56 

program sponsors use the procedures 

under rule 3a–4.5 Although it is 

impossible to determine the exact 

number of clients that participate in 

investment advisory programs, an 

estimate can be made by dividing total 

assets by the industry average account 


cprice-sewell on PROD1PC66 with NOTICES
11406 Federal Register / Vol. 72, No. 48 / Tuesday, March 13, 2007 / Notices 

6See Cerulli Associates, The Cerulli Edge: 

Managed Accounts Edition, Advisors Issue 10 (3d 

quarter 2006). 

7 Id. at 13. 

8The requirement for initial client contact and 

evaluation is not a recurring obligation, but only 

occurs when the account is opened. The estimated 

annual hourly burden is based on the average 

number of new accounts opened each year. 

size ($345.5 billion 6 divided by 

$126,202),7 for a total of 2,737,675 

clients. Additionally, an average 

number of new accounts opened each 

year can be estimated by dividing the 

average annual increase in account 

assets in 2003 through 2006, by the 

average account size ($57.7 billion 

divided by $126,202), for an average 

annual number of new accounts of 

457,204.8

The Commission staff estimates that 

each program sponsor spends 

approximately 1.25 hours annually in 

preparing, conducting and/or reviewing 

interviews for each new client; 30 

minutes annually preparing, conducting 

and/or reviewing annual interviews for 

each continuing client; and one hour 

preparing and mailing quarterly account 

activity statements, including the notice 

to update information to each client. 

Based on the foregoing, the Commission 

staff therefore estimates the total annual 

burden of the rule’s paperwork 

requirements for all program sponsors to 

be 4,449,415.5 hours. This represents a 

decrease of 2,063,087 hours from the 

prior estimate of 6,512,502.5 hours. The 

decrease results from a change in the 

method of computation for the number 

of clients that participate in these 

investment advisory programs. 

Previously, we have computed the 

number of clients based on the 

minimum account requirement for 

participation in these programs. For this 

estimate we computed the number of 

clients based on the industry average 

account size in these programs resulting 

in a decrease in the estimated number 

of clients in these investment advisory 

programs. 

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 collections of information 

are 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 burdens of the collections of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burdens of the collections 

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 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. 

Dated: March 5, 2007. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4459 Filed 3–12–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copy Available 

From: Securities and Exchange 

Commission, Office of Filings and 

Information Services, Washington, DC 

20549. 

Extension: 

Form N–5, SEC File No. 270–172, OMB 

Control No. 3235–0169. 

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 

(‘‘Commission’’) is soliciting comments 

on the collection of information 

summarized below. The Commission 

plans to submit this existing collection 

of information to the Office of 

Management and Budget (‘‘OMB’’) for 

extension and approval. 

Form N–5 (17 CFR 239.24 and 

274.5)—Registration Statement of Small 

Business Investment Companies Under 

the Securities Act of 1933 (15 U.S.C. 77a 

et seq.) and the Investment Company 

Act of 1940 (15 U.S.C. 80a-1 et seq.) 

Form N–5 is the integrated registration 

statement form adopted by the 

Commission for use by a small business 

investment company which has been 

licensed as such under the Small 

Business Investment Act of 1958 and 

has been notified by the Small Business 

Administration that the company may 

submit a license application, to register 

its securities under the Securities Act of 

1933 (‘‘Securities Act’’), and to register 

as an investment company under 

section 8 of the Investment Company 

Act of 1940 (‘‘Investment Company 

Act’’). The purpose of registration under 

the Securities Act is to ensure that 

investors are provided with material 

information concerning securities 

offered for public sale that will permit 

investors to make informed decisions 

regarding such securities. The 

Commission staff reviews the 

registration statements for the adequacy 

and accuracy of the disclosure 

contained therein. Without Form N–5, 

the Commission would be unable to 

carry out the requirements of the 

Securities Act and the Investment 

Company Act for registration of small 

business investment companies. The 

respondents to the collection of 

information are small business 

investment companies seeking to 

register under the Investment Company 

Act and to register their securities for 

sale to the public under the Securities 

Act. The estimated number of 

respondents is one and the proposed 

frequency of response is annually. The 

estimate of the total annual reporting 

burden of the collection of information 

is approximately 352 hours per 

respondent, for a total of 352 hours. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

(b) the accuracy of the agency’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 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. 

Dated: March 5, 2007. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4461 Filed 3–12–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copy Available 

From: Securities and Exchange 


cprice-sewell on PROD1PC66 with NOTICES