Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules 76189

1Unless otherwise noted, all references to ‘‘rule

10f–3’’ or any paragraph of the rule will be to 17

CFR 270.10f–3.

2See section 2(a)(29) of the Investment Company

Act [15 U.S.C. 80a–2(a)(29)] (definition of principal

underwriter).

3Section 10(f) [15 U.S.C. 80a–10(f)] prohibits the

purchase if a principal underwriter of the security

is an officer, director, member of an advisory board,

investment adviser, or employee of the fund, or is

a person of which any such officer, director,

member of an advisory board, investment adviser,

or employee is an affiliated person. For purposes of

this Release, a person that falls within one of these

categories is referred to as an ‘‘affiliated

underwriter,’’ even though the Investment

Company Act defines the term ‘‘affiliated person’’

to include a broader set of relationships. See section

2(a)(3) of the Investment Company Act [15 U.S.C.

80a–2(a)(3)]. Similarly, this Release refers to a fund

that is subject to section 10(f) as a result of its

relationship with an ‘‘affiliated underwriter’’ as an

‘‘affiliated fund.’’

4See Investment Trusts and Investment

Companies: Hearings on S. 3580 Before a

Subcomm. of the Senate Comm. on Banking and

Currency, 76th Cong., 3d Sess. 35 (1940) (statement

of Commissioner Healy). An underwriter could, for

example, ‘‘dump’’ unmarketable securities on its

controlled fund, either by causing the fund to

purchase the securities from the underwriter itself,

Continued

§ 39.13 [Amended]

2. Section 39.13 is amended by

adding the following new airworthiness

directive:

Turbomeca: Docket No. 2000–NE–12–AD.

Applicability: This airworthiness directive

(AD) is applicable to Arrius Models 2B, 2B1,

and 2F engines. These engines are installed

on but not limited to Eurocopter France

Model EC120B and Eurocopter Deutschland

EC135 T1 rotorcraft.

Note 1: This AD applies to each engine

identified in the preceding applicability

provision, regardless of whether it has been

modified, altered, or repaired in the area

subject to the requirements of this AD. For

engines that have been modified, altered, or

repaired so that the performance of the

requirements of this AD is affected, the

owner/operator must request approval for an

alternative method of compliance in

accordance with paragraph (d) of this AD.

The request should include an assessment of

the effect of the modification, alteration, or

repair on the unsafe condition addressed by

this AD; and, if the unsafe condition has not

been eliminated, the request should include

specific proposed actions to address it.

Compliance

Compliance with the following initial and

repetitive replacement procedures are

required unless already done.

Perform the following actions to prevent

engine flameout and the inability to maintain

the 2.5 minutes one engine inoperative (OEI)

rating due to blockage of the fuel injection

manifolds.

Initial Replacement

(a) Replace injector manifolds and

borescope—inspect the flame tube and the

high pressure turbine area within 30 days

after the effective date of this AD, or prior to

exceeding 200 hours time-in-service (TIS)

since new, whichever is later. Do this in

accordance with 2.A. through 2.C.(3) (except

for recording requirement) of Turbomeca

Alert Service Bulletin (ASB) No. A319 73

2012 for Arrius 2B and 2B1 turboshaft

engines, and ASB No. A319 73 4001 for

Arrius 2F turboshaft engines.

Repetitive Replacements

(b) Thereafter, replace injector manifolds

within 200 hours TIS since last replacement,

or prior to further flight after performing a

flight manual power check if the power

check shows a negative turbine outlet

temperature (TOT) or negative T4 margin.

(c) After the effective date of this AD, do

not install any injector manifold with 200

hours TIS since new or greater onto an

engine.

Alternative Methods of Compliance

(d) An alternative method of compliance or

adjustment of the compliance time that

provides an acceptable level of safety may be

used if approved by the Manager, Engine

Certification Office (ECO). Operators shall

submit their request through an appropriate

FAA Principal Maintenance Inspector, who

may add comments and then send it to the

Manager, ECO.

Note 2: Information concerning the

existence of approved alternative methods of

compliance with this airworthiness directive,

if any, may be obtained from the ECO.

Special Flight Permits

(e) Special flight permits may be issued in

accordance with §§ 21.197 and 21.199 of the

Federal Aviation Regulations (14 CFR 21.197

and 21.199) to operate the aircraft to a

location where the requirements of this AD

can be accomplished.

Issued in Burlington, Massachusetts, on

November 30, 2000.

Mark C. Fulmer,

Acting Manager, Engine and Propeller

Directorate, Aircraft Certification Service.

[FR Doc. 00–31114 Filed 12–5–00; 8:45 am]

BILLING CODE 4910–13–U

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 270

[Release No. IC–24775; File No. S7–20–00]

RIN 3235–AH57

Exemption for the Acquisition of

Securities During the Existence of an

Underwriting or Selling Syndicate

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Proposed rule.

SUMMARY: The Commission is proposing

amendments to the rule under the

Investment Company Act of 1940 that

permits a registered investment

company (‘‘fund’’) that has certain

affiliations with an underwriting

participant to purchase securities during

an offering. The proposed amendments

would expand the exemption provided

by the rule to permit a fund to purchase

government securities in a syndicated

offering. The proposed amendments

also would modify the rule’s

quantitative limit on purchases, to cover

purchases by a fund as well as any

account advised by the fund’s

investment adviser. These amendments

are intended to respond to recent

changes in the method of offering

certain government securities, and to

improve the effectiveness of the

quantitative limit on fund purchases.

DATES: Comments must be received on

or before February 15, 2001.

ADDRESSES: Comments should be

submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0609.

Comments also may be submitted

electronically to the following E-mail

address: rule-comments@sec.gov. All

comment letters should refer to File No.

S7–20–00; this file number should be

included on the subject line if E-mail is

used. Comment letters will be available

for public inspection and copying in the

Commission’s Public Reference Room,

450 5th Street, NW., Washington, DC

20549. Electronically submitted

comment letters also will be posted on

the Commission’s Internet web site

(http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT:

Curtis A. Young, Senior Counsel, or C.

Hunter Jones, Assistant Director, at

(202) 942–0690, Office of Regulatory

Policy, Division of Investment

Management, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0506.

SUPPLEMENTARY INFORMATION: The

Commission today is requesting public

comment on proposed amendments to

rule 10f–3 [17 CFR 270.10f–3] under the

Investment Company Act of 1940 [15

U.S.C. 80a] (the ‘‘Investment Company

Act’’ or ‘‘Act’’). 1

I. Discussion

A. Background

Section 10(f) of the Investment

Company Act prohibits a fund from

purchasing any security during an

underwriting or selling syndicate if the

fund has certain affiliated relationships

with a principal underwriter 2 for the

security (‘‘affiliated underwriter’’).3 This

provision was designed to protect funds

and their investors from the ‘‘dumping’’

of unmarketable securities on a fund in

order to benefit the fund’s affiliated

underwriter.4 Section 10(f) is a broad

76190 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules

or by encouraging the fund to purchase securities

from another member of the underwriting

syndicate. See Exemption for the Acquisition of

Securities During the Existence of an Underwriting

Syndicate, Investment Company Act Release No.

21838 (Mar. 21, 1996) [61 FR 13630 (Mar. 27, 1996)]

(‘‘1996 Release’’), at text accompanying n.2.

5Rule 10f–3 currently permits a fund to purchase

securities in a transaction that otherwise would

violate section 10(f) if, among other things: (i) the

securities either are registered under the Securities

Act, are municipal securities with certain credit

ratings, or are offered in certain foreign or private

institutional offerings; (ii) the offering involves a

‘‘firm commitment’’ underwriting; (iii) the fund

(together with other funds advised by the same

investment adviser) purchases no more than 25

percent of the offering; (iv) the fund purchases the

securities from a member of the syndicate other

than its affiliated underwriter; (v) if the securities

are municipal securities, the purchase is not a

group sale; and (vi) the fund’s directors have

approved procedures for purchases under the rule

and regularly review the purchases to determine

whether they have complied with the procedures.

See rule 10f–3(b).

6See Exemption for the Acquisition of Securities

During the Existence of an Underwriting or Selling

Syndicate, Investment Company Act Release No.

22775 (July 31, 1997) [62 FR 42401 (Aug. 7, 1997)]

(‘‘1997 Release’’).

7See Notice of Proposal to Adopt Rule N–10F–

3 Permitting Investment Companies to Purchase

Securities Where Affiliates Participate in

Underwriting, Investment Company Act Release

No. 2744 (July 15, 1958) (noting that proposed

conditions were consistent with prior exemptive

relief granted by the Commission).

8 In private placements at that time, obtaining

adequate information about the issuer and a fair

price and other favorable terms for the securities

depended mostly on the efforts of the purchaser.

See Eli Shapiro and Charles R. Wolf, The Role of

Private Placements in Corporate Finance 1–7

(1972).

9See, e.g., rule 10f–3(b)(2)(i) (requiring that

securities be purchased at no more than the public

offering price on the first day of the offering).

10See 1996 Release, supra note 4, at nn.31–51

and accompanying text. In addition, the other

protections of rule 10f–3 continued to apply to

purchases of these types of securities.

11The term ‘‘government securities’’ is defined by

the Investment Company Act as ‘‘any security

issued or guaranteed as to principal or interest by

the United States, or by a person controlled or

supervised by and acting as an instrumentality of

the Government of the United States pursuant to

authority granted by the Congress of the United

States; or any certificate of deposit for any of the

foregoing.’’ 15 U.S.C. 80a–2(a)(16). Government

securities are exempt from the registration

requirements of the Securities Act and from the

reporting and other requirements of the Securities

Exchange Act of 1934 (‘‘Exchange Act’’). See 15

U.S.C. 77c(a)(2), 78c(a)(12)(A). Offers of or

transactions in government securities are subject,

however, to the anti-fraud provisions of the

Securities Act and Exchange Act. See 15 U.S.C.

77q(a), 78j(b).

12 Government securities may be issued by

government-sponsored enterprises such as the

Federal National Mortgage Association (‘‘FNMA’’)

and by government corporations such as the Federal

Deposit Insurance Corporation. See 31 U.S.C. 9101

(definition of ‘‘government corporation’’); A.

Michael Froomkin, Reinventing the Government

Corporation, 1995 U. Ill. L. Rev. 543, 555–56.

13U.S. Treasury securities are sold through a

system involving auctions and dealers, while

government corporations primarily raise money

through the Federal Financing Bank, which is part

of the Department of Treasury. See U.S. Department

of Treasury, Office of Market Finance, United States

of America: U.S. Treasury Security Auctions (Aug.

12, 1998); Frank J. Fabozzi, Treasury and Agency

Securities, in The Handbook of Fixed Income

Securities 157 (Frank J. Fabozzi ed., 1997). See also

12 U.S.C. 2285 (sale of government corporation

securities by Federal Financing Bank). Purchases of

government securities in these circumstances

therefore probably would not involve an

‘‘underwriting or selling syndicate’’ under section

10(f). See Institutional Liquid Assets, SEC NoAction Letter (Dec. 16, 1981) (staff agreed that the

broker-dealer, which participated with other brokerdealers in distributions of Federal Home Loan Bank

notes, was not a principal underwriter in an

‘‘underwriting or selling syndicate’’ for purposes of

section 10(f)).

14See Chris O’Leary, Fannie Mae to Launch Rival

Treasury Note as Benchmark, Investment Dealer’s

Digest, Jan. 5, 1998, at 9; Adam Reinebach, Fannie

Mae Sells $4 Billion Benchmark Notes Offering,

Investment Dealer’s Digest, Jan. 19, 1998, at 4, 5;

Joshua Brockman, Wall Street Watch: Second

Fannie Benchmark Issue Draws More Europeans,

American Banker, Feb. 10, 1998, at 15; and Freddie

Prices $400 MM Offering, National Mortgage News,

Mar. 23, 1998, at 2.

In response to these developments in the offering

of government securities, the Commission has

received a request to permit affiliated funds to

purchase these securities in syndicated

underwritings. See Memorandum from Brown &

Wood to the Division of Investment Management,

Securities and Exchange Commission (1998)

(available to the public in File No. S7–20–00).

15A fund that is unable to purchase securities in

a primary offering may be able to purchase the

securities in the secondary market, but often at a

higher price or with additional transaction costs.

See 1997 Release, supra note 6, at text

accompanying n.13.

16Proposed rule 10f–3(b)(1)(ii).

17The Department of Treasury establishes a

general calendar for securities offerings that

includes sale announcement, pricing, trading

release, and settlement dates. See Department of the

Treasury, Securities and Exchange Commission,

and Board of Governors of the Federal Reserve

System, Joint Report on the Government Securities

Market D–1 (1992). See also 12 U.S.C. 2286

(Treasury authorization of issuance of government

securities); 31 U.S.C. 9108 (same).

prohibition, and Congress included in

the provision specific authority for the

Commission to issue rules or orders

exempting transactions from the

prohibition, if consistent with the

protection of investors.

Rule 10f–3, which the Commission

adopted in 1958 and last amended in

1997, permits a fund to purchase

securities in a transaction that section

10(f) would prohibit, if certain

conditions are met.5 The conditions of

rule 10f–3 are designed to ensure that

the purchases are not likely to raise the

concerns that section 10(f) was enacted

to address, and are thus consistent with

the protection of investors.6

B. Purchase of Government Securities

When the Commission first adopted

rule 10f–3 in 1958, one of the conditions

of the rule was that the securities be

registered under the Securities Act of

1933 (‘‘Securities Act’’) as part of a

public offering.7 This condition served

to assure that the fund did not purchase

the securities through a private

placement,8 and provided the basis for

other conditions of the rule concerning

the timing and conduct of the public

offering.9 Since then, in response to

changes in the methods of offering

securities and other developments, we

have revised the rule to permit the

purchase of certain types of securities

that are not registered under the

Securities Act, such as municipal

securities and securities offered through

regulated foreign offerings or private

institutional offerings. We determined

that the circumstances in which these

securities generally are offered,

including the availability of relevant

information about the issuer and the

establishment of a uniform offering

price, provided an effective substitute

for the Securities Act registration

requirement.10

Government securities,11 including

securities issued by agencies or

instrumentalities of the U.S.

government,12 are not included in the

types of securities that rule 10f–3

permits affiliated funds to purchase.

Until recently, there has been little need

to exempt the purchase of government

securities from section 10(f), because

these securities generally have not been

offered through ‘‘selling syndicates’’ or

underwritings that involve affiliated

underwriters to a significant degree.13 In

1998, however, at least two governmentsponsored enterprises began to offer

their securities through syndicated

underwritings.14 Because rule 10f–3

does not provide an exemption from

section 10(f) for affiliated funds to

purchase government securities,

affiliated funds have been unable to

purchase securities in those offerings,

and investors in those funds have been

unable to benefit from the purchases

their funds otherwise would have been

able to make.15

The Commission is proposing to

amend rule 10f–3 to permit affiliated

funds to purchase government securities

during the existence of an underwriting

or selling syndicate for those

securities.16 Government securities are

high-quality investments, and therefore

are unlikely to be dumped into a fund.

Moreover, the circumstances under

which government agencies offer their

securities to the public appear to be an

effective substitute for Securities Act

registration for purposes of rule 10f–3.

Government agencies generally must

obtain approval from the Department of

Treasury concerning the timing, price,

and terms of the securities offering.17 In

addition, information about these

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules 76191

18See U.S. General Accounting Office,

Government-Sponsored Enterprises: Changes in

Securities Distribution Process and Use of

Derivative Products 48–49 (1993).

19Frank J. Fabozzi, Treasury and Agency

Securities, in The Handbook of Fixed Income

Securities 158 (Frank J. Fabozzi ed., 1997). See also

B.J. Reed and John W. Swain, Public Finance

Administration 227 (1997).

20See rule 10f–3(b).

21See rule 10f–3(a)(3).

22The adviser, for example, could arrange for its

fund clients to purchase 25 percent of an offering

and for its non-fund clients to purchase the

remaining 75 percent of the offering. 23See proposed rule 10f–3(b)(7). In a different

context, the Gramm-Leach-Bliley Act recently

amended section 2(a)(19) of the Investment

Company Act to include language that is parallel to

the proposed rule amendments. As amended, a

person is an ‘‘interested person’’ of a fund or

adviser (and is therefore disqualified from being an

independent director) if, among other things, she

(or her affiliate) has executed portfolio transactions

for the fund, any other fund advised by the fund’s

adviser, or ‘‘any account over which the [fund’s]

adviser has brokerage placement discretion.’’ Pub.

L. No. 106–102, 113 Stat. 1338 (1999), to be codified

at 15 U.S.C. 6801–6809.

24Section 2(c) requires the Commission, when it

engages in rulemaking and is required to consider

whether an action is consistent with the public

interest, to consider, in addition to the protection

of investors, whether the action will promote

efficiency, competition, and capital formation. 15

U.S.C. 80a–2(c).

25Pub. L. No. 104–121, Title II, 110 Stat. 857

(1996).

securities typically is available to the

public through prospectuses or similar

offering documents,18 and these

securities trade actively in the

secondary market.19 Under the

proposed amendments, the other

restrictions of rule 10f–3, such as

limitations on the price and quantity of

securities purchased, would apply to

the purchase of government securities

by the fund.20

The Commission requests comment

on the proposed amendments related to

government securities. Should the rule

include limitations on the purchase of

government securities that do not apply

to other securities purchased under the

rule? For example, should rule 10f–3

require that government securities

receive a certain credit rating from a

Nationally Recognized Statistical Rating

Organization (‘‘NRSRO’’), as is required

for municipal securities? 21 Should any

of the limitations included in rule 10f–

3 not apply to purchases of government

securities?

C. Purchases Covered by the Percentage

Limit

One of the key conditions of rule 10f–

3 is that a fund, together with any other

fund advised by the fund’s adviser,

purchase no more than 25 percent of an

offering (‘‘percentage limit’’). The

purpose of the percentage limit is to

provide an indication that a significant

portion of an offering is being purchased

by persons acting independently of the

adviser. The existence of these

purchasers demonstrates that the

securities are not being ‘‘dumped’’ and

suggests that the price of the securities

is based on market forces.

Since amending rule 10f–3 in 1997,

we have become aware of a possible

‘‘loophole’’ in the rule that could permit

an investment adviser to circumvent the

percentage limit and compromise the

effectiveness of the rule. Although the

percentage limit requires that an adviser

aggregate the purchases of all the funds

that it advises, the rule does not require

that the adviser also aggregate purchases

by its other (i.e., non-fund) clients. As

a result, if an adviser purchases most or

all of an offering for its fund clients and

non-fund clients, the percentage limit

may not provide a reliable indicator of

market forces.22 The adviser could use

these controlled accounts to assure the

success of the affiliated underwriting,

thus undermining an important

protection that section 10(f) provides

fund shareholders.

In order to assure the effectiveness of

the percentage limit of rule 10f–3, we

are proposing to amend the rule to

include purchases by any other account

over which the adviser has discretionary

authority or exercises control.

Therefore, if a fund purchases securities

in reliance on rule 10f–3, the fund’s

purchases, aggregated with purchases by

any other fund advised by the fund’s

adviser, and any other account over

which the fund’s adviser has

discretionary authority or otherwise

exercises control, could not exceed 25

percent of the offering.23

The Commission requests comment

on the proposed amendment to the

percentage limit. Should we increase

the percentage in light of the changes

that we are now proposing?

II. General Request for Comments

Any interested persons wishing to

comment on the rule changes that are

the subject of this Release, to suggest

additional changes, or to comment on

other matters that might have an effect

on the proposals contained in this

Release, are requested to submit written

comments. Comment is specifically

requested whether the Commission

should amend or eliminate conditions

in rule 10f–3 other than those addressed

in this Release.

The Commission also requests

comment whether the proposals, if

adopted, would promote efficiency,

competition, and capital formation.

Comments will be considered by the

Commission in satisfying its

responsibilities under section 2(c) of the

Investment Company Act.24 For

purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996, 25 the Commission also requests

information regarding the potential

impact of the proposed rule on the

economy on an annual basis.

Commenters are requested to provide

data to support their views.

III. Cost-Benefit Analysis

A. Purchase of Government Securities

The proposed amendments to rule

10f–3 should, if adopted, increase the

ability of funds to purchase securities

during the existence of a syndicate in

which an affiliated underwriter

participates. The benefits to funds

would include the ability to purchase

government securities in syndicates

involving an underwriter affiliated with

the fund’s investment adviser, without

having to seek an exemptive order from

the Commission. The potential benefits

to fund investors would include better

investment performance, and possibly

lower fund expenses.

The costs to funds and investors of

the proposed amendments should be

small. Funds would be required to

determine whether purchases of

government securities comply with the

conditions of the rule. The additional

cost of determining compliance with the

rule’s conditions, as applied to

purchases of government securities,

should be minimal. Funds also would

be required to (i) maintain a written

record of each purchase of government

securities made in reliance on the

proposed amendments and (ii) report

those transactions on Form N–SAR.

Rule 10f–3 currently requires funds

relying on the rule to comply with these

recordkeeping and reporting

requirements. The additional costs of

complying with these requirements with

respect to purchases of government

securities made in reliance on the

proposed amendments would be

minimal and likely would be justified

by the potential benefits to funds and

investors described above.

B. Purchases Covered by the Percentage

Limit

The proposed amendments would

require that the total of the fund’s

purchases in any offering purchased by

the fund in reliance on the rule,

aggregated with purchases in the

offering by any other fund advised by

the fund’s adviser, and purchases in the

offering by any other account over

which the fund’s adviser has

discretionary authority or otherwise

exercises control, not exceed 25 percent

76192 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules

26See supra Section I.C.

27The written record must state (i) from whom

the securities were acquired, (ii) the identity of the

underwriting syndicate’s members, (iii) the terms of

the transactions, and (iv) the information or

materials on which the fund’s board of directors has

determined that the purchases were made in

compliance with procedures established by the

board. See rule 10f–3(b)(9).

28The total additional burden of the proposed

amendments concerning the purchase of

government securities is estimated to be 17.5 hours

per year. This estimate is based on the following:

70 funds x 0.25 hours = 17.5 hours.

of the offering. The proposed

amendments will benefit funds and

their investors by closing a loophole in

the percentage limit. By doing so, the

rule will reduce the likelihood that the

fund’s adviser is circumventing the

percentage limit, and will thereby

minimize the risk that fund investors

will be harmed by the dumping of

unmarketable securities into their

funds.26 With respect to costs, the

proposed amendments will require a

fund or its adviser to monitor the

purchases of non-fund accounts over

which the fund’s adviser has

discretionary authority or otherwise

exercises control. The cost of this

monitoring is likely to be minimal,

because this information should be

readily available to the fund’s adviser.

C. Request for Comments

The Commission requests comment

on the potential costs and benefits of the

proposed amendments and any

suggested alternatives to the proposal.

Data are requested concerning these

costs and benefits.

IV. Paperwork Reduction Act

Certain provisions of the proposed

amendments to rule 10f–3 contain

‘‘collection of information’’

requirements within the meaning of the

Paperwork Reduction Act of 1995 (44

U.S.C. 3501–3520) (‘‘PRA’’), and the

Commission is submitting the proposed

amendments to the Office of

Management and Budget for review in

accordance with 44 U.S.C. 3507(d). The

title for the collection of information is

‘‘Exemption for the Acquisition of

Securities During the Existence of an

Underwriting or Selling Syndicate.’’

Rule 10f–3 contains currently approved

collections of information under OMB

control number 3235–0226. 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.

A. Purchase of Government Securities

Rule 10f–3 permits a fund to purchase

securities, from an unaffiliated

underwriter, in an underwriting of

securities in which an affiliated

underwriter is a member of the

underwriting or selling syndicate. The

proposed amendments to rule 10f–3

would permit a fund to purchase

government securities under the

conditions of the rule.

Rule 10f–3 requires the board of

directors of a fund relying on the rule

to approve procedures that are

reasonably designed to ensure

compliance with the conditions of the

rule, and to approve changes to these

procedures as necessary. The fund must

maintain these procedures permanently

in an easily accessible place. A fund

that chooses to rely on the proposed

amendments also may need to amend

these procedures to account for

purchases of government securities. The

fund also must report on Form N–SAR

any transactions under the rule and

attach a written record of each

transaction, and the board must review

the transactions quarterly to determine

compliance with the fund’s

procedures.27 Finally, a fund must

retain written records of the rule 10f–3

transactions and of the information

reviewed by the board, for at least six

years from the end of the fiscal year in

which the transactions occurred. A fund

would need to comply with these

recordkeeping requirements in order to

obtain the benefit of exemption from

section 10(f) of the Act for purchases of

government securities under the

proposed amendments.

The collections of information are

necessary to provide the Commission

with information regarding compliance

with rule 10f–3. The Commission may

review this information during periodic

examinations or with respect to

investigations. Except for the

information required to be kept under

paragraph (b)(11)(ii) of rule 10f–3, none

of the information required to be

collected or disclosed for PRA purposes

will be kept confidential. If the records

required to be kept under these rules are

requested by and submitted to the

Commission, they will be kept

confidential to the extent permitted by

relevant statutory and regulatory

provisions.

The Division of Investment

Management estimates that 300 funds

rely upon rule 10f–3 each year, and that

70 of those funds purchase government

securities (although not all 70 funds

would likely need to rely upon rule 10f–

3 to purchase government securities). It

is estimated that the recordkeeping

burden for funds that rely on the

proposed amendments to purchase

government securities would increase

by an estimated 0.25 hours per fund per

year.28

B. Purchases Covered by the Percentage

Limit

The recordkeeping burden for funds

that rely on rule 10f–3 may minimally

increase due to the condition that the

total of the fund’s purchases in any

offering, aggregated with purchases of

any other fund advised by the fund’s

adviser, and purchases by any other

account over which the fund’s adviser

has discretionary authority or otherwise

exercises control, not exceed 25 percent

of the offering.

C. Comments

The Commission solicits comments

under 44 U.S.C. 3506(c)(2)(B)

concerning: whether the proposed

collection of information is necessary

for the proper performance of the

function of the Commission, including

whether the information will have

practical utility; the accuracy of the

staff’s estimate of the burden of the

proposed collection of information; the

quality, utility, and clarity of the

information to be collected; and

whether the burden of collection of

information on those who are to

respond, including through the use of

automated collection techniques or

other forms of information technology,

may be minimized.

Persons desiring to submit comments

on the collection of information

requirements should direct them to the

Office of Management and Budget

(‘‘OMB’’), Attention: Desk Officer for the

Securities and Exchange Commission,

Office of Information and Regulatory

Affairs, Washington, DC 20503, and

should also send a copy of their

comments to Jonathan G. Katz,

Secretary, Securities and Exchange

Commission, 450 5th St., NW.,

Washington, DC 20549–0609 with

reference to File No. S7–20–00.

Requests for materials submitted to

OMB by the Commission with regard to

this collection of information should be

in writing, refer to File No. S7–20–00,

and be submitted to the Securities and

Exchange Commission, Records

Management, Office of Filings and

Information Services, 450 5th Street,

NW., Washington, DC 20549. OMB is

required to make a decision concerning

the collection of information between 30

and 60 days after publication, so a

comment to the OMB is best assured of

having its full effect if the OMB receives

it within 30 days of publication.

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules 76193

29See supra note 14.

30The amendments to rule 10f–3 are proposed by

the Commission under the authority set forth in

sections 10(f), 31(a) and 38(a) of the Investment

Company Act.

31Rule 0–10 [17 CFR 270.0–10].

32A fund would be required to report purchases

of government securities on Form N–SAR, attach a

written record of each transaction, and keep a copy

of the written records of those transactions. See rule

10f–3(b).

V. Summary of Initial Regulatory

Flexibility Analysis

The Commission has prepared an

Initial Regulatory Flexibility Analysis

(‘‘IRFA’’) in accordance with 5 U.S.C.

603 regarding amendments to rule 10f–

3 under the Investment Company Act.

The following summarizes the IRFA.

Section 10(f) prohibits investment

companies from purchasing government

securities from an affiliated underwriter

during the existence of an underwriting

or selling syndicate for that security,

and authorizes the Commission to

exempt transactions by rule or order

from the prohibition. The Commission

adopted rule 10f–3 to permit a fund to

purchase securities from an unaffiliated

member of an underwriting or selling

syndicate when an affiliated

underwriter is a member of the

underwriting or selling syndicate. We

are proposing amendments to rule 10f–

3 in response to the recent syndicated

underwriting of government securities

issued by government-sponsored

enterprises.29 The proposed

amendments are designed to permit

funds to purchase government securities

in syndicated offerings, in accordance

with other conditions of rule 10f–3.30

We are also proposing amendments in

response to concerns that purchases by

advisory clients other than funds may

undercut the effectiveness of the

percentage limit of the rule. To address

this concern the Commission is

proposing that the total of the fund’s

purchases in any offering, aggregated

with purchases of any other fund

advised by the fund’s adviser, and

purchases by any account over which

the fund’s adviser has discretionary

authority or otherwise exercises control,

not exceed 25 percent of the offering.

A small business or small

organization (collectively, ‘‘small

entity’’) for purposes of the Investment

Company Act is a fund that, together

with other funds in the same group of

related investment companies, has net

assets of $50 million or less as of the

end of its most recent fiscal year.31 Of

approximately 3900 active funds, 339

are small entities. Any of these 339

funds would be able to rely on the

proposed amendments to rule 10f–3. It

appears that the proposed amendments

would affect small entities in the same

manner as other entities subject to

section 10(f), and that the proposed

amendments increase flexibility for all

funds.

The IRFA states that purchases of

government securities made in reliance

on rule 10f–3 would be subject to the

existing and amended reporting and

recordkeeping requirements of the

rule.32 There are no rules that duplicate,

overlap, or conflict with the proposed

amendments. The IRFA also discusses

the absence of any viable alternatives

considered by the Commission in

connection with the proposed

amendments that might minimize the

effect on small entities.

The Commission encourages the

submission of comments on matters

discussed in the IRFA. Comment

specifically is requested on the number

of small entities that would be affected

by the proposed rule amendments.

Comment is also requested on the effect

of the rule amendments on investment

advisers and funds that are small

entities. Commenters are asked to

describe the nature of any effect and

provide empirical data supporting the

extent of the effect. These comments

will be placed in the same public file as

comments on the proposed rule

amendments. A copy of the IRFA may

be obtained by contacting Curtis A.

Young, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0506.

VI. Statutory Authority

The Commission is proposing to

amend rule 10f–3 under the authority

set forth in sections 10(f), 31(a) and

38(a) of the Investment Company Act

[15 U.S.C. 80a–10(f), 80a–30(a), 80a–

37(a)].

List of Subjects in 17 CFR Part 270

Investment companies, Reporting and

recordkeeping requirements, Securities.

Text of Proposed Rule Amendments

For the reasons set out in the

preamble, Title 17, Chapter II of the

Code of Federal Regulations is proposed

to be amended as follows:

PART 270—RULES AND

REGULATIONS, INVESTMENT

COMPANY ACT OF 1940

1. The authority citation for Part 270

continues to read, in part, as follows:

Authority: 15 U.S.C. 80a–1 et seq., 80a–

34(d), 80a–37, 80a–39 unless otherwise

noted;

* * * * *

2. Amend § 270.10f–3 by revising

paragraphs (b)(1), (b)(4) and (b)(7).

§ 270.10f–3 Exemption for the acquisition

of securities during the existence of an

underwriting or selling syndicate.

* * * * *

(b) Conditions. Any purchase of

securities by a registered investment

company prohibited by section 10(f) of

the Act (15 U.S.C. 80a–10(f)) will be

exempt from the provisions of that

section if the following conditions are

met:

(1) Type of Security. The securities to

be purchased are:

(i) Part of an issue registered under

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

77a—aa) that is being offered to the

public;

(ii) Part of an issue of government

securities, as defined in section 2(a)(16)

of the Act (15 U.S.C. 80a–2(a)(16));

(iii)Eligible Municipal Securities;

(iv) Securities sold in an Eligible

Foreign Offering; or

(v) Securities sold in an Eligible Rule

144A Offering.

* * * * *

(4) Continuous operation. If the

securities to be purchased are part of an

issue registered under the Securities Act

of 1933 (15 U.S.C. 77a–aa) that is being

offered to the public, are government

securities (as defined in section 2(a)(16)

of the Act (15 U.S.C. 80a–2(a)(16))), or

are purchased pursuant to an Eligible

Foreign Offering or an Eligible Rule

144A Offering, the issuer of the

securities must have been in continuous

operation for not less than three years,

including the operations of any

predecessors.

* * * * *

(7) Percentage limit. The amount of

securities of any class of such issue

purchased by the investment company,

aggregated with purchases by any other

investment company advised by the

investment company’s investment

adviser, and purchases by any other

account over which such adviser has

discretionary authority or otherwise

exercises control, do not exceed the

following limits:

(i) If purchased in an offering other

than an Eligible Rule 144A Offering, 25

percent of the principal amount of the

offering of such class; or

(ii) If purchased in an Eligible Rule

144A Offering, 25 percent of the total of:

(A) The principal amount of the

offering of such class sold by

underwriters or members of the selling

syndicate to qualified institutional

buyers, as defined in § 230.144A(a)(1) of

this chapter; plus

76194 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules

(B) The principal amount of the

offering of such class in any concurrent

public offering.

* * * * *

By the Commission.

Dated: November 29, 2000.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30975 Filed 12–5–00; 8:45 am]

BILLING CODE 8010–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–116495–99]

RIN 1545–AX68

Loans From a Qualified Employer Plan

to Plan Participants or Beneficiaries;

Hearing

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of public hearing on

proposed rulemaking.

SUMMARY: This document contains a

notice of public hearing on proposed

regulations relating to loans made from

a qualified employer plan to plan

participants or beneficiaries.

DATES: The public hearing is being held

on January 17, 2001 at 10 a.m. The IRS

must receive outlines of the topics to be

discussed at the hearing by December

27, 2000.

ADDRESSES: The public hearing is being

held in room 6718, Internal Revenue

Building, 1111 Constitution Avenue,

NW., Washington, DC. Due to building

security procedures, visitors must enter

at the 10th Street entrance, located

between Constitution and Pennsylvania

Avenues, NW. In addition, all visitors

must present photo identification to

enter the building.

Mail outlines to: Regulations Unit CC

(REG–116495–99), room 5226, Internal

Revenue Service, POB 7604, Ben

Franklin Station, Washington, DC

20044. Hand deliver outlines Monday

through Friday between the hours of 8

a.m. and 5 p.m. to: Regulations Unit CC

(REG–116495–99), Courier’s Desk,

Internal Revenue Service, 1111

Constitution Avenue, NW., Washington,

DC. Submit outlines electronically to

the IRS Internet site at http://

www.irs.gov/tax_regs/regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning submissions of comments,

the hearing, and/or to be placed on the

building access list to attend the

hearing, contact Sonya M. Cruse at (202)

622–7805 (not a toll-free number).

SUPPLEMENTARY INFORMATION: The

subject of the public hearing is the

notice of proposed regulations (REG–

116495–99) that was published in the

Federal Register on July 31, 2000 (65 FR

46677).

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons who have submitted written

comments and wish to present oral

comments at the hearing, must submit

an outline of the topics to be discussed

and the amount of time to be devoted

to each topic by December 27, 2000.

A period of 10 minutes is allotted to

each person for presenting oral

comments.

After the deadline for receiving

outlines has passed, the IRS will

prepare an agenda containing the

schedule of speakers. Copies of the

agenda will be made available, free of

charge, at the hearing.

Because of access restrictions, the IRS

will not admit visitors beyond the

immediate entrance area more than 15

minutes before the hearing starts. For

information about having your name

placed on the building access list to

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this

document.

Cynthia Grigsby,

Chief, Regulations Unit, Office of Special

Counsel (Modernization and Strategic

Planning).

[FR Doc. 00–31083 Filed 12–5–00; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG–114423–00]

RIN 1545–AY47

Federal Employment Tax Deposits—De

Minimis Rule

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

by cross-reference to temporary

regulations.

SUMMARY: These proposed regulations

affect taxpayers required to make

deposits of Federal employment taxes.

This document contains proposed

regulations which change the de

minimis deposit rule for quarterly and

annual return periods.

In the Rules and Regulations section

of this issue of the Federal Register, the

IRS is issuing temporary regulations

relating to the deposit of Federal

employment taxes. The text of those

regulations also serves as the text of

these proposed regulations.

DATES: Written or electronically

generated comments and requests for a

public hearing must be received by

March 6, 2001.

ADDRESSES: Send submissions to:

CC:M&SP:RU (REG–114423–00), room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. Submissions may be hand

delivered Monday through Friday

between the hours of 8 a.m. and 5 p.m.

to: CC:M&SP:RU (REG–114423–00),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue,

NW., Washington, DC. Alternatively,

taxpayers may submit comments

electronically via the Internet by

selecting the ‘‘Tax Regs’’ option on the

IRS Home Page, or by submitting

comments directly to the IRS Internet

site at http://www.irs.gov/tax_regs/

regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations,

Brinton T. Warren, (202) 622–4940;

concerning submissions of comments

and requests for a public hearing,

Treena Garrett of the Regulations Unit at

(202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of

Provisions

Temporary regulations in the Rules

and Regulations section of this issue of

the Federal Register amend the

Employment Tax and Collection of

Income Tax at Source Regulations (26

CFR part 31) relating to section 6302.

The temporary regulations change the

de minimis rule for the deposit of

Federal employment taxes. The text of

those regulations also serves as the text

of these proposed regulations. The

preamble to the temporary regulations

explains the amendments.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in Executive Order 12866. Therefore, a

regulatory assessment is not required. It

also has been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and, because these

regulations do not impose a collection

of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed