[Federal Register Volume 63, Number 121 (Wednesday, June 24, 1998)]
[Notices]
[Pages 34494-34496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16754]


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SECURITIES AND EXCHANGE COMMISSION


Extension; Comment Request

Upon written request, copy available from: Securities and Exchange 
Commission, Office of Filings and Information Services, 450 Fifth 
Street, N.W., Washington, D.C. 20549.

Extension:
    Form N-2, SEC File No. 270-21, OMB Control No. 3235-0026
    Form N-5, SEC File No. 270-172, OMB Control No. 3235-0169
    Form N-8A, SEC File No. 270-135, OMB Control No. 3235-0175
    Rule 17f-5, SEC File No. 270-259, OMB Control No. 3235-0269

    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 collections 
of information summarized below. The Commission plans to submit these 
existing collections of information to the Office Management and Budget 
for extension and approval.

Form N-2--Registration Statement of Closed-end Management 
Investment Companies

    Form N-2 is the form used by closed-end management investment 
companies (``closed-end funds'') to register as investment companies 
under the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.] 
(``Investment Company Act'') and to register their securities under the 
Securities Act of 1933 [15 U.S.C. 77a et seq.] (``Securities Act''). 
Section 5 of the Securities Act [15 U.S.C. 77e] requires the filing of 
a registration statement prior to the offer of securities to the public 
and that the statement be effective before any securities are sold. The 
primary purpose of the registration process is to provide disclosure of 
financial and other information to investors and potential investors 
for the purpose of evaluating an investment in a security. Section 5(b) 
of the Securities Act requires that investors be provided with a 
prospectus containing the information required in a registration 
statement prior to the sale or at the time of confirmation or delivery 
of the securities.
    A closed-end fund is required to register as an investment company 
under Section 8(a) of the Investment Company Act [15 U.S.C. 80a-8(a)]. 
Form N-2 permits a closed-end fund to provide investors with a 
prospectus covering essential information about the fund when the fund 
makes an initial or additional offering of its securities. More 
detailed information is provided

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to interested investors in the Statement of Additional Information 
(``SAI''). The SIA is provided to investors upon request and without 
charge.
    The Commission uses the information provided in Form N-2 
registration statements to determine whether closed-end funds have 
complied with the requirements of the Investment Company Act.
    The Commission estimates that closed-end funds file 44 initial 
registration statements and 39 amendments to registration statements--a 
total of 83 filings--on Form N-2 each year. Based on consultations with 
a sample of recent filers, it is estimated that the hour burden to 
prepare and file an initial Form N-2 filing is 500 hours and the hour 
burden to prepare an amendment is 100 hours. The total hour burden for 
all closed-end funds filing Form N-2 is 25,900 hours per year.

Form N-5--Registration Statement of Small Business Investment 
Companies

    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 Administration and has 
been notified by the Administration that the company may submit a 
license application, to register its securities under the Securities 
Act and to register as an investment company under section 8 of the 
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 reviews the registration statements for the adequacy 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 
two 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 704 hours.

Form N-8A--Notification of Registration of Investment Companies

    Form N-8A is the form that investment companies file to notify the 
Commission of the existence of active investment companies. After an 
investment company has filed its notification of registration under 
section 8(a) of the Investment Company Act, the company is then subject 
to the provisions of the Act which govern certain aspects of its 
organization and activities, such as the composition of its board of 
directors and the issuance of senior securities. Form N-8A requires an 
investment company to provide its name, state or organization, form of 
organization, classification, if it is a management company, the name 
and address of each investment adviser of the investment company, the 
current value of its total assets and certain other information readily 
available to the investment company. If the investment company is 
filing simultaneously its notification of registration and registration 
statement, Form N-8A requires only that the registrant file the cover 
page (giving its name, address and agent for service of process) and 
sign the form in order to effect registration.
    The Commission uses the information provided in the notification on 
Form N-8A to determine the existence of active investment companies and 
to enable the Commission to administer the provisions of the Investment 
Company Act with respect to those companies. Each year approximately 
266 investment companies file a notification on Form N-8A. The 
Commission estimates that preparing Form N-8A requires an investment 
company to spend approximately one hour so that the total burden of 
preparing Form N-8A for all affected investment companies is 266 hours.

Rule 17f-5--Custody of Investment Company Assets Outside the United 
States

    Rule 17f-5 under the Investment Company Act permits registered 
management investment companies (``funds'') to maintain their assets in 
custody arrangements outside the United States. The Commission adopted 
comprehensive amendments to rule 17f-5 on May 12, 1997.\1\ The 
amendments became effective on June 16, 1997, but funds are not yet 
required to comply with most of the amendments.\2\ Funds may comply 
with either prior rule 17f-5 or with the rule as amended in 1997 until 
February 1, 1999.\3\
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    \1\ See Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. 22658 (May 12, 1997) [62 
FR 26923 (May 16, 1997)].
    \2\ The original compliance date for the 1997 amendments was 
June 16, 1998. The Commission has extended this compliance date for 
most of the amendments to February 1, 1999. The extension does not 
apply to the amended definitions of ``eligible foreign custodian,'' 
``qualified foreign bank,'' and ``U.S. bank,'' for which the 
compliance date remains June 16, 1998.
    \3\ Certain amended definitions would apply under either version 
of the rule. See supra note 2.
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    Before rule 17f-5 was amended in 1997, the rule permitted funds to 
maintain their assets with certain foreign banks and securities 
depositories subject to certain conditions. The funds's board of 
directors had to approve (i) each country where fund assets were 
maintained, (ii) each foreign bank or depository that held the assets, 
and (iii) a written contract that had to contain specified provisions 
governing each foreign custody arrangement. Notes to the rule listed 
factors that the board was required to consider when investing assets 
in foreign countries and placing them with foreign custodian. The rule 
also required the fund board to monitor each foreign custody 
arrangement and to approve it at least annually.
    As amended in 1997, rule 17f-5 permits a fund's board of directors 
to play a more traditional oversight role by delegating its 
responsibilities for foreign custody arrangements to a U.S. or foreign 
bank custodian or the fund's investment adviser or officers 
(collectively with the board, the ``foreign custody manager''). The 
board can delegate different responsibilities to different persons. The 
board must find that it is reasonably to rely on each delegate it 
selects. The delegate must agree to exercise reasonably care, prudence, 
and diligence or to adhere to a higher standard of care in performing 
the delegated responsibilities. The board must require the delegate to 
provide, at times that the board deems reasonable and appropriate, 
written reports that notify the board when the fund's assets are placed 
with a particular foreign custodian and when any material change occurs 
in the fund's foreign custody arrangements.
    When the foreign custody manager selects a particular ``eligible 
foreign custodian,'' \4\ the foreign custody manager must determine 
that, based on its consideration of specified factors, the

[[Page 34496]]

fund's assets will be subject to reasonable care if maintained with 
that custodian. The foreign custody manager also must determine that, 
based on the same factors, the written contract that governs each 
custody arrangement with the foreign custodian (or the set of 
depository rules or practices or the combination of a contract and 
rules or practices) will provide reasonable care for fund assets. The 
written contract (or equivalent rules or practices) must contain either 
certain specified provisions, or other provisions that provide the same 
or a greater level of care for fund assets. In addition, the foreign 
custody manager must establish a system to monitor the contract that 
governs each custody arrangement and the appropriateness of maintaining 
the fund's assets with a particular foreign custodian.
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    \4\ ``Eligible foreign custodians'' under the rule generally 
include foreign banks and trust companies, national or transnational 
securities depositories, and majority-owned subsidiaries of U.S. 
banks or bank holding companies. The compliance date for this 
amended definition of eligible foreign custodian remains June 16, 
1998.
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    The collections of information required under rule 17f-5 are 
intended to further the protection of fund assets held in foreign 
custody arrangements permitted under the rule, which are more flexible 
than the foreign custody arrangements permitted under the Act. The 
requirements that the fund board determine that it is reasonable to 
rely on each delegate is intended to ensure that the board considers 
carefully 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 each custody arrangement by governed by a 
written contract (or equivalent rules or practices) that contains 
specified provisions or other provisions that provide an equivalent 
level of care is intended to ensure that each arrangement is subject to 
certain minimal contractual safeguards.\5\ The requirement that the 
foreign custody manager establish a monitoring system is intended to 
ensure that the foreign custody manager periodically reviews each 
custody arrangement and takes any action necessary or appropriate when 
changes in circumstances could threaten fund assets.
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    \5\ The requirement that the foreign custody manager determine 
that the custody contract (or equivalent rules or practices) will 
provide reasonable care for fund assets is intended to ensure that 
the foreign custody manager weighs the adequacy of contractual 
obligations when it determines whether the foreign custodian will 
maintain the fund's assets with reasonable care.
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    The Commission estimates that during the first year when funds are 
required to comply with the 1997 amendments to rule 17f-5, the boards 
of directors of approximately 3,690 portfolios that use foreign custody 
arrangements will delegate responsibility for their arrangements to 
approximately 15 U.S. bank custodians and approximately 650 investment 
advisers.\6\
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    \6\ The Commission estimates that these 3,690 portfolios are 
divided among approximately 1,327 registered funds within 
approximately 650 fund complexes that may share the same board of 
directors, U.S. bank custodian, investment adviser, or all of thee 
entities. The board of directors and its foreign custody delegates 
for a fund complex could therefore meet rule 17f-5's requirements by 
making similar arrangements for an average of 6 portfolios at the 
same time. The Commission also estimates that each portfolio has 
foreign custody arrangements with an average of 10 foreign 
custodians (i.e., 1 bank and 1 security depository in each of 5 
countries).
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    The Commission estimates that the board of each portfolio will 
expend approximately 2 burden hours during the first year in 
determining that the board may reasonably rely on each of two delegates 
to evaluate the portfolio's foreign custody arrangements, for a total 
7,380 burden hours for all, 3,690 portfolios. The Commission estimates 
that each U.S. custodian bank will expend approximately (i) 400 burden 
hours in determining for some 250 portfolios that a written contract 
containing required terms governs each foreign custody arrangement and 
that each contract will provide reasonable care for fund assets; (ii) 
96 burden hours in establishing a system for monitoring custody 
arrangement and contracts; and (iii) 400 burden hours in providing 
periodic reports to fund boards; for a total of 13,440 burden hours for 
all 15 U.S. bank custodians. The Commission estimates that each 
investment adviser will expend approximately (i) 10 burden hours in 
determining for some 6 portfolios that a written contract containing 
required terms governs each foreign custody arrangement and that each 
contract will provide reasonable care for fund assets; (ii) 24 burden 
hours in establishing a system for monitoring certain arrangements and 
contracts; and (iii) 10 burden hours in providing periodic reports to 
fund boards; for a total of 28,600 burden hours for all 650 investment 
advisers.
    The total annual burden of the rule's paperwork requirements for 
all portfolios, U.S. bank custodians, and investment advisers therefore 
is estimated to be 49,420 hours. This estimate represents an increase 
of 40,680 hours from the prior estimate of 8,740 hours. Approximately 
30,680 hours of the increase are attributable to updated information 
about the number of affected portfolios and other entities, and to a 
more accurate calculation of the component parts of some information 
burdens. Approximately 10,000 hours of the increase are attributable to 
the adoption of rule amendments not fully addressed in the prior 
estimate.
    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 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 Michael E. Bartell, 
Associate Executive Director, Office of Information Technology, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
DC 20549.

    Dated: June 17, 1998.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-16754 Filed 6-23-98; 8:45 am]
BILLING CODE 8010-01-M