Federal Register / Vol. 63, No. 127 /Thursday, July 2, 1998 / Notices 36279

1Status of Investment Advisory Programs Under

the Investment Company Act of 1940, Investment

Company Act Release No. 22579 (Mar. 24, 1977) [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).

5See The Cerulli Report, Asset-Based Strategies:

Developments in the Financial Advisor and Wrap

Markets 66 (1997) (statistical information on wrap

fee and mutual fund wrap programs).

6See id. at 63 (estimating amount of assets in

wrap fee and mutual fund wrap programs).

7The 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.

SECURITIES AND EXCHANGE

COMMISSION

Existing Collection; Comment Request

Upon Written Request, Copies Available

From: Securities and Exchange

Commission, Office of Filings and

Information Services, 450 5th

Street, NW, Washington, DC 20549

Extension: Rule 3a–4, SEC File No. 270–

401, OMB Control No. 3235–0459;

Form N–8B–2, SEC File No. 270–

186, OMB Control No. 3235–0186

Notice is hereby given that pursuant

to the Paperwork Reduction Act of 1995

(44 U.S.C. 3501 et seq.), the Securities

and Exchange Commission (the

‘‘Commission’’) 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 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 49 wrap fee and mutual

fund wrap programs administered by 44

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 minimum account

requirement ($139.4 billion 6 divided by

$100,000), for a total of 1,394,000

clients. In addition, an average number

of new accounts opened each year can

be estimated by dividing the average

annual increase in account assets in

1994 through 1997, by the minimum

account requirement ($7.5 billion

divided by $100,000, for an average

annual number of new accounts of

75,333.7

The Commission staff estimates that

each program sponsor spends

approximately one hour 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
36280 Federal Register / Vol. 63, No. 127 /Thursday, July 2, 1998 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

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 2,128,666.5 hours. This represents an

increase of 1,112,666.5 hours from the

prior estimate of 1,016,000 hours. The

increase results primarily from an

increase in the amount of assets

managed under investment advisory

programs and the resulting increase in

the estimated number of clients in those

programs. The increase also results from

a more accurate calculation of certain

collection of information burdens.

Form N–8B–2 is the form used by unit

investment trusts (‘‘UITs’’) which are

currently issuing securities, including

UITs which are issuers of periodic

payment plan certificates and UITs of

which a management investment

company is the sponsor or depositor, to

comply with the filing and disclosure

requirements imposed by section 8(b) of

the Act. Form N–8B–2 requires

disclosure about the organization of a

UIT, its securities, the trustee, the

personnel and affiliated persons of the

depositor, the distribution and

redemption of securities, and financial

statements. The Commission uses the

information provided in the collection

of information to determine compliance

with section 8(b) of the Act.

Based on the Commission’s industry

statistics, the Commission estimates that

there will be approximately 34 initial

filings on Form N–8B–2 and 11 posteffective amendment filings to the Form.

The Commission estimates that each

registrant filing an initial Form N–8B–

2 would spend 1,150 hours in preparing

and filing the Form and that the total

hour burden for all initial Form N–8B–

2 filings is 39,100 hours. Also, the

Commission estimates that each UIT

filing a post-effective amendment to

Form N–8B–2 would spend 150 hours

in preparing and filing the amendment

and that the total hour burden for all

post-effective amendments to the Form

is 1,650 hours. By combining the total

hour burdens estimated for initial Form

N–8B–2 filings and post-effective

amendment filings to the Form, the

Commission estimates that the total

annual burden hours for all registrants

on Form N–8B–2 is 40,750 hours.

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 Michael E. Bartell, Associate

Executive Director, Office of

Information Technology, Securities and

Exchange Commission, Mail Stop 0–4,

450 5th Street, NW., Washington, DC

20549.

Dated: June 22, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–17560 Filed 7–1–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following meetings during

the week of July 6, 1998.

An open meeting will be held on

Tuesday, July 7, 1998, at 10:00 a.m., in

Room 6600.

A closed meeting will be held on

Tuesday, July 7, 1998, following the

10:00 a.m. open meeting. A closed

meeting will be held on Thursday, July

9, 1998, at 10:00 a.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designee, has

certified that, in his opinion, one or

more of the exceptions set forth in 5

U.S.C. 552b(c)(4), (8), (9)(A) and (10)

and 17 CFR 200.402(a)(4), (8), (9)(i) and

(10), permit consideration of the

scheduled matters at the closed meeting.

Commissioner Johnson, as duty

officer, voted to consider the items

listed for the closed meeting in a closed

session.

The open meeting scheduled for

Tuesday, July 7, 1998, at 10:00 a.m.,

will be:

The Commission will hear oral

argument on an appeal by Valicenti

Advisory Services, Inc. (‘‘VAS’’), a

registered investment adviser, and

the Division of Enforcement from

an administrative law judge’s initial

decision.

The closed meeting scheduled for

Tuesday, July 7, 1998, following the

10:00 a.m. open meeting, will be:

Post argument discussion.

The closed meeting scheduled for

Thursday, July 8, 1998, at 10:00

a.m., will be:

Institution and settlement of

injunctive actions.

Institution and settlement of

administrative proceedings of an

enforcement nature.

At times, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

for postponed, please contact: The

Office of the Secretary at (202) 942–

7070.

Dated: June 30, 1998.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–17835 Filed 6–30–98; 3:53 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40123; file No. SR–AMEX–

98N10]

Self-Regulatory Organizations;

American Stock Exchange, Inc., Order

Granting Approval to Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment No 1. to Proposed Rule

Change Relating to Market-at-theClose and Limit-at-the-Close Order

Handling Requirements

June 24, 1998.

I. Introduction

On February 18, 1998, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities and Exchange

Act of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

revise the Exchange’s policy for entry of

market-at-the-close orders (‘‘MOC’’) and