20696 Federal Register / Vol. 66, No. 79 / Tuesday, April 24, 2001 / Notices

1 Investment Company Act Release No. 24828

(Jan. 17, 2001) [66 FR 8509 (Feb. 1, 2001),

correction 66 FR 14828 (Mar. 14, 2001)] (‘‘Adopting

Release’’). All references to ‘‘rule 35d–1’’ or any

paragraph of the rule are to 17 CFR 270.35d–1, as

adopted by the Adopting Release.

2See Adopting Release, supra note 1, 66 FR at

8516–8518.

3The Commission estimates that 24 investment

companies and series would provide prior notice to

shareholders of a change in their investment

policies pursuant to a notice policy adopted in

accordance with rule 35d–1, and that the annual

burden for each such investment company or series

would be 20 hours, for a total annual burden of 480

hours. See Adopting Release, supra note 1, 66 FR

at 8517.

4The Commission estimates that 202 open-end

management investment companies or series that

file post-effective amendments or initial registration

individual. Before information about

any record will be released, the System

Manager may require the individual to

provide proof of identity or require the

requester to furnish an authorization

from the individual to permit release of

information.

RECORD ACCESS PROCEDURES:

See Notification section above.

CONTESTING RECORD PROCEDURES:

See Notification section above.

RECORD SOURCE CATEGORIES:

Applications for child care tuition

assistance submitted voluntarily by RRB

employees; forms completed by child

care providers.

SYSTEMS EXEMPTED FROM CERTAIN PROVISIONS

OF THE ACT:

None.

[FR Doc. 01–10030 Filed 4–23–01; 8:45 am]

BILLING CODE 7905–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. IC–24939; File No. S7–11–97]

RIN 3235–AH11

Investment Company Names; OMB

Approval of Collections of Information

AGENCY: Securities and Exchange

Commission.

ACTION: Notice of OMB Approval of

Collections of Information.

SUMMARY: The Securities and Exchange

Commission adopted rule 35d–1 under

the Investment Company Act of 1940 on

January 17, 2001. Rule 35d–1 addresses

certain broad categories of investment

company names that are likely to

mislead investors about an investment

company’s investments and risks.

Certain provisions of rule 35d–1 contain

‘‘collection of information’’

requirements within the meaning of the

Paperwork Reduction Act [44 U.S.C.

3501 et seq.], and the Commission

submitted the proposed collections of

information to the Office of

Management and Budget (OMB) for

review. The Office of Management and

Budget has approved the collection of

information requirements contained in

rule 35d–1.

DATES: On March 13, 2001, OMB

approved the collections of information

contained in rule 35d–1.

FOR FURTHER INFORMATION CONTACT: Paul

G. Cellupica, Senior Special Counsel,

Office of Disclosure and Insurance

Product Regulation, at (202) 942–0670,

in the Division of Investment

Management, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0506.

SUPPLEMENTARY INFORMATION: The

Securities and Exchange Commission

(‘‘Commission’’) adopted new rule 35d–

1 [17 CFR 270.35d–1] under the

Investment Company Act of 1940 [15

U.S.C. 80a–1 et seq.] (‘‘Investment

Company Act’’) on January 17, 2001.1

Rule 35d–1 addresses certain broad

categories of investment company

names that are likely to mislead

investors about an investment

company’s investments and risks. The

rule requires a registered investment

company with a name suggesting that

the company focuses on a particular

type of investment (e.g., an investment

company that calls itself the ABC Stock

Fund, the XYZ Bond Fund, or the QRS

U.S. Government Fund) to invest at least

80% of its assets in the type of

investment suggested by its name. The

rule also addresses other types of

names, including names suggesting that

an investment company focuses its

investments in a particular country or

geographic region.

The rule generally requires that the

80% investment requirement either may

be a fundamental policy of an

investment company affected by the

rule, or the investment company may

adopt a policy to provide notice to

shareholders at least 60 days prior to

any change in its 80% investment

policy. Additionally, an investment

company with a name suggesting that it

focuses its investments in a particular

country or geographic region must

disclose in its prospectus the specific

criteria that are used to select

investments that meet this standard, in

order for its name not to be deemed

misleading under the rule.

As explained in the Adopting Release,

certain provisions of rule 35d–1 contain

‘‘collection of information’’

requirements within the meaning of the

Paperwork Reduction Act of 1995 [44

U.S.C. 3501 et seq.].2 In the Adopting

Release, the Commission estimated the

burden hours for these collection of

information requirements and solicited

comments on the collection of

information requirements and the

burden estimate. The Commission

submitted the proposed collection of

information requirements to OMB for

review in accordance with 44 U.S.C.

3507 and 5 CFR 1320.11. The titles for

the collections of information are: (1)

‘‘Rule 35d–1 under the Investment

Company Act of 1940, Investment

Company Names’’; (2) ‘‘Form N–1A

under the Investment Company Act of

1940 and Securities Act of 1933,

Registration Statement of Open-End

Management Investment Companies’’;

and (3) ‘‘Form N–2 under the

Investment Company Act of 1940 and

Securities Act of 1933, Registration

Statement of Closed-End Management

Companies.’’ The Commission did not

receive any comments on the collection

of information requirements of rule

35d–1.

The purpose of the notice policy

provision of rule 35d–1 is to ensure that

when shareholders purchase shares in

an investment company based on its

name, and with the expectation that it

will follow the investment policy

suggested by that name, they will have

sufficient time to decide whether to

redeem their shares in the event that the

investment company decides to pursue

a different investment policy. The

Commission estimates that the total

annual burden of this notice policy

provision will be 480 hours.3

The purpose of the prospectus

disclosure requirement of rule 35d–1

applicable to investment companies

with names suggesting an investment

focus in a particular country or

geographic region is to enable investors

to make more informed choices about

their investments in investment

companies with such names. The likely

respondents to this information

collection are open-end management

investment companies or series

registering with the Commission on

Form N–1A and closed-end

management investment companies

registering with the Commission on

Form N–2. The Commission estimates

that the total annual burden of this

disclosure requirement will be 404

hours for open-end management

investment companies or series filing

post-effective amendments or initial

registration statements on Form N–1A,

and 52 hours for closed-end

management investment companies

filing registration statements on Form

N–2.4

Federal Register / Vol. 66, No. 79 / Tuesday, April 24, 2001 / Notices 20697

statements on Form N–1A would have names

suggesting a focus in a particular country or

geographic region, and that each such investment

company would spend two hours annually to

comply with the prospectus disclosure

requirements of the rule, for a total annual burden

of 404 hours. The Commission also estimates that

26 closed-end management investment companies

filing registration statements on Form N–2 annually

would have names suggesting a focus on a

particular country or geographic region, and that

each such investment company would spend two

hours to comply with the prospectus disclosure

requirements of the rule, for a total annual burden

of 52 hours. See Adopting Release, supra note 1, 66

FR at 8517–8518.

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

2 17 CFR 240.19b–4

3On March 22, 2001, the NASD Regulation

submitted a technical amendment to designate a file

number for the proposed rule change. See letter

from Jennifer Piorko, Senior Legal Assistant, NASD

Regulation, to Nancy Sanow, Senior Special

Counsel, Division of Market Regulation,

Commission, dated March 21, 2001.

4The text and the footnotes in the Notice to

Members are formatted and numbered in the

manner that they appear in the actual Notice to

Members that was published by NASD Regulation.

1For purposes of this policy Statement, the terms

‘‘member’’ and ‘‘broker/dealer’’ include both firms

and their associated persons.

2NASD Rule 2310 provides in pertinent part:

(a) In recommending to a customer the purchase,

sale or exchange of any security, a member shall

have reasonable grounds for believing that the

recommendation is suitable for such customer upon

the basis of the facts, if any, disclosed by such

customer as to his other security holdings and as

to his financial situation and needs.

(b) Prior to the execution of a transaction

recommended to a non-institutional customer,

* * * a member shall make reasonable efforts to

obtain information concerning: (1) the customer’s

financial status; (2) the customer’s tax status; (3) the

customer’s investment objectives; and (4) such

other information used or considered to be

reasonable by such member * * * in making

recommendations to the customer.

NASD Rule 2310 applies to equity and certain

debt securities, but not to municipal securities.

Municipal securities are covered by Municipal

Securities Rulemaking Board (MSRB) Rule G–19

(‘‘Suitability of Recommendations and

Transactions; Discretionary Accounts’’).

3Although the focus of this Policy Statement is

on the application of the suitability rule to

electronic communications, much of the discussion

is also relevant to more traditional communications,

such as discussions made in-person, over the

telephone, or through postal mail.

4This Policy Statement focuses on ‘‘customerspecific’’ suitability under NASD Conduct Rule

2310. The word ‘‘recommendation’’ appears in

quotation marks whenever it is discussed in the

context of a customer-specific suitability obligation.

A broker/dealer must also have a reasonable basis

‘‘to believe that the recommendation could be

suitable for at least some customers.’’ In re F.J.

Kaufman and Company of Virginia, 50 S.E.C. 164,

168, 1989 SEC LEXIS 2376, *10 (1989) (emphasis

in original). This is called ‘‘reasonable basis’’

suitability, and it ‘‘relates only to the particular

recommendation, rather than to any particular

Continued

On March 13, 2001, OMB approved

the collections of information contained

in rule 35d–1. Rule 35d–1 (OMB Control

No. 3235–0548) was adopted pursuant

to section 35(d) of the Investment

Company Act [15 U.S.C. 80a–34(d)].

Form N–1A (OMB Control No. 3235–

0307) and Form N–2 (OMB Control No.

3235–0026) were adopted pursuant to

section 8 of the Investment Company

Act [15 U.S.C. 80a–8] and sections 5 and

10 of the Securities Act of 1933 [15

U.S.C. 77e and 77j]. 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.

Providing prior notice to shareholders

of a change in investment policy is

mandatory if an investment company

that has a descriptive name subject to

the rule has chosen to comply with the

rule by adopting a non-fundamental

80% investment policy and a notice

policy that meets the requirements of

the rule, and the investment company

intends to change its 80% investment

policy and name. There is no mandatory

retention period for the information

disclosed. Notices to shareholders

pursuant to a notice policy under the

rule are not filed with the Commission,

but will not in any event be kept

confidential.

The prospectus disclosure required by

the rule in Form N–1A and Form N–2

is mandatory for an investment

company with a name that suggests that

it focuses its investments in a particular

country or geographic region. There is

no mandatory retention period for the

information disclosed, and responses to

the disclosure requirement will not be

kept confidential.

Dated: April 16, 2001.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10108 Filed 4–23–01; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44178; File No. SR–NASD–

2001–20]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by National

Association of Securities Dealers, Inc.

Relating to the Suitability Rule and

Online Communications

April 12, 2001.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 19,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) a proposed rule change

as described in Items I, II, and III below,

which Items have been prepared by

NASD Regulation.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation proposes to issue a

Notice to Members (Notice to Members

01–23) reminding members that they

have suitability obligations when they

make recommendations to customers

online. The text of the Notice to

Members is provided below.4

* * * * *

NASD Notice to Members 01–23

Online Suitability

Suitability Rule And Online

Communications

Suggested Routing

Senior Management

Legal & Compliance

Executive Representative

Key Topics

Suitability

Online Communications

Executive Summary

In light of the dramatic increase in the

use of the Internet for communication

between broker/dealers and their

customers, NASD Regulation, Inc.

(NASD Regulation) is issuing a Policy

Statement to provide members 1 with

guidance concerning their obligations

under the National Association of

Securities Dealers, Inc. (NASD) general

suitability rule, Rule 2310,2 in this

electronic environment.3 NASD

Regulation filed this Policy Statement

on March 19, 2001, with the Securities

and Exchange Commission (SEC).

Pursuant to Section 19(b)(3)(A) of the

Securities Exchange Act of 1934 and

SEC Rule 19b–4(f)(1), the Policy

Statement became immediately effective

upon filing.

The Policy Statement briefly

discusses some of the issues created by

the intersection of online activity and

the suitability rule. The Policy

Statement then provides examples of

electronic communications that NASD

Regulation considers to be either within

or outside the definition of

‘‘recommendation’’ for purposes of the

suitability rule.4 In addition, the Policy