8011-01P
SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-237, OMB Control No. 3235-0226]
Proposed Collection; Comment Request; Extension: Rule 10f-3
Upon Written Request, Copies Available From:
Securities and Exchange Commission
Office of FOIA Services
100 F Street NE
Washington, DC 20549-2736
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3520), the Securities and Exchange Commission (“Commission”) is soliciting comments
on the collections of information discussed below. The Commission plans to submit these
existing collections of information to the Office of Management and Budget (“OMB”) for
extension and approval.
Section 10(f) of the Investment Company Act of 1940 (the “Act”) prohibits a registered
investment company (“fund”) from purchasing any security during an underwriting or selling
syndicate if the fund has certain affiliated relationships with a principal underwriter for the
security.1 Congress enacted this provision in 1940 to protect funds and their shareholders by
preventing underwriters from “dumping” unmarketable securities on affiliated funds.
Rule 10f-3 under the Act permits a fund to engage in a securities transaction that
otherwise would violate Section 10(f) if, among other things: (i) the fund’s directors have
approved procedures for purchases made in reliance on the rule, regularly review fund purchases
to determine whether they comply with these procedures, and approve necessary changes to the

15 U.S.C. 80a-10(f).

procedures; and (ii) a written record of each transaction effected under the rule is maintained for
six years, the first two of which in an easily accessible place.2
Rule 10f-3 also conditionally allows managed portions of fund portfolios to purchase
securities offered in otherwise off-limits primary offerings. To qualify for this exemption, Rule
10f-3 requires that the subadviser that is advising the purchaser be contractually prohibited from
providing investment advice to any other portion of the fund’s portfolio and consulting with any
other of the fund’s advisers that is a principal underwriter or affiliated person of a principal
underwriter concerning the fund’s securities transactions.
These requirements provide a mechanism for fund boards to oversee compliance with the
rule. The required recordkeeping facilitates the Commission staff’s review of Rule 10f-3
transactions during routine fund inspections and, when necessary, in connection with
enforcement actions.
The staff estimates that approximately 745 funds engage in at least one Rule 10f-3
transaction each year, for a total of 745 such transactions.3 Rule 10f-3 requires that the
purchasing fund create a written record of each transaction that includes, among other things,
information about from whom the securities were purchased and the terms of the transaction.
The staff estimates that it takes an average fund approximately 30 minutes per transaction at a

17 CFR 270.10f-3.

These estimates are based on the average number of fund filings on Form N-CEN made with the
Commission for fiscal years 2021 through 2023; although business development companies
(“BDCs”) may also rely on Rule 10f-3, they do not file on Form N-CEN, so our estimates for
purposes of this PRA exclude BDCs; further, because Form N-CEN does not require any specific
information about Rule 10f-3 transactions, we assume for purposes of this PRA that that each
fund reported to have relied on Rule 10f-3 engaged in one such transaction annually.

time cost of $131 per transaction to document each transaction.4 Thus, annually funds spend
approximately 373 hours5 at an internal cost of $97,595 documenting these transactions.6
The funds also must maintain and preserve these transactional records in accordance with
the rule’s recordkeeping requirement, and the staff estimates that it takes a fund approximately
20 minutes per transaction at a time cost of $28 per transaction to comply with this part of the
rule.7 The staff estimates that annually, in the aggregate, funds spend approximately 248 hours8
at a cost of $20,832 to comply with this aspect of Rule 10f-3’s recordkeeping requirements.9
In addition, fund boards must, no less than quarterly, examine each of these transactions
to ensure that they comply with the fund’s policies and procedures. The information or materials
upon which the board relied in making its determination also must be maintained. The staff
estimates that it takes a fund 1 hour per quarter at a cost of $262 per quarter to comply with the
maintenance requirement of the rule.10 Thus annually, in the aggregate, funds spend
approximately 2,980 hours11 annually at a total internal cost of $780,760 to comply with this
recordkeeping requirement.12

The staff estimates that this task is shared between a compliance clerk ($84/hour) and a
compliance attorney ($440/hour), for a blended hourly wage rate of $262 ($84 + $440 ÷ 2 =
$262) and a half-hour blended wage rate of $131 ($262 ÷ 2 = $131); all hourly wage rates are
derived from SIFMA's Management & Professional Earnings in the Securities Industry (2013),
modified by Commission staff to account for an 1800-hour work-year and inflation and
multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.

This estimate is based on the following calculation: (0.5 hours x 745 transactions =
approximately, 373 hours).

This estimate is based on the following calculation: (745 transactions x $131 = $97,595).

The wage figure of $28 is one third of an average compliance clerk’s hourly wage rate of $84
($84 ÷ 3 = $28).

This estimate is based on the following calculations: (20 minutes x 745 transactions = 14,900
minutes; 14,900 minutes / 60 = 248 hours).

This estimate is based on the following calculation: (248 hours x $84 = $20,832).

The staff estimates that a compliance clerk spends half an hour preparing the report and a
compliance attorney spends half an hour reviewing the report, for a blended hourly wage rate of
$262 per hour. See supra note 4.

This estimate is based on the following calculation: (1 hour per quarter x 4 quarters x 745 funds =
2,980 hours).

This estimate is based on the following calculation: (2,980 hours x $262 = $780,760).

The staff further estimates that reviewing and revising as needed written procedures for
Rule 10f-3 transactions takes, on average for each fund, two hours of a compliance attorney’s
time at a cost of approximately $88013 per year.14 Thus, annually, in the aggregate, the staff
estimates that funds spend a total of approximately 1,490 hours15 at a cost of approximately
$655,60016 on monitoring and revising Rule 10f-3 procedures.
Based on an analysis of Form N-CEN filings, the staff estimates that approximately 589
new funds enter into sub-advisory agreements each year.17 Based on discussions with industry
representatives, the staff estimates that it will require approximately 0.75 attorney hours to draft
and execute additional clauses in new subadvisory contracts in order for funds and subadvisers to
be able to rely on the exemptions in Rule 10f-3. 18 Assuming that all 589 new funds that enter
into new subadvisory contracts each year make the modification to their subadvisory contracts
required by the rule, we estimate that Rule 10f-3’s subadvisory contract requirement will require
a total of 442 burden hours annually for new funds, with an associated aggregate internal cost of
approximately $221,200.19

This estimate is based on the following calculation: (2 hours x $440 = $880).

These averages take into account the fact that in most years, fund attorneys and boards spend
little or no time modifying procedures and in other years, they spend significant time doing so.

This estimate is based on the following calculation: (745 funds x 2 hours = 1,490 hours).

This estimate is based on the following calculation: (745 funds x $880 = $655,600).

Based on the average number of subadvisory agreements entered into by funds during fiscal years
2021-2023, as filed with the Commission on Form N-CEN, we estimate that approximately 559
new open-end funds and 30 new closed-end funds, or a total of 589 new funds enter into new
subadvisory agreements each year (559 + 30 = 589 new funds); we understand that existing funds
may also enter into new subadvisory agreements, but in many cases would benefit from having
previously drafted Rule 10f-3 clauses in prior or existing subadvisory contracts.

Because such clauses are identical to the clauses that a fund would need to insert in their
subadvisory contracts to rely on Rules 12d3-1, 17a-10, and 17e-1, and because we believe that
funds that use one such rule generally use all of these rules, we apportion this 3 hour time burden
equally to all four rules; therefore, we estimate that the burden allocated to Rule 10f-3 for this
contract change would be 0.75 hours (3 hours ÷ 4 rules = .75 hours/rule); the staff further
estimates that the average hourly wage rate for an attorney to perform this service is $375/hour.

These estimates are based on the following calculations: (0.75 hours × 589 new funds =
approximately 442 burden hours); ($500 per hour × 442 hours = approximately, $221,200 total
cost).

The staff estimates that complying with Rule 10f-3’s requirements imposes an internal
burden of 5,408 hours at an internal cost of approximately $1,755,155. This estimate does not
include the time spent to report a fund’s reliance on Rule 10f-3 on Form N-CEN, which is
subject to a separate PRA information collection.
Written comments are invited on: (a) whether the proposed collection of information is
necessary for the proper performance of the functions of the Commission, including whether the
information shall have practical utility; (b) the accuracy of the Commission's estimate of the
burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the
information collected; and (d) ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection techniques or other forms of
information technology. Consideration will be given to comments and suggestions submitted by
[INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL
REGISTER].
An agency may not conduct or sponsor, and a person is not required to respond to, a
collection of information under the PRA unless it displays a currently valid OMB control
number.
Please direct your written comments to: David Bottom, Chief Information Officer,
Securities and Exchange Commission, c/o John Pezzullo, 100 F Street, NE Washington, DC
20549 or send an email to: PRA_Mailbox@sec.gov .
Dated: June 17, 2024.

Sherry R. Haywood,
Assistant Secretary.

[FR Doc. 2024-13701 Filed: 6/21/2024 8:45 am; Publication Date: 6/24/2024]