

[Federal Register: May 9, 2006 (Volume 71, Number 89)]
[Notices]               
[Page 27012-27013]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my06-120]                         

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SECURITIES AND EXCHANGE COMMISSION

 
Submission for OMB Review; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Filings and Information Services, Washington, DC 
20549.

Extension:
    Rule 11a-3, SEC File No. 270-321, OMB Control No. 3235-0358.

    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'') has submitted to the Office of Management and Budget 
(``OMB'') a request for extension of the previously approved 
collections of information discussed below.
    Section 11(a) of the Investment Company Act of 1940 (``Act'') (15 
U.S.C. 80a-11(a)) provides that it is unlawful for a registered open-
end investment company (``fund'') or its underwriter to make an offer 
to the fund's shareholders or the shareholders of any other fund to 
exchange the fund's securities for securities of the same or another 
fund on any basis other than the relative net asset values (``NAVs'') 
of the respective securities to be exchanged, ``unless the terms of the 
offer have first been submitted to and approved by the Commission or 
are in accordance with such rules and regulations as the Commission may 
have prescribed in respect of such offers.'' Section 11(a) was designed 
to prevent ``switching,'' the practice of inducing shareholders of one 
fund to exchange their shares for the shares of another fund for the 
purpose of exacting additional sales charges.

[[Page 27013]]

    Rule 11a-3 under the Act of 1940 (17 CFR 270.11a-3) is an exemptive 
rule that permits open-end investment companies (``funds''), other than 
insurance company separate accounts, and funds'' principal 
underwriters, to make certain exchange offers to fund shareholders and 
shareholders of other funds in the same group of investment companies. 
The rule requires a fund, among other things, (i) to disclose in its 
prospectus and advertising literature the amount of any administrative 
or redemption fee imposed on an exchange transaction, (ii) if the fund 
imposes an administrative fee on exchange transactions, other than a 
nominal one, to maintain and preserve records with respect to the 
actual costs incurred in connection with exchanges for at least six 
years, and (iii) give the fund's shareholders a sixty day notice of a 
termination of an exchange offer or any material amendment to the terms 
of an exchange offer (unless the only material effect of an amendment 
is to reduce or eliminate an administrative fee, sales load or 
redemption fee payable at the time of an exchange).
    The rule's requirements are designed to protect investors against 
abuses associated with exchange offers, provide fund shareholders with 
information necessary to evaluate exchange offers and certain material 
changes in the terms of exchange offers, and enable the Commission 
staff to monitor funds' use of administrative fees charged in 
connection with exchange transactions.
    There are approximately 2,300 active open-end funds registered with 
the Commission as of December 31, 2005. The staff estimates that 25 
percent of these funds impose a non-nominal administrative fee on 
exchange transactions. The staff estimates that the recordkeeping 
requirement of the rule requires approximately 1 hour annually of 
clerical time (at an estimated $23 per hour) \1\ per fund, for a total 
of 575 hours for all funds (at a total annual cost of $13,225).\2\ The 
staff estimates that 25 percent of the 2300 funds terminate an exchange 
offer or make a material change to the terms once each year, and that 
the notice requirement of the rule requires approximately 1 hour of 
professional time (at an estimated $81 per hour) and 2 hours of 
clerical time (at an estimated $23 per hour) per fund, for a total of 
approximately 1725 hours for all funds to comply with the notice 
requirement (at a total annual cost of $73,025).\3\ The recordkeeping 
and notice requirements impose a total burden of 2300 hours on all 
funds (at a total annual cost of $86,250).\4\ The burdens associated 
with the disclosure requirement of the rule are accounted for in the 
burdens associated with the Form N-1A registration statement for funds.
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    \1\ All hourly rates are derived from the average annual 
salaries reported for employees outside of New York City in 
Securities Industry Association, Management and Professional 
Earnings in the Securities Industry (2003) and Securities Industry 
Association, Office Salaries in the Securities Industry (2003), 
include overhead, and are updated to the present through established 
formulas.
    \2\ This estimate is based on the following calculations: (2300 
funds x 0.25% = 575 funds); (575 x 1 (clerical hour) = 575 clerical 
hours); (575 x $23 = $13,225 total annual cost for recordkeeping 
requirement).
    \3\ This estimate is based on the following calculations: (2300 
(funds) x 0.25% = 575 funds); (575 x 1 (professional hour) = 575 
total professional hours); (575 (funds) x 2 (clerical hours) = 1150 
total clerical hours); (575 (professional hours) + 1150 (clerical 
hours) = 1725 total hours); (575 (professional hours) x $81 = 
$46,575 total professional cost); (1150 (clerical hours) x $23 = 
$26,450 clerical cost); ($46,575 + $26,450 = $73,025 total annual 
cost).
    \4\ This estimate is based on the following calculations: (1725 
(notice hours) + 575 (recordkeeping hours) = 2300 total hours); 
($73,025 (notice costs) + $13,225 (recordkeeping costs) = $86,250 
total annual costs).
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    The estimate of average burden hours is made solely for the 
purposes of the Paperwork Reduction Act, and is not derived from a 
comprehensive or even a representative survey or study of the costs of 
Commission rules and forms.
    The rule provides that if a fund imposes an administrative fee in 
connection with exchanges that is reasonably intended to cover the 
costs incurred in processing the exchanges, the fund must maintain and 
preserve records of any determination of the costs incurred in 
connection with exchanges for a period of not less than six years, the 
first two years in an easily accessible place. Keeping these records is 
necessary for any fund that wishes to obtain the benefit of relying on 
the rule. Although these records are subject to inspection by the 
Commission, they are not made public.
    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.
    General comments regarding the above information should be directed 
to the following persons: (i) Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Room 10102, New Executive Office 
Building, Washington, DC 20503, or e-mail to: 
David_Rostker@omb.eop.gov; and (ii) R. Corey Booth, Director/Chief 

Information Officer, Securities and Exchange Commission, C/O Shirley 
Martinson, 6432 General Green Way, Alexandria, Virginia 22312, or send 
an e-mail to PRA_Mailbox@sec.gov. Comments must be submitted to OMB 
within 30 days of this notice.

    Dated: May 1, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. E6-7008 Filed 5-8-06; 8:45 am]

BILLING CODE 8010-01-P
