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Proposed Collection; Comment Request

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


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”) 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.

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.

Rule 11a-3 under the Act [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 1,725 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 2,300 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.

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. 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.

Written comments are requested on: (a) Whether the collection of information is 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 burden[s] 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 in writing within 60 days of this publication. Start Printed Page 11690

Please direct your written comments to R. Corey Booth, Director/Chief Information Officer, Office of Information Technology, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549.

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Dated: February 28, 2006.

Nancy M. Morris,


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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), and have been adjusted upwards through established formulas to reflect overhead and the increase in salaries since the report was published.

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2.  This estimate is based on the following calculations: (2,300 funds × 0.25% = 575 funds); (575 × 1 (clerical hour) = 575 clerical hours); (575 × $23 = $13,225 total annual cost for recordkeeping requirement).

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3.  This estimate is based on the following calculations: (2,300 (funds) × 0.25% = 575 funds); (575 × 1 (professional hour) = 575 total professional hours); (575 (funds) × 2 (clerical hours) = 1,150 total clerical hours); (575 (professional hours) + 1,150 (clerical hours) = 1,725 total hours); (575 (professional hours) × $81 = $46,575 total professional cost); (1,150 (clerical hours) × $23 = $26,450 clerical cost); ($46,575 + $26,450 = $73,025 total annual cost).

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4.  This estimate is based on the following calculations: (1,725 (notice hours) + 575 (recordkeeping hours) = 2,300 total hours); ($73,025 (notice costs) + $13,225 (recordkeeping costs) = $86,250 total annual costs).

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[FR Doc. E6-3281 Filed 3-7-06; 8:45 am]