Skip to Content


Submission for OMB Review; Comment Request

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble

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”) 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. Start Printed 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.

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:; 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 Comments must be submitted to OMB within 30 days of this notice.

Start Signature

Dated: May 1, 2006.

Nancy M. Morris,


End Signature End Preamble


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.

Back to Citation

2.  This estimate is based on the following calculations: (2300 funds × 0.25% = 575 funds); (575 × 1 (clerical hour) = 575 clerical hours); (575 × $23 = $13,225 total annual cost for recordkeeping requirement).

Back to Citation

3.  This estimate is based on the following calculations: (2300 (funds) × 0.25% = 575 funds); (575 × 1 (professional hour) = 575 total professional hours); (575 (funds) × 2 (clerical hours) = 1150 total clerical hours); (575 (professional hours) + 1150 (clerical hours) = 1725 total hours); (575 (professional hours) × $81 = $46,575 total professional cost); (1150 (clerical hours) × $23 = $26,450 clerical cost); ($46,575 + $26,450 = $73,025 total annual cost).

Back to Citation

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).

Back to Citation

[FR Doc. E6-7008 Filed 5-8-06; 8:45 am]