[Federal Register Volume 72, Number 54 (Wednesday, March 21, 2007)]
[Notices]
[Pages 13314-13315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5057]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

Upon written request, copies available from: Securities and Exchange 
Commission; Office of Filings and Information Services, Washington, 
DC 20549

Extension: Rule 15a-5; SEC File No. 270-527; OMB Control No. 3235-
0587.

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (the ``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 15(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
15(a)) (the ``Investment Company Act'' or ``Act'') prohibits any person 
from serving as an investment adviser (or a subadviser) to a fund 
except under a written contract that the fund's shareholders have 
approved. The Commission has granted exemptive relief, by order, to a 
number of registered open-end management investment companies 
(``funds'') whose investment advisers do not directly manage a 
portfolio of securities, but instead supervise one or more subadvisers, 
which are themselves responsible for the day-to-day management of the 
funds' portfolios (``manager of managers funds'').\1\ Sponsors have 
analogized subadvisers in a manager of managers arrangement to 
portfolio managers employed by a fund adviser who may be hired and

[[Page 13315]]

fired without the consent of shareholders.
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    \1\ In this notice, we use the term ``subadviser'' to mean a 
party that contracts with a fund's principal adviser to provide 
investment advisory services to the fund, and the term ``principal 
adviser'' to mean a party that contracts directly with a fund to 
provide investment advisory services to the fund.
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    Proposed Rule 15a-5 (17 CFR 270.15a-5) and amendments to Form N-1A 
(17 CFR 239.15A, 17 CFR 274.11A) together would codify the orders we 
have issued for manager of managers funds, including many of their 
conditions, allowing any fund that satisfies the conditions to enter 
into or materially amend a subadvisory contract without shareholder 
approval. To provide for the protection of fund shareholders, a fund 
that relied on the proposed rule would have to satisfy a number of 
conditions, some of which would result in information collection 
requirements.
    For example, any fund that relied on the proposed rule would have 
to include certain provisions in all its advisory and subadvisory 
contracts. Specifically, all the fund's subadvisory contracts for which 
shareholder approval is not sought would have to provide the principal 
adviser with the authority to terminate the subadvisory contract at any 
time, on no more than 60 days written notice, without payment of 
penalty.\2\ In addition, the advisory contract between each principal 
adviser and the fund would have to require that the principal adviser 
supervise the activities of its subadvisers. These provisions are 
intended to ensure that only manager of managers funds (in which 
subadvisers resemble and perform the duties of a portfolio manager in a 
typical fund) are eligible for relief under the proposed rule and to 
allow the principal adviser to carry out its principal duties to the 
fund, the selection and monitoring of subadvisers, in an efficient 
manner.
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    \2\ Most subadvisory contracts already contain terms that allow 
the principal adviser to terminate the contract at any time. We 
therefore estimate there would be no burden hours or costs imposed 
on funds by this requirement.
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    During the first year after adoption of the rule, Commission staff 
estimates that each fund relying on the rule would incur an initial 
one-time burden to modify its existing contract with the principal 
adviser to require the principal adviser to supervise the activities of 
its subadvisers. Staff estimates this burden would be 5 hours per fund 
(4 hours by in-house counsel, 0.5 hours by fund directors, 0.5 hours by 
support staff).\3\ Commission staff estimates that 149 funds would have 
to modify their advisory contracts with their principal advisers to 
comply with the proposed rule, which would result in an estimated total 
of 745 burden hours and 149 responses.\4\
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    \3\ These estimates are based on discussions with fund 
representatives.
    \4\ These 149 funds include 125 funds that currently rely on 
exemptive orders, 14 funds that have filed an application for an 
exemptive order and, as explained infra note 5, 10 additional funds 
that we estimate would choose to rely on the proposed rule during 
the first year.
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    Commission staff estimates that after the first year, approximately 
10 funds \5\ would spend, on average, 5 hours annually (4 hours by in-
house counsel, 0.5 hours by fund directors, 0.5 hours by support staff) 
to modify their advisory contracts with their principal advisers to 
comply with the proposed rule. Thus, the Commission estimates these 
modifications would result in a total of 50 burden hours and 10 
responses.
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    \5\ Based on the number of manager of managers applications 
submitted since 1995, the staff estimates that 20 additional funds 
would seek to rely on the proposed rule each year. Approximately 10 
of those funds would be funds whose securities have already been 
publicly offered, and therefore would need to modify their advisory 
contracts with principal advisers. We estimate that the 10 new funds 
that would rely on the proposed rule would incur no additional 
burden or costs to include these provisions in the initial advisory 
contract.
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    The proposed rule also would require funds to provide shareholders 
(and file with the Commission) an information statement within 90 days 
after entry into the subadvisory contract or after making a material 
change to a wholly-owned subsidiary's existing subadvisory contract. 
The information statement must describe the agreement and contain all 
of the information that shareholders would have received in a proxy 
statement had a shareholder vote been held. This information collection 
is needed to ensure that shareholders are aware of the identity of the 
subadvisers that would be making investment decisions for the fund and 
the terms of each subadvisory contract.
    During the first 3 years after adoption of the proposed rule, 
Commission staff estimates that 179 funds \6\ would each spend 20 hours 
\7\ annually in preparing and distributing information statements. The 
total annual estimate for complying with the third party disclosure 
requirement of rule 15a-5 would be 3580 burden hours and 358 responses.
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    \6\ Commission staff estimates that 159 funds (including 125 
funds that currently rely on exemptive orders, 14 funds that have 
filed an application for an exemptive order, and 20 additional funds 
that would have filed for exemptive relief during the first year 
after the rule's adoption) would rely on the proposed rule during 
the first year after its adoption. After the first year, the staff 
estimates that each year 20 additional funds would rely on the 
proposed rule.
    \7\ Based on discussions with fund representatives, the 
Commission estimates that on average each fund would hire 2 new 
subadvisers per year. Therefore, funds would be required to send to 
shareholders 2 information statements per year. Based on discussions 
with fund representatives, the Commission estimates that each fund 
would spend 10 hours to prepare and mail each information statement.
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    To arrive at the total information collection burden, staff has 
calculated a weighted average of the first year burden and the annual 
burden thereafter. Using a three-year period, the estimated weighted 
annual average information collection burden is 3862 hours \8\ and 414 
responses.\9\
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    \8\ This estimate is based on the following calculation: (4325 
hours (year 1) + 3630 hours (year 2) + 3630 hours (year 3)) 3 = 
3861.6 hours.
    \9\ This estimate is based on the following calculation: (507 
responses (year 1) + 368 responses (year 2) + 368 responses (year 
3)) 3 = 414.3 responses.
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    The collections of information required by proposed rule 15a-5 
would be voluntary because rule 15a-5 is an exemptive rule and, 
therefore, funds may choose not to rely on the proposed rule. The 
filings with the Commission required under the proposed rule would be 
available to the 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.
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency'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 in writing within 60 
days of this publication.
    Please direct your written comments to R. Corey Booth, Director/
Chief Information Officer, Securities and Exchange Commission, C/O 
Shirley Martinson, 6432 General Green Way, Alexandria, VA 22312 or send 
an e-mail to: [email protected].

    Dated: March 13, 2007.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-5057 Filed 3-20-07; 8:45 am]
BILLING CODE 8010-01-P