Document ID: SEC-2005-0129-0001
Agency: sec
Document Type: Notice
Title: Agency information collection activities; proposals, submissions, and approvals
Posted Date: 2005-10-19T04:00Z

[Federal Register: October 19, 2005 (Volume 70, Number 201)]
[Notices]               
[Page 60866-60867]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc05-112]                         

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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 
20549-0004.

Extension:
    Rule 32a-4; SEC File No. 270-473; OMB Control No. 3235-0530.

    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 (``Commission'') has submitted to the Office of Management 
and Budget requests for extension of the previously approved 
collections of information discussed below.
    Section 32(a)(2) of the Investment Company Act requires that 
shareholders of a registered investment management or face-amount 
certificate company (``fund'') ratify or reject the selection of a 
fund's independent public accountant. Rule 32a-4 exempts a fund from 
this requirement if (i) the fund's board of directors establishes an 
audit committee composed solely of independent directors with 
responsibility for overseeing the fund's accounting and auditing 
processes,\1\ (ii) the fund's board of directors adopts an audit 
committee charter setting forth the committee's structure, duties, 
powers and methods of operation, or sets out similar provisions in the 
fund's charter or bylaws,\2\ and (iii) the fund maintains a copy of 
such an audit committee charter permanently in an easily accessible 
place.\3\
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    \1\ Rule 32a-4(a).
    \2\ Rule 32a-4(b).
    \3\ Rule 32a-4(c).
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    Each fund that chooses to rely on rule 32a-4 incurs two collection 
of information burdens. The first, related to the board of directors' 
adoption of the audit committee charter, occurs once, when the 
committee is established. The second, related to the fund's maintenance 
and preservation of a copy of the charter in an easily accessible 
place, is an ongoing annual burden. The information collection 
requirement in rule 32a-4 enables the Commission to monitor the duties 
and responsibilities of an independent audit committee formed by a fund 
relying on the rule.
    Commission staff estimates that, on average, the board of directors 
takes 15 minutes to adopt the audit committee charter. Commission staff 
has estimated that with an average of 8 directors on the board,\4\ 
total director time to adopt the charter is 2 hours. Combined with an 
estimated 1 hour of paralegal time to prepare the charter for board 
review, the staff estimates a total one-time collection of information 
burden of 3 hours for each fund. Once a board adopts an audit committee 
charter, a fund generally maintains it in a file cabinet or as a 
computer file. Commission staff has estimated that

[[Page 60867]]

there is no annual hourly burden associated with maintaining the 
charter in this form.\5\
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    \4\ See Management Practice Inc. Bulletin: Fund directors pay 
increases 17% in smaller complexes, 8% in larger (2003) available at 
http://www.mfgovern.com.

    \5\ No hour burden related to such maintenance of the charter 
was identified by the funds the Commission staff surveyed. 
Commission staff understands that many audit committee charters have 
been significantly revised after their adoption in response to the 
Sarbanes-Oxley Act (Pub. L. No. 107-204, 116 Stat. 745) and other 
developments. However, the costs associated with these revisions are 
not attributable to the requirements of rule 32a-4.
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    Because virtually all funds extant have now adopted audit committee 
charters, the annual one-time collection of information burden 
associated with adopting audit committee charters in the future will be 
limited to the burden incurred by newly established funds. Commission 
staff estimates that fund sponsors establish approximately 400 new 
funds each year,\6\ and that all of these funds will adopt an audit 
committee charter in order to rely on rule 32a-4. Thus, Commission 
staff estimates that the annual one-time hour burden associated with 
adopting an audit committee charter under rule 32a-4 going forward will 
be approximately 1200 hours.\7\
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    \6\ See Investment Company Institute (``ICI''), Mutual Fund 
Factbook (2005) (``ICI 2005 Factbook''), at 9. The total number of 
funds in the marketplace has remained approximately the same each 
year for the past three years. Although there has been some 
variation in the number of funds that are newly established and 
funds that has ceased operations each year, Commission staff has 
estimated that the total number of respondents will remain constant. 
Id at 9.
    \7\ This estimate is based on the following calculation: (3.0 
burden hours for establishing charter x 400 new funds = 1200 burden 
hours).
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    As noted above, all funds that rely on rule 32a-4 are subject to 
the ongoing collection of information requirement to preserve a copy of 
the charter in an easily accessible place. This ongoing requirement, 
which Commission staff has estimated has no hourly burden, applies to 
the 400 new funds that adopt an audit committee charter each year and 
the 8044 funds that have previously adopted the charter and continue to 
maintain it.
    When funds adopt an audit committee charter in order to rely on 
rule 32a-4, they also may incur one-time costs related to hiring 
outside counsel to prepare the charter. Commission staff estimates that 
those costs average approximately $1000 per fund.\8\ Commission staff 
understands that virtually all funds now rely on rule 32a-4 and have 
adopted audit committee charters, and thus estimates that the annual 
cost burden related to hiring outside legal counsel will, in the 
future, be limited to newly established funds.
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    \8\ Costs may vary based on the individual needs of each fund. 
However, based on the staff's conversations with outside counsel 
that prepare these charters, legal fees related to the preparation 
and adoption of an audit committee charter usually average $1000 or 
less. The Commission also understands that the ICI has prepared a 
model audit committee charter, which most legal professionals use 
when establishing audit committees, thereby reducing the costs 
associated with drafting a charter.
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    As noted above, Commission staff estimates that approximately 400 
new funds each year will adopt an audit committee charter in order to 
rely on rule 32a-4, and that an additional 8044 funds will continue to 
preserve their audit committee charters in order to rely on rule 32a-4. 
Thus, Commission staff estimates that the ongoing annual cost burden 
associated with rule 32a-4 in the future will be approximately 
$400,000.\9\
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    \9\ This estimate is based on the following calculations: ($1000 
cost of adopting charter x 400 newly established funds = $400,000).
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    The estimates of average burden hours and costs are made solely for 
the purposes of the Paperwork Reduction Act, and are not derived from a 
comprehensive or even a representative survey or study of the costs of 
Commission rules and forms.\10\
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    \10\ These estimates are based on telephone interviews between 
Commission staff and fund representatives.
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    The collections of information required by rule 32a-4 are necessary 
to obtain the benefits of the rule. The Commission is seeking OMB 
approval, because 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 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, Office of Information Technology, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549. Comments must be submitted to OMB within 30 days of this notice.

     September 12, 2005.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-5747 Filed 10-18-05; 8:45 am]

BILLING CODE 8010-01-P