Rule 11a-2 Supporting Statement(2)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission
“Rule 11a-2”
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 11 of the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) (“1940
Act”) makes it unlawful for certain types of registered investment companies to make an offer
to their shareholders to exchange their securities for the securities of another investment
company on a basis other than net asset value unless the terms of the exchange offer are
approved by the Commission or are in accordance with rules adopted by the Commission.
The Commission exercised its rulemaking authority under Section 11 by adopting
Rule 11a-2 (17 CFR 270.11a-2) as an exemptive rule. Rule 11a-2 codified the conditions
under which the Commission previously had approved exchange offers of certain registered
insurance company separate accounts. Consequently, Rule 11a-2 significantly reduced the
number of routine applications that separate accounts file under Section 11.
The one reporting requirement imposed under Rule 11a-2 is disclosure in the offering
account’s registration statements under the Securities Act of 1933 (15 U.S.C. 77a et seq.)
(“1933 Act”) of any administrative fee or sales load imposed in connection with an exchange
offer. The minor burden imposed by this requirement is substantially outweighed by the
elimination of a substantial number of applications.
2.

Purpose of the Information Collection

Without this rule, the separate accounts sponsoring life insurers would bear the
expense of filing individual exemptive applications in order to obtain the relief needed to
make an exchange of securities. Accordingly, the Commission staff would be required to

process such applications, which would be quite lengthy and burdensome for both the life
insurers and the SEC’s staff. In addition, the information required by the rule is used by
investors to weigh the costs of making an exchange of securities against the potential for
benefits. Without disclosure of the costs of an exchange transaction, investors would be
unable to evaluate the costs.
3.

Role of Improved Information Technology

The Commission's electronic filing system, EDGAR, is designed to automate the
filing, processing, and dissemination of all disclosure filings. The system permits publiclyheld companies to transmit their filings to the Commission electronically. This automation
has increased the speed, accuracy, and availability of information, generating benefits to
investors and financial markets. As of November 6, 1995, phase-in of all registered
investment companies for mandatory utilization of EDGAR was complete.
4.

Efforts to Identify Duplication

The information is not duplicated elsewhere, and similar information is not available
from other sources.
5.

Effect on Small Entities

Rule 11a-2 does not have a significant economic impact on small entities. The
Commission staff takes the position that because separate accounts are part of the sponsoring
insurance company, there are no insurance company separate accounts that are “small entities”
for purposes of Rule 0-10 under the 1940 Act (17 CFR 270.0-10).

2

6.

Consequences of Less Frequent Collection

Disclosure of fees charged in connection with an exchange offer is required in the
prospectus contained in the offering account’s registration statement under the 1933 Act.
Because Section 10 of the 1933 Act requires that the information in a prospectus be as of a
date no more than sixteen months prior to its use, a registrant making an offer under the 1933
Act, including an exchange offer, must update its prospectus approximately annually. Less
frequent collection would inhibit dissemination of the timely information that enables
investors to make informed investment decisions.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Not applicable.
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information
requirements in Rule 11a-2 before it submitted this request for extension and approval to the
Office of Management and Budget. The Commission received no comments in response to
this request.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
11.

Sensitive Questions

Questions of a sensitive nature are not asked.
12.

Estimate of Hour Burden

3

The Commission includes the estimated burden of complying with the information
collection required by Rule 11a-2 in the total number of burden hours estimated for
completing the relevant registration statements and reports the burden of Rule 11a-2 in the
separate PRA submissions for those registration statements (see the separate PRA
submissions for Form N-3 (17 CFR 274.11b), Form N-4 (17 CFR 274.11c) and Form N-6 (17
CFR 274.11d). The Commission is requesting a burden of one hour for Rule 11a-2 for
administrative purposes.
13.

Estimate of Total Annual Cost Burden

It is estimated that there is no cost of the paperwork burdens of Rule 11a-2 beyond the
cost of the hour burden identified in Item 12 of this Supporting Statement.
14.

Estimate of Cost to the Federal Government

Rule 11a-2 reduced the Commission’s staff’s operational cost attributable to the
reviewing and processing of exemptive applications. Because separate accounts rely on the
rule without the need for prior Commission approval, cost to the government is minimal.
Moreover, operational costs are far less than those incurred in processing individual
applications.
15.

Explanation of Changes in Burden

There are currently 693 registrants governed by Rule 11a-2; however, the burden has
not changed.
16.

Information Collection Planned for Statistical Purposes

Not applicable because the information will not be used for statistical purposes.

4

17.

Approval to not Display Expiration Date
The Commission is not seeking approval to not display the expiration date for OMB

approval.
18.

Exceptions to Certification Statement

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

This collection does not include statistical methods.

5