Rule 30e-2 Supporting Statement - 4-2-2012

PAPERWORK REDUCTION ACT SUBMISSION
SUPPORTING STATEMENT
“Rule 30e-2”
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 30(e) of the Investment Company Act of 1940 (the “Investment Company
Act”)1 requires every registered investment company to transmit to its stockholders, at
least semiannually, reports containing such information and financial statements or their
equivalent, as of a reasonably current date, as the Commission may prescribe by rules and
regulations.2 Rule 30e-2 under the Investment Company Act requires registered unit
investment trusts (“UITs”) that invest substantially all of their assets in shares of a
management investment company3 (“fund”) to send their unitholders annual and
semiannual reports containing financial information on the underlying company.4
Specifically, rule 30e-2 requires that the report contain all the applicable information and
financial statements or their equivalent, required by rule 30e-1 under the Investment
Company Act5 to be included in reports of the underlying fund for the same fiscal period.
Rule 30e-1 requires that the underlying fund’s report contain, among other things, the

1

15 U.S.C. 80a-1 et seq.

2

15 U.S.C. 80a-29(e).

3

Management investment companies are defined in Section 4 of the Investment Company
Act as any investment company other than a face-amount certificate company or a UIT,
as those terms are defined in Section 4 of the Investment Company Act. See 15 U.S.C.
80a-4.

4

17 CFR 270.30e-2. Rule 30e-2 was originally adopted as rule 30d-2, but was
redesignated as rule 30e-2 effective February 15, 2001. See Investment Company Act
Release No. 24816 (Jan. 2, 2001) [66 FR 3734 (Jan. 16, 2001)].

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17 CFR 270.30e-1.

information that is required to be included in such report by the fund’s registration
statement form under the Investment Company Act.
Rule 30e-2, however, permits, under certain conditions, delivery of a single
shareholder report to investors who share an address (“householding”). The purpose of
the householding provisions of the rule is to reduce the amount of duplicative reports
delivered to investors sharing the same address. Specifically, rule 30e-2 permits
householding of annual and semi-annual reports by UITs to satisfy the delivery
requirements of rule 30e-2 if, in addition to the other conditions set forth in the rule, the
UIT has obtained from each applicable investor written or implied consent to the
householding of shareholder reports at such address. The rule requires UITs that wish to
household shareholder reports with implied consent to send a notice to each applicable
investor stating that the investors in the household will receive one report in the future
unless the investors provide contrary instructions. In addition, at least once a year, UITs
relying on the rule for householding must explain to investors who have provided written
or implied consent how they can revoke their consent. Preparing and sending the initial
notice and the annual explanation of the right to revoke consent are collections of
information.
2.

Purpose of the Information Collection

The purpose of the requirement that UITs that invest substantially all of their
assets in securities of a fund transmit to shareholders at least semi-annually reports
containing financial statements and certain other information is to apprise current
shareholders of the operational and financial condition of the UIT. Absent the
requirement to disclose all material information in reports, investors would be unable to
obtain accurate information upon which to base investment decisions, and consumer

2

confidence in the securities industry might be adversely affected. Requiring the
submission of these reports to the Commission permits us to verify compliance with
securities law requirements.
Rule 30e-2 allows UITs to household shareholder reports if certain conditions are
met. Among the conditions with which a UIT must comply are providing notice to each
investor that only one report will be sent to the household and providing to each investor
that consents to householding an annual explanation of the right to revoke such consent.
The purpose of the notice and annual explanation requirements associated with the
householding provisions of the rule is to ensure that investors who wish to receive
individual copies of shareholder reports are able to do so.
3.

Information Technology Consideration

The Commission’s electronic filing system (“EDGAR”) automates the filing,
processing, and dissemination of full disclosure filings. The system permits publicly held
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. Shareholder reports are required to be filed
electronically on EDGAR.6 The public may access filings on EDGAR through the
Commission’s website (http://www.sec.gov) or at EDGAR terminals located at the
Commission’s public reference rooms.

4.

6

Duplication

See rule 101(a)(1)(iv) of Regulation S-T (17 CFR 232.101(a)(1)(iv)).

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The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication and reevaluates them whenever it proposes a rule or a
change in a rule. The information required by rule 30e-2 is not generally duplicated
elsewhere.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, to identify methods to minimize recordkeeping or reporting requirements
affecting small businesses.7 The current requirements for the delivery of shareholder
reports do not distinguish between small entities and other UITs. The burden on smaller
UITs may be greater than for larger UITs. This burden includes the cost of producing
financial statements (including the cost of an annual audit by independent accountants)
and the cost of producing, printing, and disseminating the shareholder reports. The
Commission believes, however, that imposing different requirements on smaller UITs
would not be consistent with investor protection and the purposes of Section 30(e) of the
Investment Company Act.
The current notice to investors requirement under the rule does not distinguish
between small entities and other UITs. The burden on smaller UITs may be greater than
for larger UITs. These costs could include the costs of producing, printing, and
disseminating the notices. The Commission believes, however, that imposing different
requirements on smaller UITs would not be consistent with investor protection and the
purposes of the notice requirements.

6.

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Consequences of Less Frequent Collection

5 U.S.C. 601 et seq.

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Section 30(e) of the Investment Company Act and rule 30e-2 thereunder require
that reports to shareholders be transmitted at least semi-annually. Less frequent
collection would mean that current information would not be available to fund investors.
In addition, the householding provisions of the rule require prior notice be sent to
shareholders before householding begins. At least once a year, UITs relying on the rule
for householding must explain to investors who have provided written or implied consent
to householding how they can revoke their consent. If collection occurs less frequently,
certain investors who wish to receive individual copies of shareholder reports may be
unaware of their right to do so.
7.

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

This collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The Commission and the staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the investment company
industry through public conferences, meetings, and informal exchanges. These various
forums provide the Commission and the staff with a means of ascertaining and acting
upon paperwork burdens that may confront the industry. The Commission requested
public comment on the collection of information requirements in rule 30e-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 its request.
9.

Payment or Gift to Respondents

No payment or gift to respondents was provided.

10.

Assurance of Confidentiality

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No assurance of confidentiality was provided.
11.

Sensitive Questions

No questions of a sensitive nature are involved.
12.

Information Collection Annual Burden

The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act of 19958 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Compliance with rule 30e-2 is mandatory. Responses to the disclosure
requirements will not be kept confidential.
The Commission estimates that the annual burden associated with rule 30e-2 is
121 hours per respondent, including an estimated 20 hours associated with the notice
requirement for householding and an estimated 1 hour associated with the explanation of
the right to revoke consent to householding. The Commission estimates that there are
currently approximately 760 UITs. Therefore, the Commission estimates that the total
hour burden is approximately 91,960 hours.9
Of the 91,960 hours spent annually to comply with Rule 30e-2, the Commission
estimates that:


Fifty percent are spent by attorneys at an estimated hourly wage of $378,10
for a total of approximately $17,380,440 per year; and

8

44 U.S.C. 3501 et seq.

9

760 UITs x 121 hours per UIT = 91,960.

10

The industry burden is calculated by multiplying the total annual hour burden to comply
with rule 30e-2 by the estimated hour wage rate of $378. The estimated wage figure is
based on published rates for attorneys, modified to account for an 1800-hour work-year

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

Fifty percent are spent by fund senior accountants at an estimated hourly
wage of $188,11 for a total of approximately $8,644,240 per year.

Based on these estimated wage rates, the total cost to the industry of the hour
burden for complying with the annual and semi-annual shareholder report requirements
of rule 30e-2 is approximately $26,024,680.12
13.

Cost to Respondents

Cost burden is the cost of services purchased to comply with rule 30e-2, such as
for the services of computer programmers, outside counsel, financial printers, and
advertising agencies. The Commission estimates that the annual cost of contracting for

and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and
overhead, yielding an effective hourly rate of $378. See Securities Industry and Financial
Markets Association’s Report on Management & Professional Earnings in the Securities
Industry 2011.
11

The industry burden is calculated by multiplying the total annual hour burden to comply
with rule 30e-2 by the estimated hour wage rate of $188. The estimated wage figure is
based on published rates for fund senior accountants, modified to account for an 1800hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead, yielding an effective hourly rate of $188. See Securities Industry
and Financial Markets Association’s Report on Management & Professional Earnings in
the Securities Industry 2011.

12

$17,380,440 per year for attorneys + $8,644,240 per year for senior fund
accountants = $26,024,680.

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outside services associated with rule 30e-2 is $20,000 per respondent,13 for a total cost of
approximately $15,200,000.14
14.

Cost to the Federal Government

The annual cost of reviewing and processing disclosure documents, including new
registration statements, post-effective amendments, proxy statements, and shareholder
reports of investment companies amounted to approximately $20.5 million in fiscal year
2011, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead.
15.

Changes in Burden

The decrease in burden hours and cost burden for complying with rule 30e-2 is
attributable to a decrease in the estimated number of UITs from 820 to 760, resulting in a
decrease of 7,260 hours and $1,200,000.
16.

Information Collection Planned for Statistical Purposes

The information collection is not used for statistical purposes.
17.

OMB Expiration Date Display Approval

The Commission is not seeking approval to not display the expiration date for
OMB approval.

13

The services of an outside auditor are required because audited financial statements must
be included in the annual report transmitted to shareholders. See 17 CFR 270.30e-2(a)
(which refers to the contents of financial statements required by 17 CFR 270.30e-1); Item
27(b)(1) of Form N-1A (17 CFR 274.11A); Instruction 4.a. to Item 24 of Form N-2 (17
CFR 274.11a-1); Instruction 4.(i) to Item 28(a) of Form N-3 (17 CFR 274.11b). An
outside auditor salary range is available from the U.S. Bureau of Labor Statistics,
Occupational Employment Statistics website. Using their data for median salaries from
New York State, which has the highest rates in the country, and multiplying by the 5.35
factor which is used to include benefits, the result is $250 per hour. 80 hours per
respondent x $250 per hour = $20,000 per respondent.

14

$20,000 per respondent x 760 respondents = $15,200,000.

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18.

Exceptions to Certification Statement

The Commission is not seeking an exception to the certification statement.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL
METHODS
The collection of information will not employ statistical methods.

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