Rule 11a-2 Supporting Statement 12-18-14

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
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 Securities and Exchange Commission (“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 Commission’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 (Electronic Data Gathering, Analysis and
Retrieval or “EDGAR”) is designed to automate the filing, processing, and dissemination of
full disclosure filings. The system permits publicly held companies to transmit filings to the
Commission electronically. This automation has increased the speed, accuracy, and
availability of information, generating benefits to investors and financial markets.
Registration statements are required to be filed with the Commission electronically on
EDGAR. (17 CFR 232.101(a)(1)(i) and (iv)). The public may access filings on EDGAR
through the Commission’s Internet Web site (http://www.sec.gov) or at EDGAR terminals
located at the Commission’s public reference rooms.
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

2

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).
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)

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

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality was provided.

3

11.

Sensitive Questions

No questions of a sensitive nature are involved.
12.

Estimate of Hour Burden

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 Paperwork Reduction Act (“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.

4

15.

Explanation of Changes in Burden

There are currently 652 registrants governed by Rule 11a-2; however, the burden has
not changed.
16.

Information Collection Planned for Statistical Purposes

The results of any information collection will not be published.
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

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

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

The collection of information will not employ statistical methods.

5