Rule 30e-2 Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
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 company 3 (“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 Act 5 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
information that is required to be included in such report by the fund’s registration statement
form under the Investment Company Act.

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)].

5

17 CFR 270.30e-1.

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.
On October 13, 2016, the Commission issued a release adopting certain changes to the
investment company reporting and disclosure regime. 6 Among other things, the final rules will
include certain amendments to Articles 6 and 12 of Regulation S-X 7 – the regulation that
prescribes the form and content for fund financial statements. Among other things, the
amendments will: (1) require new, standardized disclosures regarding fund holdings in open
futures contracts, open forward foreign currency contracts, and open swap contracts, and
additional disclosures regarding fund holdings of written and purchased options; (2) update the
disclosures for other investments, as well as reorganize the order in which some investments are

6

See Investment Company Reporting Modernization, Investment Company Act Release
No. 32314 (October 13, 2016) (“Reporting Modernization Adoption”).

2

presented; and (3) amend the rules regarding the general form and content of fund financial
statements. Compliance with the disclosure requirements of rule 30e-2 is mandatory. Responses
to the disclosure requirements are not kept confidential.
2.

Purpose and Use of the Information Collection

The purpose of the collection of information required by rule 30e-2 is to provide UIT
unitholders with current information about the operations of their UITs in accordance with
Section 30 of the Investment Company Act.
3.

Consideration Given to Information Technology

Rule 30e-2 does not require filing of the shareholder report with the Commission, but
instead the transmission of reports to unitholders. Shareholder reports are typically sent in paper;
however, investors may currently consent to the delivery of electronic versions. If adopted,
proposed rule 30e-3 would permit funds to transmit reports to unitholders by posting them on its
website.
4.

Duplication

To ensure the relevance of the information filed by each fund and to avoid unnecessary
paperwork and duplicative reporting, the Commission has promulgated specific rules and
designed specific forms or items of forms for each type of investment company. 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.

7

Effect on Small Entities

17 CFR 210.1-01 et seq.

3

The current disclosure requirements for 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, printing, and transmitting 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 shareholder reports. 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.
6.

Consequences of Not Conducting Collection

The frequency with which information in compliance with rule 30e-2 is collected is
semi-annual, as set out in Section 30(e) of the Investment Company Act and rule 30e-2. Less
frequent collection of information would impede the amount of current information provided to
unitholders about their UITs.
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

Before adopting the amendments to Regulation S-X, the Commission received and
evaluated public comments on the proposals and its collection of information requirements. The
Commission received no comments on this aspect of the proposal. Moreover, the Commission
and the staff of the Division of Investment Management participate in an ongoing dialogue with
representatives of the investment company industry and 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 confronting the industry.

4

9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No PII collected/Not applicable.
12.

Burden of Information Collection

We estimate that there are 721 UITs that may be subject to the amendments to Regulation
S-X. 8 In addition, we estimate that the amendments to Regulation S-X will likely increase the
time spent preparing, reviewing and certifying reports. The extent to which a UIT’s burden
increases as a result of the amendments will depend on the extent to which an underlying fund
invests in the instruments covered by many of the amendments.
We estimate that, on an annual basis, UITs generally will annually incur an additional 7
burden hours in the first year and an additional 2.5 burden hours for filings in subsequent years
in order to comply with the proposed amendments. Amortized over three years, we estimate that
the average annual hour burden associated with the proposed amendments will be 4 hours per
fund. 9 Accordingly, we estimate that the total average annual hour burden associated with the
amendments to Regulation S-X will be 2,884 hours. 10

8

This estimate is based on the number of UITs that filed Form N-SAR with the
Commission as of December 31, 2015.

9

The estimate is based on the following calculation: (7 hours + (2.5 hours x 2)) / 3 = 4.

10

The estimate is based on the following calculation: 4 hours x 721 UITs = 2,884.

5

We estimate that a UIT will spend on average approximately 125 hours 11 annually per
fund of an in-house attorney’s and accountant’s time associated with preparing, reviewing, and
filing semi-annual reports in accordance with rule 30e-2, at a total annual paperwork related cost
of $34,125 per fund. 12 In the aggregate, the staff estimates that compliance with rule 30e-2
would result in a total annual aggregate burden of approximately 90,125 hours 13 and total annual
time costs of approximately $24,604,125. 14
13.

Cost to Respondents

We estimate that the annual external cost burden of compliance with the information
collection requirements of rule 30e-2, which are currently $20,000 per respondent, will not

11

Based on staff experience and conversations with fund representatives, the Commission
previously estimated that it would take approximately 121 hours to comply with the collection of
information associated with rule 30e-2 per portfolio. This time is spent, for example, preparing,
reviewing, and certifying the reports. The current burden calculation adds the four additional
burden hours from the current proposed rulemaking to rule 30e-2’s previous burden of 121
hours.
12

This estimate is based on annual ongoing burden hour estimate of 125 hours burden for
portfolio. This was then multiplied by a blended hourly wage of $273per hour, $160 per hour for
Intermediate Accountant and $386 per hour for an Attorneys ($273 x 125 = $34,125). The
estimated wage figures are based on published rates for in-house attorneys, modified to account
for an 1800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead, yielding effective hourly rates of $273. See Securities
Industry and Financial Markets Association, Report on Management & Professional Earnings in
the Securities Industry 2013.
13

This estimate is based on the following calculation: 125 hours per UIT x 721 UITs =
90,125 hours.
14

This estimate is based on annual ongoing burden hour estimate of 90,125 hours burden
for management companies. This was then multiplied by a blended hourly wage of $273 per
hour, $160 per hour for Intermediate Accountant and $386 per hour for an Attorneys ($273 x
90,125 = $24,604,125). The estimated wage figures are based on published rates for in-house
attorneys, modified to account for an 1800-hour work-year and inflation, and multiplied by 5.35
to account for bonuses, firm size, employee benefits, and overhead, yielding effective hourly
rates of $273. See Securities Industry and Financial Markets Association, Report on
Management & Professional Earnings in the Securities Industry 2013.

6

change as a result of the amendments to Regulation S-X. 15 We further estimate that the total
annual external cost burden for rule 30e-2 will be $14,420,000. 16 External costs include, for
example, the costs for the UIT to prepare, print, and mail the reports.
14.

Cost to the Federal Government
There are no costs to the federal government associated with rule 30e-2. The annual cost

of reviewing and processing registration statements, post-effective amendments, proxy
statements, shareholder reports, and other filings of investment companies amounted to
approximately $19.5 million in fiscal year 2015, based on the Commission’s computation of the
value of staff time devoted to this activity and related overhead. We note, however, that
shareholder reports are filed with the Commission to comply with the requirements of Form NCSR, and not rule 30e-2, which requires the transmission of the reports to shareholders.
15.

Change in Burden

The estimates represent an increase from 84,700 hours to 90,125 hours in internal burden
and an increase from $14,000,000 to $14,420,000. in external costs per year. The increase in
internal burden hours is due to both the increase in the number of portfolios estimated to respond
to rule 30e-2, the increased burden our amendments to Regulation S-X, and the inapplicability of
one-time hour burdens that were associated with amendments to Forms N-1A, N-2 and N-3. The
increase in external costs per year is due to the increased number of portfolios estimated to
respond to rule 30e-2.

15

Because the amendments will largely reorganize information currently reported by funds
in their financial statements, either voluntarily or because it is required, we do not believe the
external costs, such as printing and mailing costs, will increase as a result of the amendments.

16

This estimate is based on the following calculations: 721 UITS x $20,000 =
$14,420,000.
7

16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

8