Rule 22d-1 Supporting Statement (2017)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
For Rule 22d-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 22(d) of the Investment Company Act of 1940 (the "Act") (15 U.S.C. 80a-22(d))
generally prohibits the sale of redeemable securities of a registered investment company ("fund")
except at a current public offering price described in the prospectus. Rule 22d-1 provides an
exemption from section 22(d) to the extent necessary to permit scheduled variations in or
elimination of the sales load on fund securities for particular classes of investors or transactions,
provided certain conditions are met. These conditions require that (1) the scheduled variation be
applied uniformly to all offerees in the specified class; (2) existing shareholders and prospective
investors be furnished adequate information concerning the scheduled variation, as prescribed in
applicable registration statement form requirements; (3) the fund's prospectus and statement of
additional information are revised to describe the new scheduled variation before any new sales
load variation is made available to purchasers of fund shares; and (4) within one year of first
making the scheduled variation available, existing shareholders are advised of any new sales
load variation (items (2) through (4), collectively, "notice requirements"). The notice
requirements of rule 22d-1 are designed to ensure that all existing and prospective investors that
may be eligible for a reduction or elimination of the sales load receive timely notice about it.
2.

Purpose and Use of the Information Collection

Without the notice requirements, fund investors might be unaware about changes in the
fund's sales load arrangements that are important to making informed investment decisions.

3.

Consideration given to Information Technology

The Commission's electronic filing project (Electronic Data Gathering, Analysis and
Retrieval System, or "EDGAR") is designed to automate the filing, processing and dissemination
of full disclosure filings. EDGAR permits investment companies to transmit their filings to the
Commission electronically. Such automation has increased the speed, accuracy and availability
of information, generating benefits to investors and financial markets. Fund registration
statements, and any updates to the registration statement, in which funds that offer scheduled
variations in sales loads provide the information required by the notice requirements of rule 22d1, are filed electronically.
4.

Duplication

The notice requirements are consistent with the disclosure requirements of fund
registration statements and post-effective amendments, but do not require duplicative
information. The information required by the notice requirements is not otherwise available.
5.

Effect on Small Entities

The Commission does not believe that compliance with rule 22d-1 is unduly burdensome
for large or small entities. Rule 22d-1 may be relied upon by any fund, including a fund that is a
small entity, that wishes to offer a scheduled variation in or eliminate the sales load on its shares
for a particular class of investors or transactions. The notice requirements of the rule are
designed to provide all investors with information necessary to make informed investment
decisions.

-2-

6.

Consequences of Not Conducting Collection

The notice requirements apply only when a new scheduled variation in a sales load is
offered and therefore cannot be applied less frequently.
7.

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

Not applicable.
8.

Consultation 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 confronting the
industry.
The Commission requested public comment on the collection of information
requirements in rule 22d-1 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

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No personally identifiable information (PII) is collected.

-3-

12.

Burden of Information Collection

Approximately 9,017 series of funds currently issue redeemable securities that carry a
sales load. 1 We estimate that each year, as many as 50% of these series may choose to offer a
scheduled variation in or elimination of the sales load in reliance on the rule. 2 Thus, it is
estimated that approximately 4,509 series may become subject to the rule annually. Under the
notice requirements, each of these funds would have to add approximately one line of text in its
prospectus. Based on communications with industry representatives, complying with the notice
requirements would require an estimated 0.25 burden hours. The total annual estimated burden,
therefore, would be 1127.25 hours.
Compliance with the notice requirements may involve the services of attorneys or other
professionals. At $340 per hour, the total annual estimated cost of the hourly burden for all
funds relying on the rule would be $383,265. 3
The estimate of average burden hours is made solely for purposes of the Paperwork
Reduction Act. The estimate is based on communications with industry representatives, and is
not derived from a comprehensive or even a representative survey or study of the costs of the
rule.

1

Approximately 3,882 series of approximately 692 registered open-end investment companies reported that
they sold securities subject to a front-end sales load during their most recent reporting period. In addition,
there are an estimated 50 non-insurance Unit Investment Trusts with approximately 5,135 series that
currently offer securities with a front-end sales load. Accordingly, a total of approximately 9,017 series
currently issue redeemable securities subject to a front-end sales load.

2

The estimated 50 percent excludes those funds currently offering variations in the sales load because their
estimated hourly burden is accounted for in their registration statements.

3

The hourly wage for a compliance attorney is from SIFMA’s Management & Professional Earnings in the
Securities Industry 2013, modified by Commission staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, and adjusted for
inflation, yielding an effective hourly rate of $340.

-4-

13.

Cost to Respondents

It is estimated that there is no cost burden of rule 22d-1, excluding any cost of the burden
identified in Item 12 of this Supporting Statement.
14.

Cost to the Federal Government

The estimated annual cost to the federal government of reviewing the disclosure provided
pursuant to the notice requirements is included in the estimated costs of reviewing updates to
fund registration statements on Forms N-1A and S-6, and is an insignificant portion of those
costs.
15.

Change in Burden

The increase in burden hours for rule 22d-1 is attributable to an increase in the hourly
wage for a compliance attorney from $310 to $340 per hour, despite a decrease in the estimated
number of respondents from 4,714 to 4,509. The decrease in the estimated number of
respondents is the result of an adjustment in the estimated number of funds that currently issue
redeemable securities that carry a sales load.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of the
form. Including the expiration date on the electronic version of the form will result in increased
costs, because the need to make changes to the form may not follow the application’s scheduled
version release dates. The OMB control number will be displayed.

-5-

18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submissions
Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

-6-