SUPPORTING STATEMENT
for
the Paperwork Reduction Act Information Collection Submission for
“Rule 19a-1”
JUSTIFICATION
Necessity for the Information Collection
Section 19(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-19(a)) (the “Act”) makes it unlawful for any registered investment company to pay any dividend or similar distribution from any source other than the company’s net income, unless the payment is accompanied by a written statement to the company’s shareholders which adequately discloses the sources of the payment. Section 19(a) authorizes the Commission to prescribe the form of such statement by rule.
Rule 19a-1 (17 CFR 270.19a-1) under the Act, entitled “Written Statement to Accompany Dividend Payments by Management Companies,” sets forth specific requirements for the information that must be included in statements made pursuant to section 19(a) by or on behalf of management companies.1 The rule requires that the statement indicate what portions of distribution payments are made from net income, net profits from the sale of a security or other property (“capital gains”) and paid-in capital. When any part of the payment is made from capital gains, rule 19a-1 also requires that the statement disclose certain other information relating to the appreciation or depreciation of portfolio securities. If an estimated portion is subsequently determined to be significantly inaccurate, a correction must be made on a statement made pursuant to section 19(a) or in the first report to shareholders following the discovery of the inaccuracy.
2. Purpose of the Information Collection
The purpose of rule 19a-1 is to afford fund shareholders adequate disclosure of the sources from which distribution payments are made. The rule is intended to prevent shareholders from confusing income dividends with distributions made from capital sources. Absent rule 19a‑1, shareholders might receive a false impression of fund gains.
3. Role of Improved Information Technology
The Commission’s Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) provides for the automated filing, processing, and dissemination of full disclosure filings. The automation provides for speed, accuracy and public availability of information, generating benefits to investors and financial markets. Rule 19a-1 does not require the filing of any documents with the Commission.
4. Efforts to Identify Duplication
The Commission periodically evaluates rule-based reporting and recordkeeping requirements for duplication, and reevaluates those requirements whenever it proposes a rule or form or a change in either. The requirements of rule 19a-1 are not duplicated elsewhere in the federal securities laws, although certain state securities laws and the Internal Revenue Code may contain information collection requirements similar to those found in rule 19a-1.
5. Effect on Small Entities
The information collection requirements of rule 19a-1 are the same for all investment companies subject to the rule, including small entities. The written statement requirement of rule 19a-1 is necessary to provide fund shareholders with disclosure of the sources from which funds make distribution payments. The Commission believes that compliance with rule 19a-1 is not unduly burdensome for large or small entities, and that the shareholders of small entities, along with the shareholders of large entities, are entitled to the protections that give rise to the paperwork burdens.
6. Consequences of Less Frequent Collection
It would not be practicable for rule 19a-1 to require less frequent disclosure to fund shareholders. If all distributions from net capital gains and paid-in capital were not accompanied simultaneously by statements disclosing the sources of the distribution, investors might confuse these payments with distributions from net income. Furthermore, section 19(a) of the Act makes it unlawful for any registered investment company to pay any distribution from any source other than net income unless such payment is accompanied by a written statement disclosing the sources of the payment.
7. Inconsistencies with the 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 of rule 19a-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 this request. In addition, the Commission and staff of the Division of Investment Management participate in an ongoing dialogue with representatives of the fund industry through public conferences, meetings, and informal exchanges. These forums provide the Commission and the staff useful means to identify and address paperwork burdens that may affect the industry.
9. Payment or Gift to Respondents
Not applicable.
10 Assurance of Confidentiality
Not applicable.
11. Sensitive Questions
Not applicable.
12. Estimates of Hour Burden
The staff estimates that there are approximately 9200 series of registered investment companies that are management companies that may be subject to rule 19a-1 each year,2 and that each portfolio on average mails two statements per year to meet the requirements of the rule.3 The staff further estimates that the time needed to make the determinations required by the rule and to prepare the statement required under the rule is approximately 1 hour per statement. The total annual burden for all portfolios therefore is estimated to be approximately 18,400 burden hours.
The staff estimates that approximately one-third of the total annual burden (6,133 hours) would be incurred by a paralegal with an average hourly wage rate of approximately $168 per hour,4 and approximately two-thirds of the annual burden (12,267 hours) would be incurred by a compliance clerk with an average hourly wage rate of $67 per hour.5 The staff therefore estimates that the aggregate annual cost of complying with the paperwork requirements of the rule is approximately $1,852,233 ((6,133 hours x $168) + (12,267 hours x $67)).
To comply with state law, many investment companies already must distinguish the different sources from which a shareholder distribution is paid and disclose that information to shareholders. Thus, many investment companies would be required to distinguish the sources of shareholder dividends whether or not the Commission required them to do so under rule 19a-1.
The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act. The estimate is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules.
13. Estimate of Total Annual Cost Burden
It is estimated that there is no cost burden of rule 19a-1 other than the cost of the respondent hour burden identified in Item 12 of this Supporting Statement.
Estimate of Cost to the Federal Government
There are no costs to the Federal Government associated with rule 19a-1.
Explanation of Changes in Burden
The estimated annual burden of 18,400 hours represents an increase of 9200 hours over the prior estimate of 9200 hours. The increase in estimated burden hours results from an increase in the estimated number of series of registered investment companies that may be subject to rule 19a-1.
16. Information Collection Planned for Statistical Purposes
Not applicable.
17. Approval to not Display Expiration Date
Not applicable.
18. Exceptions to Certification Statement
Not applicable.
Not applicable.
1 Section 4(3) of the Act (15 U.S. C. 80a-4(3)) defines “management company” as “any investment company other than a face-amount certificate company or a unit investment trust.”
2 This estimate is based on statistics compiled by Commission staff as of May 31, 2011. The number of management investment company portfolios that make distributions for which compliance with rule 19a-1 is required depends on a wide range of factors and can vary greatly across years. Therefore, the calculation of estimated burden hours below is based on the total number of management investment company portfolios, each of which may be subject to rule 19a-1.
3 A few portfolios make monthly distributions from sources other than net income, so the rule requires them to send out a statement 12 times a year. Other portfolios never make such distributions.
4 Hourly rates are derived from the Securities Industry and Financial Markets Association (“SIFMA”), Management and Professional Earnings in the Securities Industry 2010, modified to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead.
5 Hourly rates are derived from SIFMA’s Office Salaries in the Securities Industry 2010, modified to account for an 1800-hour work-year and multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead.
| File Type | application/vnd.openxmlformats-officedocument.wordprocessingml.document |
| File Title | SUPPORTING STATEMENT |
| Author | U.S. |
| File Modified | 0000-00-00 |
| File Created | 2021-01-31 |