Form N-6 Supporting Statement 4-17-12

PAPERWORK REDUCTION ACT SUBMISSION
SUPPORTING STATEMENT
“FORM N-6”

A.

JUSTIFICATION
1.

Information Collection Necessity

Form N-6 (17 C.F.R. 239.17c and 274.11d) is the form used by insurance
company separate accounts organized as unit investment trusts that offer variable life
insurance policies to register as investment companies under the Investment Company
Act of 1940 (15 U.S.C. 80a-1 et seq.) (“Investment Company Act”) and/or to register
their securities under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (“Securities
Act”). Section 5 of the Securities Act (15 U.S.C. 77e) requires the filing of a registration
statement prior to the offer of securities to the public and that the statement be effective
before any securities are sold, and Section 8 of the Investment Company Act (15 U.S.C.
80a-8) requires a separate account to register as an investment company. Form N-6 also
requires separate accounts organized as unit investment trusts that offer variable life
insurance policies to provide investors with a prospectus and a statement of additional
information (“SAI”) covering essential information about the separate account when it
makes an initial or additional offering of its securities. Section 5(b) of the Securities Act
requires that investors be provided with a prospectus containing the information required
in a registration statement prior to the sale or at the time of confirmation or delivery of
the securities.
2.

Information Collection Purpose

The purpose of Form N-6 is to meet the filing and disclosure requirements of the
Securities Act and the Investment Company Act and to enable filers to provide investors

with information necessary to evaluate an investment in the security. This information
collection differs significantly from many other federal information collections, which
are primarily for the use and benefit of the collecting agency. The information required
to be filed with the Commission permits verification of compliance with securities law
requirements and assures the public availability and dissemination of the information.
3.

Consideration Given to 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. Form N-6 is 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.

Duplication

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 requirements of Form N-6 are not generally duplicated elsewhere.
5.

Effect on Small Entities

The current disclosure requirements for the registration statements and
shareholder reports do not distinguish between small entities and other funds. The
burden on smaller funds, however, to prepare and file registration statements may be

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greater than for larger funds. This burden includes the cost of producing, printing, filing,
and disseminating the prospectuses and SAIs. The Commission believes, however, that
imposing different requirements on smaller investment companies would not be
consistent with investor protection and the purposes of the registration statements.
In any event, no small entities currently file registration statements on Form N-6.
6.

Consequences of Less Frequent Collection

The Investment Company Act requires that insurance company separate accounts
make initial filings and file annual amendments to their registration statements on Form
N-6. Less frequent collection of the information collected on Form N-6 would mean that
current information might not be available for investors in these life insurance policies.
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

Form N-6 has previously been amended through rulemaking actions pursuant to
the Administrative Procedures Act. Comments are generally received from registrants,
trade associations, the legal and accounting professions, and other interested parties. In
addition, the Commission and 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. The Commission requested
public comment on the collection of information requirements in Form N-6 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.

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9.

Payment or Gift to Respondents

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality is provided.
11.

Sensitive Questions

No questions of a sensitive nature are involved.
12.

Information Collection Annual Burden

The estimate of the annual number of registration statements field on Form N-6 is
based on the annual number of filings received by the Commission over the 12-month
period ending December 31, 2011. The estimate of average burden hours is made solely
for purposes of the Paperwork Reduction Act and is not derived from a quantitative,
comprehensive, or even representative survey or study of the burdens associated with
Commission rules and forms.
Form N-6 generally imposes two types of reporting burdens on investment
companies: (1) the burden of preparing and filing the initial registration statement; and
(2) the burden of preparing and filing post-effective amendments to a previously effective
registration statement. The Commission estimates that the burden hours imposed by
Form N-6 are as follows:

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Calculation of Hour Burden of Initial Form N-6 Filings






Number of initial Form N-6 filings annually
Average number of portfolios per filing
Number of portfolios referenced in initial Form N-6
filings annually
Current hour burden per portfolio for initial Form
N-6 filing
Total annual hour burden for initial Form N-6 filings
(7 portfolios x 770.25 hrs.)

7
1
7
770.25
5,391.75

Calculation of Hour Burden of Post-Effective Amendments






Number of post-effective amendments filed annually
Average number of portfolios per filing
Number of portfolios in post-effective amendments
to Form N-6 annually
Current hour burden per portfolio for preparing posteffective amendments
Total annual hour burden to prepare post-effective
amendments (429 portfolios x 67.5 hours)

429
1
429
67.5
28,957.5

Total Annual Hour Burden


Annual hours for post effective amendments +
annual hours for initial Form N-6 filings
(28,957.5 hours + 5,391.75 hours)

34,349.25

Based on the estimated wage rate, the total cost to the fund industry of the hour burden
for complying with Form N-6 is approximately $10,957,411.1

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This cost increase is estimated using an estimated hourly wage rate of $319.00 (34,349.25
total burden hours x $319.00 hourly wage rate = $10,957,411 total incremental internal
cost). The estimated wage figure is based on published rates for compliance attorneys
and senior programmers, modified to account for an 1800-hour work-year and multiplied
by 5.35 to account for bonuses, firm size, employee benefits, and overhead, yielding
effective hourly rates of $319 and $318, respectively. See Securities Industry
Association, Report on Management & Professional Earnings in the Securities Industry
2011 (Oct. 2011). The estimated wage rate was further based on the estimate that
compliance attorneys and senior programmers would divide time equally, resulting in a
weighted wage rate of $319.00 (($320 x .50) + ($318 x .50)).

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13.

Cost Burden to Respondents

Cost burden is the cost of services purchased to prepare and update filings on
Form N-6, such as for the services of independent auditors and outside counsel.
The Commission estimates that the cost burden for preparing an initial Form N-6
filing is $23,440 per portfolio and the current cost burden for preparing a post-effective
amendment to a previously effective registration statement is $8,523 per portfolio.2 The
Commission estimates that, on an annual basis, 7 portfolios will be referenced in an
initial Form N-6 and 429 portfolios will be referenced in a post-effective amendment of
Form N-6. Thus, the total cost burden allocated to Form N-6 would be $3,820,447, as
follows:
Cost Burden of Preparing and Filing Initial Form N-6




Cost burden per portfolio for preparing and filing
initial Form N-6
Number of portfolios filing initial Form N-6
annually
Cost burden of preparing and filing initial
Form N-6 (7 portfolios x $23,440)

$23,440
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$164,080

Cost Burden of Preparing and Filing Post-Effective Amendments




Cost burden per portfolio of preparing and filing
post-effective amendments
Number of post-effective annual updates
Cost burden of preparing and filing post-effective
amendments (429 portfolios x $8,523)

2

$8,523
429
$3,656,367

The previous cost burden for preparing an initial Form N-6 filing was $22,000 per portfolio and
the previous cost burden for preparing a post-effective amendment to a previously effective
registration statement was $8,000 per portfolio. To account for the effects of inflation since 2008,
an inflation rate was applied which was calculated using the Consumer Price Index. (See CPI
Inflation Calculator of the Bureau of Labor Statistics found at:
http://www.bls.gov/data/inflation_calculator.htm.)

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Total Cost Burden for Form N-6


14.

Initial Form N-6 + post-effective amendments
($3,656,367+ $164,080)

$3,820,447

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

Currently, the approved annual hour burden for preparing and filing registration
statements on Form N-6 is 121,639 hours based on the previous estimate of 813
responses. The new estimate of the total annual hour burden is 34,349 hours based on the
new estimated total number of responses of 436. The decrease to the total annual hour
burden is 87,290 hours. Currently, the approved annual cost burden for Form N-6 is
$7,834,000. The new estimate of the annual cost burden for the form is $3,820,447,
reflecting a decrease in annual cost burden of $4,013,553. The decreases in requested
total annual hour and total annual cost burdens reflect the decrease in the estimated
number of responses.
16.

Information Collection Planned for Statistical Purposes

The information collection is not used for statistical purposes.

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17.

OMB Expiration Date Display Approval

We request authorization to omit the expiration date on the electronic version of
this form for design and IT project scheduling reasons. The OMB control number will be
displayed.
18.

Exceptions to Certification Statement

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

The collection of information will not employ statistical methods.

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