Rule 20a-1 Supporting Statement (5-3-13)

SUPPORTING STATEMENT
Rule 20a-1

A.

JUSTIFICATION
1.

Necessity for the Information Collection

Rule 20a-1 (17 CFR 270.20a-1) was adopted under Section 20(a) of the
Investment Company Act of 1940 (“1940 Act”) (15 U.S.C. 80a-20(a)) and concerns the
solicitation of proxies, consents, and authorizations with respect to securities issued by
registered investment companies (“Funds”).
Rule 20a-1 under the 1940 Act (15 U.S.C. 80a-1 et seq.) requires that the
solicitation of a proxy, consent, or authorization with respect to a security issued by a
Fund be in compliance with Regulation 14A (17 CFR 240.14a-1 et seq.), Schedule 14A
(17 CFR 240.14a-101), and all other rules and regulations adopted pursuant to section
14(a) of the Securities Exchange Act of 1934 (“1934 Act”) (15 U.S.C. 78n(a)). It also
requires, in certain circumstances, a Fund’s investment adviser or a prospective adviser,
and certain affiliates of the adviser or prospective adviser, to transmit to the person
making the solicitation the information necessary to enable that person to comply with
the rules and regulations applicable to the solicitation. In addition, rule 20a-1 instructs
Funds that have made a public offering of securities and that hold security holder votes
for which proxies, consents, or authorizations are not being solicited, to refer to section
14(c) of the 1934 Act (15 U.S.C. 78n(c)) and the information statement requirements set
forth in the rules thereunder.
The types of proposals voted upon by Fund shareholders include not only the
typical matters considered in proxy solicitations made by operating companies, such as

the election of directors, but also include issues that are unique to Funds, such as the
approval of an investment advisory contract and the approval of changes in fundamental
investment policies of the Fund. Through rule 20a-1, any person making a solicitation
with respect to a security issued by a Fund must, similar to operating company
solicitations, comply with the rules and regulations adopted pursuant to Section 14(a) of
the 1934 Act. Some of those Section 14(a) rules and regulations, however, include
provisions specifically related to Funds, including certain particularized disclosure
requirements set forth in Item 22 of Schedule 14A under the 1934 Act.
2.

Purpose of the Information Collection

Rule 20a-1 is intended to ensure that investors in Fund securities are provided
with appropriate information upon which to base informed decisions regarding the
actions for which Funds solicit proxies. Without rule 20a-1, Fund issuers would not be
required to comply with the rules and regulations adopted under Section 14(a) of the
1934 Act, which are applicable to non-Fund issuers, including the provisions relating to
the form of proxy and disclosure in proxy statements.
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 their filings to the Commission electronically. This automation has increased
the speed, accuracy, and availability of information, generating benefits to investors and
financial markets. All Funds are required to use EDGAR for filing most documents with
the Commission. Proxy statements that comply with rule 20a-1 are required to be

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submitted to the Commission on EDGAR to the extent filing with the Commission is
required by rule 14a-6 under the 1934 Act (17 CFR 240.14a-6). 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. In addition,
rule 14a-3 under the 1934 Act (17 CFR 240.14a-3) requires Funds to make certain proxy
statements available electronically to shareholders on publicly accessible websites.
4.

Efforts to Identify Duplication

Rule 20a-1 does not call for duplicative, overlapping, or conflicting disclosure.
The Commission staff reviews the collection of information requirements on an ongoing
basis to find and eliminate duplicative requirements.
5.

Effect on Small Entities

The Commission staff reviews all rules periodically, as required by the
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612), to identify methods to minimize
recordkeeping or filing requirements affecting small businesses. Rule 20a-1 does not
distinguish between small entities and other entities. The burden for smaller Funds
related to proxy solicitation may be greater than for larger Funds due to economies of
scale.
6.

Consequences of Less Frequent Collection

The information required by rule 20a-1 under the 1940 Act and Schedule 14A
under the 1934 Act is given to shareholders and filed with the Commission only when
proxies are solicited for a shareholder meeting, usually less than once each year. Because
the Commission does not have authority over the frequency of shareholder meetings, it
cannot require less frequent collection unless it does not require the collection with

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respect to every proxy solicitation. Not requiring disclosure of the information required
by rule 20a-1 and Schedule 14A in proxy statements would harm investors by denying
them information that may be useful in making decisions, such as with regard to the
election of directors.
7.

Inconsistencies With Guidelines in 5 CFR 1320.5(d)(2)

Not applicable.
8.

Consultation Outside the Agency

On occasion, the rules under the 1934 and 1940 Acts have been amended to
improve disclosure requirements. Comments on the proxy rules are generally received
from registrants, the legal and accounting professions, and other interested parties. In
addition, the Commission and the 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 various forums provide the
Commission with sufficient information for acting upon paperwork burdens confronting
the industry.
The Commission requested public comment on the collection of information
requirements in rule 20a-1 before it submitted this request for extension to the Office of
Management and Budget. The Commission received no comments in response to its
request.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable.

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11.

Sensitive Questions

Not applicable.
12.

Estimate of Hour Burden

Proxy statements filed by Funds must comply with rule 20a-1 under the 1940 Act.
The staff currently estimates that approximately 1,108 proxy statements are filed by
Funds annually.
Based on staff estimates and information from the industry, the staff estimates
that the average annual burden associated with the preparation and submission of proxy
statements is 85 hours per response, for a total annual burden of 94,180 hours (1,108
responses x 85 hours per response = 94,180). The burden of compliance will vary
depending upon the nature of the proposals included in the proxy materials filed with the
Commission. Proxy solicitations that relate to complex matters such as reorganizations
or involve an increase in the advisory fee rate are typically more involved than those
proxies that pertain to more routine matters such as the election of directors. Whether
amended filings will be necessary to respond to staff comments and whether outside legal
counsel is used in preparing proxy materials will also affect the hour burden of rule
20a-1.
Based on the estimated wage rate, the total cost to the fund industry of the hour
burden is approximately $23,686,270.1 These estimates are made solely for the purposes

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The industry burden is calculated by multiplying the total annual hour burden to prepare a
proxy statement (94,180 hours) by the estimated hourly wage rate $251.50. The
estimated wage rate figure is based on hourly wage rates for compliance attorneys ($310)
and senior accountants ($193), and the estimate that attorneys and accountants will divide
time equally on compliance with the proxy voting disclosure requirements, yielding a
weighted wage rate of $251.50 (($310 x .50) + ($193 x .50) = $251.50).

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of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and are not derived from
a quantitative, comprehensive, or even representative survey or study of the burdens
associated with Commission rules and forms.
13.

Estimate of Total Annual Cost Burden

Preparing, filing, and distributing proxy materials will not require any investment
in capital equipment. Proxy solicitation activities will typically involve costs for
purchased services such as outside legal counsel, proxy statement mailing, and proxy
tabulation services not included in Item 12 of this Supporting Statement. The staff
estimates these to be approximately $30,000 per proxy solicitation. This estimate is
based on a range of costs depending upon the nature and complexity of the matters
disclosed in the proxy materials and the number of Fund shareholders receiving proxy
materials. Estimates range from $7,500 to in excess of $117,000. Based on the staff’s
estimate, the total annual cost to the Fund industry (not including Item 12 costs) for
preparing, filing and distributing proxy materials is approximately $33,240,000 (1,108
response x $30,000 per response = $33,240,000).
14.

Estimate of Cost to the Federal Government

Not applicable.
15.

Explanation of Changes in Burden

The decrease in the total annual hour burden is due to the decrease in the number
of proxy solicitations filed annually as well as the decreased estimate of the average

Hourly wage estimates are based upon SIFMA’s report on Management & Professional
Earnings in the Securities Industry 2012, modified to account for an 1800-hour work-year
and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and
overhead.

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annual burden associated with the preparation and submission of proxy statements. The
number of proxy solicitations filed annually decreased from 1,225 to 1,108 and the staff’s
estimate of the average annual hour burden decreased from 106.2 to 85. The increase in
the total annual cost burden is due to the increased estimate of the costs associated with
proxy solicitations, from $15,000 per solicitation to $30,000.
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.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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