MFID Supporting Statement 2014

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Mutual Fund Interactive Data
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Open-end management investment companies (“funds”) are required to submit to the
Commission information included in their registration statements, or information included in or
amended by post-effective amendments thereto, in response to Items 2, 3, and 4 (“risk/return
summary information”) of Form N-1A (OMB Control No. 3235-0307) 1 in interactive data
format and to post it on their websites, if any, in interactive data form. The specified risk/return
summary information is also required to be submitted to the Commission in traditional format.
In addition, funds are required to submit an interactive data file to the Commission for any form
of prospectus filed pursuant to rule 497(c) or (e) 2 under the Securities Act of 1933 (“Securities
Act”) 3 that includes risk/return summary information that varies from the registration statement
and to post the interactive data file on their websites, if any.
The title for the collection of information for submitting risk/return summary information
in interactive data format is “Mutual Fund Interactive Data” (OMB Control No. 3235-0642).
This collection of information relates to regulations and forms adopted under the Securities Act,

1

17 CFR 239.15A and 274.11A.

2

17 CFR 230.497.

3

15 U.S.C. 77a et seq.

the Securities Exchange Act of 1934, 4 and the Investment Company Act of 1940 (“Investment
Company Act”) 5 that set forth disclosure requirements for funds and other issuers.
Form N-1A is used by funds to register under the Investment Company Act and to offer
their securities under the Securities Act. The information required by this collection of
information corresponds to the risk/return summary information required by Form N-1A and is
required to appear in exhibits to registration statements on Form N-1A and rule 497 submissions,
and on fund websites. Although the Mutual Fund Interactive Data filing requirements are
included in Form N-1A, the Commission has separately reflected the burden for these
requirements in the burden estimate for Mutual Fund Interactive Data and not in the burden for
Form N-1A.
2.

Purposes and Use of the Information Collection

The purpose of the Mutual Fund Interactive Data requirements is to make risk/return
summary information easier for investors to analyze and to assist in automating regulatory filings
and business information processing.
3.

Consideration Given to Information Technology

The Commission’s electronic filing system (“EDGAR”) automates 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.
Risk/return summary information in interactive data format is submitted to the Commission
electronically on EDGAR. The public may access submissions on EDGAR through the
Commission’s website (http://www.sec.gov) or at EDGAR terminals located at the
4

15 U.S.C. 78a et seq.

5

15 U.S.C. 80a-1 et seq.

2

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 Mutual Fund Interactive Data requirements generally are not duplicated elsewhere.
5.

Effect on Small Entities

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 Approximately 89 funds registered on Form N-1A are considered small entities. 7
The Mutual Fund Interactive Data requirements do not distinguish between small entities and
other registrants. The burden on small entities, however, to prepare and then submit interactive
data may be greater than for larger registrants. This burden may include the cost of software
designed to prepare risk/return summary information in interactive data format and hiring a
consultant/filing agent to prepare and/or file risk/return summary information in interactive data
format. The Commission believes, however, that imposing different requirements on smaller
funds would not be consistent with investor protection and the purposes of the Mutual Fund
Interactive Data requirements.

6

5 U.S.C. 601 et seq.

7

This estimate is based on analysis by the Division of Investment Management staff of publicly
available data as of June 30, 2014.

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6.

Consequences of Not Conducting Collection

The Investment Company Act requires that funds file annual amendments to their
registration statements on Form N-1A. Rule 497 under the Securities Act requires that funds file
any form of prospectus used after the effective date of a registration statement. Less frequent
collection of Mutual Fund Interactive Data would mean that current information might not be
available in interactive data format to fund investors.
7.

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

This collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

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. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens that may confront
the industry. The Commission requested public comment on the Mutual Fund Interactive Data
collection of information requirements 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

No payment or gift to respondents was provided.
10.

Confidentiality

No assurance of confidentiality was provided.

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11.

Sensitive Questions

No questions of a sensitive nature are asked. The information collection does not collect
any Personally Identifiable Information (PII).
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act of 1995 8 and are not derived from a comprehensive or even
representative survey or study of the cost of Commission rules and forms. Compliance with the
Mutual Fund Interactive Data requirements is mandatory for all funds. Responses to the
disclosure requirements will not be kept confidential.
Funds are required to file an initial registration statement on Form N-1A and to update
that registration statement annually. The Commission estimates that each fund will submit one
interactive data document as an exhibit to a registration statement or a post-effective amendment
thereto on Form N-1A that includes or amends information provided in response to Items 2, 3 or
4 annually. In addition, based on a review by Commission staff of Mutual Fund Interactive Data
submissions in calendar year 2013, the Commission estimates that 36% of funds will provide
risk/return summary information as interactive data in additional filings submitted pursuant to
rule 485(b) 9 or rule 497 of the Securities Act annually.
The Commission has previously estimated that the total annual hour burden associated
with tagging risk/return summary information is approximately 11 hours. Based on estimates of
10,559 funds 10 each submitting one interactive data document as an exhibit to a registration

8

44 U.S.C. 3501 et seq.

9

17 CFR 230.485(b).

10

At the end of August 2014, the Investment Company Institute reported that there were 10,559
funds, including 7,867 series, 1,391 exchange-traded funds and 1,301 funds of funds.

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statement or post-effective amendment thereto and 3,801 funds 11 submitting an additional
interactive data document as an exhibit to a filing pursuant to rule 485(b) or rule 497, each
incurring 11 hours per year on average, the Commission estimates that, in the aggregate, the
tagging of risk/return summary information will result in 157,960 annual burden hours. 12 Based
on the estimated wage rate, the total cost to the fund industry of the hour burden for the tagging
of risk/return summary information is approximately $41.6 million per year. 13
In addition, the Commission previously estimated that funds will require an average of
approximately one burden hour to post interactive data to their websites. Based on estimates of
10,559 funds each posting one interactive data document as an exhibit to a registration statement
or post-effective amendment thereto and 3,801 funds posting an additional interactive data
document as an exhibit to a filing pursuant to rule 485(b) or rule 497, each incurring one burden
hour per year on average, the Commission estimates that, in the aggregate, Mutual Fund
Interactive Data website posting requirements will result in approximately 14,360 annual burden
hours. 14 Based on the estimated wage rate, the total cost to the fund industry of the hour burden

11

10,559 funds x 0.36 = 3,801 funds.

12

(10,559 funds + 3,801 funds) x 11 hours per fund = 157,960 hours.

13

This cost is estimated using an estimated hourly wage rate of $278.5 (157,960 hours x $278.50
hourly wage rate = $43,991,860). The estimated wage figure is based on published rates for
compliance attorneys and senior system analysts, modified to account for an 1800-hour workyear and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead,
yielding effective hourly rates of $334 and $260, respectively. See Securities Industry and
Financial Markets Association’s Report on Management & Professional Earnings in the
Securities Industry 2013. The estimated wage rate was further based on the Commission’s
previous estimate that compliance attorneys account for one quarter of the hours worked and
senior system analysts account for the remaining three quarters, resulting in a weighted wage rate
of $278.50 per hour (($334 x 0.25) + ($260 x 0.75)).

14

(10,559 funds + 3,801 funds) x 1 burden hour per fund = 14,360 hours.

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for website posting is approximately $3.7 million per year. 15
In the aggregate, the estimated annual total burden hours for complying with the Mutual
Fund Interactive Data requirements is approximately 172,320 hours. 16 Based on the estimated
wage rate, the total cost to the fund industry of the hour burden for complying with the Mutual
Fund Interactive Data requirements is approximately $45.3 million per year. 17
13.

Costs to Respondents

Cost burden is the cost of goods and services purchased to comply with the Mutual Fund
Interactive Data requirements, such as for software and/or the services of consultants/filing
agents. The cost burden does not include the cost of the hour burden discussed in Item 12 above.
The Commission previously estimated that the average cost burden for software and/or
consulting services used by funds is approximately $841 per fund. Adjusted for the effects of
inflation, we now estimate that the average cost burden per fund is $890 per year. 18 Based on the
estimate of 10,559 funds using software and/or consulting services at an annual cost of $890, the
Commission estimates that, in the aggregate, the total external costs to the industry will be
approximately $9.4 million. 19

15

Using a wage rate of $260 for senior system analysts, the total cost to the fund industry of the
hour burden for website posting is approximately $3.7 million per year (14,360 hours x $260 per
hour = $3,733,600).

16

157,960 hours + 14,360 hours = 172,320 hours.

17

$41.6 million + $3.7 million = $45.3 million.

18

To account for the effects of inflation since 2011, a rate of 5.8% was applied, which was
calculated using the Consumer Price Index.

19

10,559 funds x $890 per fund = $9,397,510.

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14.

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 $18.6 million in fiscal year 2013, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead.
15.

Explanation of Changes in Burden

Currently, the approved annual hour burden for complying with the Mutual Fund
Interactive Data requirements is 156,000 hours. The new estimate for complying with the
Mutual Fund Interactive Data requirements is 172,320 hours, representing an increase of 16,320
hours. The increase in hourly burden is due to an increase in the number of funds as well as the
Commission’s increased estimate of the number of funds that will provide risk/return summary
information as interactive data in additional filings submitted pursuant to rule 485(b) or rule 497
annually.
Currently, the total cost burden for software and/or consulting services is approximately
$8.2 million. The new total cost burden is approximately $9.4 million, representing an increase
of approximately $1.2 million. This increase is due to the increase in the number of funds as
well as accounting for the effects of inflation.
16.

Information Collection Planned for Statistical Purposes

The results of any information collected will not be published.
17.

Approval to Omit Expiration Date

The Commission is not seeking approval to not display the expiration date for OMB
approval.

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18.

Exceptions to Certification Statement

The Commission is not seeking an exception to the certification statement.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
The collection of information will not employ statistical methods.

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