Form N-6 Supporting Statement 2-19-15 (2)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-6

A.

JUSTIFICATION
1.

Necessity for the Information Collection

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.

Purpose of the Information Collection

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.

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 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 was provided.
11.

Sensitive Questions

Form N-6 collects Personally Identifiable Information (PII). Records include
information on officers, directors, principal shareholders, and certain other persons
having a relationship with or transaction with a registrant. The records describe the
individual’s relationship to a registrant and other relevant material business information
about the individual. The records do not include Social Security Numbers. A System of
Records Notice has been published in the Federal Register at 4 FR 4550 and can also be
found at http://www.sec.gov/about/privacy/sorn/secsorn1.pdf.

12.

Estimate of Hour 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, 2014. 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

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registration statement. The Commission estimates that the burden hours imposed by
Form N-6 are as follows:
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
(76 portfolios x 770.25 hrs.)

76
1
76
770.25
58,539

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 (396 portfolios x 67.5 hours)

396
1
396
67.5
26,730

Total Annual Hour Burden
•

Annual hours for post effective amendments +
annual hours for initial Form N-6 filings
(26,730 hours + 58,539 hours)

5

85,269

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 $27,158,176.50. 1
13.

Estimate of Total Annual Cost Burden

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 cost
burden does not include the hour burden discussed in Item 12.
The Commission estimates that the cost burden for preparing an initial Form N-6
filing is $24,169 per portfolio and the current cost burden for preparing a post-effective
amendment to a previously effective registration statement is $8,788 per portfolio. 2 The
Commission estimates that, on an annual basis, 76 portfolios will be referenced in an
initial Form N-6 and 396 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 $5,316,892, as
follows:

1

This cost increase is estimated using an estimated hourly wage rate of $318.50 (85,269
total burden hours x $318.50 hourly wage rate = $27,158,176.50 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 $334
and $303, respectively. See Securities Industry Association, Report on Management &
Professional Earnings in the Securities Industry 2013 (Oct. 2013). 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 $318.50 (($334 x .50) + ($303 x .50)).
2
The previous cost burden for preparing an initial Form N-6 filing was $23,440 per portfolio and
the previous cost burden for preparing a post-effective amendment to a previously effective
registration statement was $8,523 per portfolio. To account for the effects of inflation since 2012,
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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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 (76 portfolios x $24,169)

$24,169
76

$1,836,844

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 (396 portfolios x $8,788)

$8,788
396
$3,480,048

Total Cost Burden for Form N-6
•

14.

Initial Form N-6 + post-effective amendments
($3,480,0408+ $1,836,844)

$5,316,892

Estimate of 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 $19.2 million in fiscal year
2014, 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 preparing and filing registration
statements on Form N-6 is 34,349 hours based on the previous estimate of 439 responses.
The new estimate of the total annual hour burden is 85,269 hours based on the new
estimated total number of responses of 472. The increase to the total annual hour burden

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is 50,920 hours. Currently, the approved annual cost burden for Form N-6 is $3,820,447.
The new estimate of the annual cost burden for the form is $5,316,892, reflecting an
increase in annual cost burden of $1,496,445. The increases in requested total annual
hour and total annual cost burdens reflect the increase in the estimated number of
responses.
16.

Information Collection Planned for Statistical Purposes

The results of any information collection will not be published.
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.
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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