Form N-3 Supporting Statement2015

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-3
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-3 (17 CFR 239.17a and 274.11b) is the form used by separate accounts offering
variable annuity contracts which are organized as management investment companies to register
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”).
Form N-3 is also the form used to file a registration statement under the Securities Act
(and any amendments thereto) for variable annuity contracts funded by separate accounts which
would be required to be registered under the Investment Company Act as management
investment companies except for the exclusion provided by Section 3(c)(11) of the Investment
Company Act (15 U.S.C. 80a-3(c)(11)). 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-3 also permits separate accounts offering variable annuity contracts which are
organized as investment companies 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-3 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-3 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. Prospectuses and SAIs may be sent to investors by electronic means so long as certain
requirements are met. 1 The Commission has no information concerning the percentage of such
documents sent electronically, but believes it is a small percentage.

1

See Use of Electronic Media for Delivery Purposes, Securities Act Release No. 7233, Exchange
Act Release No. 36345, Investment Company Act Release No. 21399 (Oct. 6, 1995) (60 FR
53458 (Oct. 13, 1995)).
2

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-3 are not generally duplicated elsewhere.
5.

Effect on Small Entities

The current disclosure requirements for Form N-3 do not distinguish between small
entities and larger entities. The burden on smaller entities may be greater than for larger entities.
This burden includes the cost of producing, printing, and filing, and disseminating 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. 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.

Consequences of Less Frequent Collection

The purpose of Form N-3 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. Less frequent filing would be
inconsistent with the filing and disclosure requirements of the Securities Act and the Investment
Company Act. In addition, if the form were to be filed less frequently, investors may not be
provided with the information necessary to evaluate an investment in the security.
7.

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

Not Applicable.
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8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry and 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 confronting the
industry. The Commission requested public comment on the collection of information
requirements in Form N-3 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

Not Applicable.
10.

Confidentiality

Not Applicable.
11.

Sensitive Questions

Form N-3 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.

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12.

Estimate of Hour Burden

The estimate of the annual number of registration statements filed on Form N-3 is based
on the average annual number of filings received by the Commission in the 12-month period
ending December 31, 2014. The hour burden estimates for preparing and filing Form N-3 are
based on the Commission’s experience with the contents of the form. The number of burden
hours may vary depending on, among other things, the complexity of the filing and whether
preparation of the form is performed by internal staff or outside counsel. The estimated average
burden hours are made solely for purposes of the Paperwork Reduction Act and are not derived
from a quantitative, comprehensive, or even representative survey or study of the burdens
associated with Commission rules and forms.
Form N-3 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.
Separate accounts organized as management investment companies and offering variable
annuities register as investment companies under the Investment Company Act and register their
securities under the Securities Act on Form N-3. Based on a review of Form N-3 filings made
with the Commission, Commission staff estimates that the annual burden hours imposed by
Form N-3 are as follows: 2

2

Commission staff reviewed initial filings and post-effective amendments for Form N-3 filed with the
Commission from January 1, 2014 to December 31, 2014. There were no initial filings of Form N-3 during
that time period.
5

Calculation of Hour Burden of Initial Form N-3 Filings
•
•
•
•
•

Number of initial Form N-3 filings annually
Average number of portfolios per filing
Number of portfolios referenced in initial Form N-3
filings annually
Current hour burden per portfolio for initial Form N-3
filing
Total annual hour burden for initial Form N-3 filings

0
0
0
0
0

Calculation of Hour Burden of Post-Effective Amendments
•

Number of post-effective amendments filed annually
10

•
•
•
•

Average number of portfolios per filing
Number of portfolios in post-effective amendments
to Form N-3 filings annually
Current hour burden per portfolio for preparing posteffective amendments
Total annual hour burden to prepare post-effective
amendments (20 x 155.2)

2
20
155.2

3104

Total Annual Hour Burden
•

Annual hours for post effective amendments +
annual hours for initial Form N-3 filings
(0 + 3104)

3104

Based on an estimated hourly wage rate of $318.50, Commission staff estimates the
annual internal time cost equivalent of the hour burden of Form N-3 is approximately $988,624. 3
3

The internal time cost equivalent is calculated by multiplying the total annual hour burden (3104
hours) by the estimated hourly wage rate of $318.50. The estimated wage figure is based on
published rates for Compliance Attorneys ($334) and Senior Programmers ($303). The
$334/hour figure for a Compliance Attorney and $303/hour figure for a Senior Programmer are
from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified
by Commission staff to account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead. 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)).
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13.

Estimate of Total Annual Cost Burden

Cost burden is the cost of goods and services purchased to prepare and update Form N-3,
such as for the services of independent auditors and outside counsel. The cost burden does not
include the hour burden discussed in Item 12. Estimates are based on Commission staff’s
discussions with fund representatives and the Commission’s experience with the filing of
registration forms.
As discussed above, Commission staff estimates that, on an annual basis, 0 portfolios will
be referenced in initial filings on Form N-3 and 20 portfolios will be referenced in post-effective
amendments of Form N-3 filings. Commission staff further estimates the cost burden for
preparing a post-effective amendment to a previously effective registration statement is $10,259 4
per portfolio. Thus, the total cost burden allocated to Form N-3 would be as follows:
Cost Burden of Preparing and Filing Initial Form N-3
•
•
•

4

Cost burden per portfolio for initial Form N-3 filings
Number of portfolios referenced in initial Form N-3
filings annually
Cost burden of initial Form N-3 filings

$0
0
$0

The previous cost burden for preparing a post-effective amendment to a previously effective
registration statement on Form N-3 was $9,950 per portfolio. To account for the effects of
inflation since 2012, a rate of 3.11% was applied, which was calculated using the Consumer Price
Index.
7

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

Cost burden per portfolio of post-effective
amendments Form N-3 filings
Number of portfolios referenced in post-effective
amendments to Form N-3 filings annually
Cost burden of post-effective amendments to Form
N-3 filings (20 x $10,259)

$10,259
20
$205,180

Total Cost Burden for Form N-3
•

14.

Initial Form N-3 filings + post-effective amendments
($0 + $205,180)

$205,180

Estimate of Cost to the Federal Government

The annual cost of reviewing and processing registration statements, post-effective
amendments, proxy statements, shareholder reports, and other filings 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. A portion of
those costs relate to processing and reviewing Form N-3 filings submitted to the Commission.
15.

Explanation of Changes in Burden

Annual Hour Burden. Currently, the approved annual hour burden for preparing and
filing registration statements on Form N-3 is 2172.8 hours based on the previous estimate of 14
responses per year. The new estimate of the total annual hour burden is 3104 hours based on the
new estimate of 20 responses per year. The increase in the total annual hour burden is 931.2
hours. This increase is due to the increase in our estimates of the annual number of responses for
both initial and post-effective amendments.
Total Cost Burden. The current approved total cost burden for preparing and filing
registration statements on Form N-3 is $139,300, based on the previous estimate of 14 responses
8

per year. Based on the new estimate of 20 responses per year, the new estimate of the total cost
burden is $205,180 in external costs per year, resulting in an increase of $65,880 per year. This
increase is due to the increase in our estimates of the annual number of responses for both initial
and post-effective amendments.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.
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

Not Applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not Applicable.

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