151009_PRA_Form N-1A Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Form N-1A
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-1A (17 CFR 239.15A and 274.11A) is the form used by open-end
management investment companies (“funds”) 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”). 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 fund to register as an investment company. Form N-1A also permits
funds to provide investors with a prospectus and a statement of additional information
(“SAI”) covering essential information about the fund 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.
On September 22, 2015, the Commission issued a release proposing amendments
to Form N-1A. 1 The Commission proposed amendments to Form N-1A that would
require funds that use “swing pricing ” in reliance on the proposed amendments to rule
22c-1 under the Investment Company Act, to disclose that they use swing pricing, and, if
applicable, an explanation of the circumstances under which swing pricing is used, and
1

Investment Company Act Release No. 31835 (Sept. 22, 2015) (the “Proposing Release”).

the effects of using swing pricing. 2 We also proposed amendments to Form N-1A that
would require funds to disclose on their balance sheet the net asset value as adjusted
pursuant to swing pricing policies and procedures.
The proposed amendments to Form N-1A also would require funds to disclose
additional information concerning the procedures for redeeming a fund’s shares. Funds
would be required to describe the number of days following receipt of shareholder
redemption requests in which the fund will pay redemption proceeds to redeeming
shareholders. Funds also would be required to describe the methods used to meet
redemption requests, and whether those methods are used regularly, or only in stressed
market conditions. Finally, funds would be required to file as exhibits to their
registration statements credit agreements for the benefit of the funds.
Overall, we believe that requiring funds to provide this additional disclosure
regarding swing pricing and redemption procedures, and requiring the filing of credit
agreements would provide Commission staff, investors, and market participants with
improved information about the procedures funds use to meet their redemption
obligations and the conditions under which swing pricing procedures will be used to
mitigate the effects of dilution as a result of shareholder purchase or redemption activity.
2.

Purpose of the Information Collection

The title for the collection of information is: Form N-1A under the Investment
Company Act of 1940 and Securities Act of 1933, Registration Statement of Open-End
Management Investment Companies.” The purpose of Form N-1A is to meet the filing
2

See proposed Item 6(d) of Form N-1A. Proposed amendments to rule 22c-1under the Investment
Company Act would permit, but not require, registered open-end management investment
companies (except money market funds and exchange-traded funds) to use swing pricing, a
process of adjusting the net asset value of a fund’s shares to pass on to purchasing or redeeming
shareholders costs associated with their trading activity.

2

and disclosure requirements of the Securities Act and the Investment Company Act and
to enable funds to provide investors with information necessary to evaluate an investment
in the fund. Unlike many other federal information collections, which are primarily for
the use and benefit of the collecting agency, this information collection is primarily for
the use and benefit of investors. The information filed with the Commission also permits
the 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 their filings to the Commission electronically. EDGAR has increased the speed,
accuracy and availability of information, generating benefits to investors and financial
markets. All funds have been required to use EDGAR for their disclosure filings since
November 6, 1995. Form N-1A 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 the fund meets certain
requirements. 3

3

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)).

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4.

Efforts to Identify Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it adopts changes in its
rules. The requirements of Form N-1A are not generally duplicated elsewhere.
5.

Effect on Small Entities

The current disclosure requirements for reports on Form N-1A do not distinguish
between small entities and other funds. The burden on smaller funds, however, to
prepare and file registration statements may be greater than for larger funds. 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 Investment Company Act requires that funds file annual amendments to their
registration statements. Less frequent collection would mean that current information
might not be available to fund investors.
7.

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

Not Applicable.
8.

Consultation Outside the Agency

Before adopting the proposed amendments to Form N-1A, the Commission will
receive and evaluate public comments on the proposal and its collection of information
requirements. Moreover, the Commission and the staff of the Division of Investment
Management participate in an ongoing dialogue with representatives of the investment
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company industry through public conferences, meetings, and information exchanges.
These various forums provide the Commission and staff with a means of ascertaining and
acting upon the paperwork burdens confronting the industry.
9.

Payment of Gift to Respondents

Not Applicable.
10.

Assurance of Confidentiality

Not Applicable.
11.

Sensitive Questions

Form N-1A 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

Open-end funds register as investment companies under the Investment Company
Act and register their securities under the Securities Act on Form N-1A. Compliance
with the disclosure requirements of Form N-1A is mandatory. Form N-1A generally
imposes two types of reporting burdens on investment companies: (i) the burden of
preparing and filing the initial registration statement; and (ii) the burden of preparing and
filing post-effective amendments to a previously effective registration statement
(including post-effective amendments filed pursuant to rule 485(a) or 485(b) under the

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Securities Act, as applicable). In our most recent Paperwork Reduction Act submission
for Form N-1A, Commission staff estimated the annual compliance burden to comply
with the collection of information requirement of Form N-1A is 1,579,974 hours. 4
We estimate that each fund would incur a one-time burden of an additional 2
hours, 5 at a time cost of an additional $637, 6 to draft and finalize the required disclosure
and amend its registration statement in connection with the proposed amendments to
Form N-1A. In aggregate, we estimate that funds would incur a one-time burden of an
additional 17,468 hours, 7 at a time cost of an additional $5,563,558, 8 to comply with the
proposed Form N-1A disclosure requirements. Amortizing the one-time burden over a
three-year period results in an average annual burden of an additional 5,823 hours at a
time cost of an additional $1,854,519. 9
We estimate that each fund would incur an ongoing burden of an additional 0.25
hours, at a time cost of an additional $80, 10 each year to review and update the proposed
disclosure in response to Item 11 and Item 28 of Form N-1A regarding the pricing and
redemption of fund shares and the inclusion of credit agreements as exhibits,
respectively. In aggregate, we estimate that funds would incur an annual burden of an
4

This estimate is based on the last time the rule’s information collection was submitted for PRA
renewal in 2014.

5

This estimate is based on the following calculation: 1 hour to update registration statement to
include swing pricing-related disclosure statements + 1 hour to update registration statement
disclosure about redemption procedures = 2 hours.

6

This estimate is based on the following calculation: 2 hours x $318.5 (blended rate for a
compliance attorney ($334) and a senior programmer ($303)) = $637.

7

This estimate is based on the following calculations: 2 hours x 8,734 funds = 17,468 hours.

8

This estimate is based on the following calculation: 17,468 hours x $318.50 (blended rate for a
compliance attorney ($334) and a senior programmer ($303)) = $5,563,558.

9

This estimate is based on the following calculation: 17,468 hours ÷ 3 = 5,823 average annual
burden hours; $5,563,558 burden costs ÷ 3 = $1,854,519 average annual burden cost.

10

This estimate is based on the following calculations: 0.25 hours x $318.50 (blended hourly rate
for a compliance attorney ($334) and a senior programmer ($303)) = $79.63.

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additional 2,184 hours, 11 at a time cost of an additional $695,604, 12 to comply with the
proposed Form N-1A disclosure requirements.
Amortizing these one-time and ongoing hour and cost burdens over three years
results in an average annual increased burden of approximately 0.50 hours per fund, 13 at a
time cost of $265.42 per fund. 14
In total, we estimate that funds would incur an average annual increased burden of
approximately 8,007 hours, 15 at a time cost of approximately $2,550,123, 16 to comply
with the proposed Form N-1A disclosure requirements.
13.

Estimate of Total Annual Cost Burden

In our most recent Paperwork Reduction Act submission for Form N-1A,
Commission staff estimated the annual cost burden to comply with the collection of
information requirement of Form N-1A is $124,820,197. 17 The staff estimates that the
proposed amendments to Form N-1A do not impose any material cost burdens on funds,
apart from the cost of the burden hours discussed above.
14.

Estimate of Cost to the Federal Government

The annual cost of reviewing and processing new registration statements,
post-effective amendments, proxy statements, and shareholder reports of investment
11

This estimate is based on the following calculation: 0.25 hours x 8,734 funds = 2,183.5 hours.

12

This estimate is based on the following calculation: 2,184 hours x $318.50 (blended hourly rate
for a compliance attorney ($334) and a senior programmer ($303)) = $695,604.

13

This estimate is based on the following calculation: 1 burden hour (year 1) + 0.25 burden hour
(year 2) + 0.25 burden hour (year 3) ÷ 3 = 0.50 hours.

14

This estimate is based on the following calculation: $637 (year 1 monetized burden hours) +
$79.63 (year 2 monetized burden hours) + $79.63 (year 3 monetized burden hours) ÷ 3 = $265.42.

15

This estimate is based on the following calculation: 5,823 hours + 2,184 hours = 8,007 hours.

16

This estimate is based on the following calculation: $1,854,519 + $695,604 = $2,550,123.

17

This estimate is based on the last time the rule’s information collection was submitted for PRA
renewal in 2014.

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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

The total annual hour burden of 1,587,981 hours represents an increase of 8,007
hours over the previous burden hour estimate of 1,579,974 hours. In addition, the annual
external cost burden of $127,370,320 represents an increase of $2,550,123 over the
previous annual external cost burden estimate of $124,820,197. The changes in burden
hours and external cost burdens are due to the staff’s estimates of the time costs and
external costs that would result from our proposed amendments.
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.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

Not Applicable.

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