UPDATED Form N-14 Supporting Statement _Fast Act 2017

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-14
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 5(c) of the Securities Act of 1933 (“Securities Act”) 1 requires a company to have
filed a registration statement with the Commission before it offers securities to the public by use
of the mails or other channels of interstate commerce. 2 Section 5(b) requires that a prospectus
containing the pertinent information set forth in the registration statement be furnished to the
purchaser of a security prior to or with the confirmation of sale or delivery of the security after
sale, whichever comes first. 3 Investment companies are required to register under Section 8(a) of
the Investment Company Act of 1940 (“Investment Company Act”) 4 and to file a registration
statement under Section 8(b) of the Investment Company Act containing such information as the
Commission has determined to be necessary or appropriate in the public interest or for the
protection of investors. 5
Form N-14 6 is the form for registration under the Securities Act of securities to be issued
by management investment companies registered under the Investment Company Act and
business development companies as defined by Section 2(a)(48) of the Investment Company Act

1

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

2

15 U.S.C. 77e(c).

3

See Securities Act Release No. 8591 (July 19, 2005) (70 FR 44722, 44782 (Aug. 3, 2005)).

4

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

5

15 U.S.C. 80a-8.

6

17 CFR 239.23.

in: (1) a transaction of the type specified in rule 145(a) under the Securities Act; 7 (2) a merger in
which a vote or consent of the security holders of the company being acquired is not required
pursuant to applicable state law; (3) an exchange offer for securities of the issuer or another
person; (4) a public reoffering or resale of any securities acquired in an offering registered on
Form N-14; or (5) two or more of the transactions listed in (1) through (4) registered on one
registration statement. Rule 145(a) provides that submitting a proposal for certain
reclassification of securities, mergers, consolidations, or transfers of assets for the vote or
consent of security holders, is deemed to involve an “offer,” “offer to sell,” “offer for sale,” or
“sale” of the securities to be issued in the transaction. The effect of the rule is to require
registration of the securities to be issued in connection with such transactions, unless an
exemption from registration is available.
On October 11, 2017, the Commission issued a release proposing amendments to certain
of the Commission’s forms that are used by investment companies, including Form N-14. 8 The
Commission proposed amendments to Rule 102 of Regulation S-T to apply hyperlinking and
HyperText Markup Language (“HTML”) format requirements to registrants filing Form N-14 to

facilitate access to the Form’s exhibits for investors and other users of the information. Under
the proposed amendments, affected registrants would be required to include a hyperlink to each
exhibit identified in a filing’s exhibit index, unless the exhibit is filed in paper pursuant to a
temporary or continuing hardship exemption under Rule 201 or Rule 202 of Regulation S-T, or
pursuant to Rule 311 of Regulation S-T. This requirement would apply to registration statements
on Form N-14. Consistent with our rules for operating companies, we are not proposing to

7

17 CFR 230.145(a).

2

require registrants to refile electronically any exhibits filed only in paper. Under the proposed
amendments, an electronic filer would also be required to correct an inaccurate or nonfunctioning
link or hyperlink to an exhibit. 9
In connection with the proposed exhibit hyperlinking requirements, the Commission is also
proposing amendments to Rule 105 of Regulation S-T to require investment company registrants to
make Form N-14 filings that include exhibits in HTML format. Currently, investment company
registrants must submit electronic filings to the Commission using the EDGAR system in either
American Standard Code for Information Interchange (“ASCII”) format or HTML format. Because
the ASCII format does not support hyperlink functionality, the exhibit hyperlinking requirement
would be feasible only if registrants are required to file in HTML. Under the proposed requirement,
registrants would be required to file Form N-14 in HTML format. While the affected Form N-14
filings would be required to be filed in HTML pursuant to the proposed amendments to Rule 105,
registrants would continue to be permitted to file in ASCII any schedules or forms that are not
subject to the exhibit filing requirements, such as proxy statements, or other documents included
with a filing, such as an exhibit. The proposed amendments are intended to facilitate access to these
exhibits for investors and other users of the information.

2.

Purpose of the Information Collection

The principal purpose of Form N-14 is to make material information regarding securities
to be issued in connection with business combination transactions available to investors. 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 such

8

Investment Company Act Release No. 32858 (Oct. 11, 2017) (the “Proposing Release”).

9

See Proposing Release at footnotes 315-18.

3

information. Without the registration statement requirement, material information may not
necessarily be available to investors.
3.

Role of Improved Information Technology

The Commission’s Electronic Data Gathering, Analysis and Retrieval System
(“EDGAR”) automates the filing, processing, and dissemination of full disclosure filings. This
automation has increased the speed, accuracy, and availability of information, generating benefits
to investors and financial markets. Registration statements on Form N-14 are required to be filed
electronically on EDGAR. 10 The public may access filings on EDGAR through the
Commission’s website (http://www.sec.gov) or at EDGAR terminals located at the
Commission’s public reference rooms. Prospectuses may be sent to investors by electronic
means so long as certain requirements are met. 11
4.

Efforts to Identify 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 information in Form N-14 is not generally duplicated elsewhere.
5.

Effect on Small Entities

With respect to registering securities to be offered in a merger or other business
combination, Form N-14 applies equally to all registrants, regardless of size. The burden on
smaller investment companies may be greater than for larger investment companies. This burden
includes the cost of producing, printing, filing, and disseminating prospectuses. The

10

See 17 CFR 232.101(a)(1)(i).

11

See Use of Electronic Media for Delivery Purposes, Securities Act Release No. 7233 (Oct. 6,
1995) [60 FR 53458 (Oct. 13, 1995)].

4

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-14 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)
This collection is not inconsistent with 5 CFR 1320.5(d)(2).

8.

Consultation Outside the Agency
Before adopting the proposed amendments to Form N-14, 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 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 confronting the
industry.
9.

Payment or Gift to Respondents
5

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

Form N-14 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
https://www.sec.gov/about/privacy/sorn/secsorn1.pdf.
12.
Estimate of Hour and Cost 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 12 and are not derived from a comprehensive or even
representative survey or study of the cost of Commission rules and forms. Compliance with the
disclosure requirements of Form N-14 is mandatory. Responses to the disclosure requirements
will not be kept confidential.
In our most recent Paperwork Reduction Act submission for Form N-14, Commission
staff estimated the annual compliance burden to comply with the collection of information
requirement of Form N-14 is 97,280 hours and $4,498,000. 13 The proposed amendments to
Form N-14 are expected to increase the burdens and costs for registrants to prepare and file

12

44 U.S.C. 3501 et seq.

6

registration statements and reports on the affected forms, but we believe the burdens associated
with hyperlinking exhibits would be small. 14 We assume that the average burden hours of
requiring exhibit hyperlinks would vary based on the number of exhibits that are included with a
filing. For purposes of the PRA, based on an estimated average and median number of exhibits
filed with Form N-14 and the staff’s experience, we estimate that the average burden for a
registrant to hyperlink to exhibits would be one hour per response for each of the affected forms.
As discussed in the Proposing Release, we are not making any adjustments to the paperwork
burden of affected forms due to the proposed amendments to simplify and modernize the rules
and forms governing incorporation by reference. 15
The table below shows the total annual compliance burden, in hours and in costs, of the
collection of information on Form N-14 resulting from the proposed amendments. 16 The burden
estimates were calculated by multiplying the estimated number of responses by the estimated
average amount of time it would take an issuer to prepare and review the exhibit hyperlinks. The
portion of the burden carried by outside professionals is reflected as a cost, while the portion of
the burden carried by the issuer internally is reflected in hours. For purposes of the PRA, we
estimate that 25% of the burden of preparation is carried by the registrant internally and that 75%

13

This estimate is based on the last time the rule’s information collection was submitted for PRA
renewal in 2015.

14

See Proposing Release at Section IV.B.2.c.

15

See Proposing Release at Section IV.B.3.b.

16

For convenience, the estimated hour and cost burdens in the table have been rounded to the nearest whole
number.

7

of the burden of preparation is carried by outside professionals retained by the company at an
average cost of $400 per hour. 17
Form

Form N-14

Proposed
number of
affected
responses
(A)
192

Incremental
burden
hours/form

Total
incremental
burden hours

25% internal
burden

75% outside
professional

Professional
costs

(B)

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E × $400

(C) = (A) × (B)

1

192

48

144

$57,600

Additionally, of the 97,328 hours spent annually to comply with Form N-14, the
Commission estimates the internal burden to be:
•

Fifty percent (48,664 hours) are spent by in-house attorneys at an estimated hourly wage
of $386, 18 for a total of approximately $18,784,304 per year; 19

•

Forty percent (38,931 hours) are spent by senior accountants at an estimated hourly wage
of $201, for a total of approximately $7,825,171 per year; 20 and

•

Ten percent (9,733 hours) are spent by in-house paralegals at an estimated hourly wage of
$202, for a total of approximately $1,966,026 per year. 21

17

We recognize that the costs of retaining outside professionals may vary depending on the nature of the
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an
average of $400 per hour. These estimates are based on our estimates for the parallel requirement for
operating companies

18

The Commission’s estimates concerning the allocation of burden hours and the relevant wage rates are
based on consultations with industry representatives and on salary information for the securities industry
compiled by the Securities Industry and Financial Markets Association’s Office Salaries in the Securities
Industry 2013. The estimated wage figures are modified by Commission staff to account for an 1800-hour
work-year and multiplied by 2.93 to account for bonuses, firm size, employee benefits, overhead, and
adjusted to account for the effects of inflation, yielding effective hourly rates of $386, $201, and $202,
respectively. See Securities Industry and Financial Markets Association, Report on Management &
Professional Earnings in the Securities Industry 2013.

19

48,664 hours x $386 per hour = $18, 784,304.

20

38, 931 hours x $201 per hour = $7,825,171.

21

9,733 hours x $202 per hour = $1,966,026.

8

Based on these estimated wage rates, the total cost to the industry of the hour burden for
complying with Form N-14 filings is approximately $28,617,779. 22
14.

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 $22.9 million in fiscal year 2016, based on the Commission’s
computation of the value of staff time devoted to these activities and related overhead.
15.
Explanation of Changes in Burden
The total annual hour burden of 97,328 hours represents an increase of 48 hours over the
previous burden hour estimate of 97,280 hours. In addition, the annual external cost burden of
$4,555,600 represents an increase of $57,600 over the previous annual external cost burden
estimate of $4,498,000. 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

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

Approval to not Display Expiration Date

We request authorization to omit the expiration date on the electronic version of the form
for design and IT project scheduling reasons. The OMB control number will be displayed.
18.

Exceptions to Certification Statement

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

22

$18, 784,304+ $7,825,171+ $1,966,026 = $28, 575,501.

9

B.

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

10