Rule 20a-1 Supporting Statement 2018 - revised 10.31.19

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 20a-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Rule 20a-1 (17 CFR 270.20a-1) was adopted under Section 20(a) of the
Investment Company Act of 1940 (“1940 Act”) (15 U.S.C. 80a-20(a)) and concerns the
solicitation of proxies, consents, and authorizations with respect to securities issued by
registered investment companies (“Funds”).
Rule 20a-1 under the 1940 Act (15 U.S.C. 80a-1 et seq.) requires that the
solicitation of a proxy, consent, or authorization with respect to a security issued by a
Fund be in compliance with Regulation 14A (17 CFR 240.14a-1 et seq.), Schedule 14A
(17 CFR 240.14a-101), and all other rules and regulations adopted pursuant to section
14(a) of the Securities Exchange Act of 1934 (“1934 Act”) (15 U.S.C. 78n(a)). It also
requires, in certain circumstances, a Fund’s investment adviser or a prospective adviser,
and certain affiliates of the adviser or prospective adviser, to transmit to the person
making the solicitation the information necessary to enable that person to comply with
the rules and regulations applicable to the solicitation. In addition, rule 20a-1 instructs
Funds that have made a public offering of securities and that hold security holder votes
for which proxies, consents, or authorizations are not being solicited, to refer to section
14(c) of the 1934 Act (15 U.S.C. 78n(c)) and the information statement requirements set
forth in the rules thereunder.
The types of proposals voted upon by Fund shareholders include not only the
typical matters considered in proxy solicitations made by operating companies, such as

the election of directors, but also include issues that are unique to Funds, such as the
approval of an investment advisory contract and the approval of changes in fundamental
investment policies of the Fund. Through rule 20a-1, any person making a solicitation
with respect to a security issued by a Fund must, similar to operating company
solicitations, comply with the rules and regulations adopted pursuant to Section 14(a) of
the 1934 Act. Some of those Section 14(a) rules and regulations, however, include
provisions specifically related to Funds, including certain particularized disclosure
requirements set forth in Item 22 of Schedule 14A under the 1934 Act.
2.

Purpose and Use of the Information Collection

Rule 20a-1 is intended to ensure that investors in Fund securities are provided
with appropriate information upon which to base informed voting decisions regarding the
actions for which Funds solicit proxies. Also, proxy information filed with the
Commission permits verification of compliance with securities law information and
assures the public availability and dissemination of such information.
3.

Consideration Given to 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. This automation has increased
the speed, accuracy, and availability of information, generating benefits to investors and
financial markets. All Funds are required to use EDGAR for filing most documents with
the Commission. Proxy statements that comply with rule 20a-1 are required to be
submitted to the Commission on EDGAR to the extent filing with the Commission is

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required by rule 14a-6 under the 1934 Act (17 CFR 240.14a-6). 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. In addition,
rule 14a-3 under the 1934 Act (17 CFR 240.14a-3) requires Funds to make certain proxy
statements available electronically to shareholders on publicly accessible websites.
4.

Duplication

Rule 20a-1 does not call for duplicative, overlapping, or conflicting disclosure.
The Commission staff reviews the collection of information requirements on an ongoing
basis to find and eliminate duplicative requirements.
5.

Effect on Small Entities

The Commission staff reviews all rules periodically, as required by the
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612), to identify methods to minimize
recordkeeping or filing requirements affecting small businesses. Rule 20a-1 does not
distinguish between small entities and other entities. The burden for smaller Funds
related to proxy solicitation may be greater than for larger Funds due to economies of
scale.
6.

Consequences of Not Conducting Collection

The information required by rule 20a-1 under the 1940 Act and Schedule 14A
under the 1934 Act is given to shareholders and filed with the Commission only when
proxies are solicited for a shareholder meeting, usually less than once each year. Because
the Commission does not have authority over the frequency of shareholder meetings, it
cannot require less frequent collection unless it does not require the collection with
respect to every proxy solicitation. Not requiring disclosure of the information required

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by rule 20a-1 and Schedule 14A in proxy statements would harm investors by denying
them information that may be useful in making decisions, such as with regard to the
election of directors.
7.

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

Not applicable.
8.

Consultation Outside the Agency

On occasion, the rules under the 1934 and 1940 Acts have been amended to
improve disclosure requirements. Comments on the proxy rules are generally received
from registrants, the legal and accounting professions, and other interested parties. In
addition, the Commission and the staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the Fund industry through
public conferences, meetings and informal exchanges. These various forums provide the
Commission with sufficient information for acting upon paperwork burdens confronting
the industry.
The Commission requested public comment on the collection of information
requirements in rule 20a-1 before it submitted this request for extension 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.

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11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be
required under these collections of information. The information collections collect basic
Personally Identifiable Information (PII) that may include name and job title. However,
the agency has determined that the information collections do not constitute a system of
record for purposes of the Privacy Act. Information is not retrieved by a personal
identifier. In accordance with Section 208 of the E-Government Act of 2002, the agency
has conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in connection
with this collection of information. The EDGAR PIA, published on January 29, 2016, is
provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12.

Burden of Information Collection

Proxy statements filed by Funds must comply with rule 20a-1 under the 1940 Act.
The staff currently estimates that approximately 1,333 proxy statements are filed by
Funds annually.
Based on staff estimates and information from the industry, the staff estimates
that the average annual burden associated with the preparation and submission of proxy
statements is 85 hours per response, for a total annual burden of 113,305 hours (1,333
responses x 85 hours per response = 113,305). The burden of compliance will vary
depending upon the nature of the proposals included in the proxy materials filed with the
Commission. Proxy solicitations that relate to complex matters such as reorganizations
or involve an increase in the advisory fee rate are typically more involved than those
proxies that pertain to more routine matters such as the election of directors. Whether

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amended filings will be necessary to respond to staff comments and whether outside legal
counsel is used in preparing proxy materials will also affect the hour burden of rule
20a-1.
Based on the estimated wage rate, the total cost to the fund industry of the hour
burden is approximately $32,971,755. 1 These estimates are made solely for the purposes
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and are not derived from
a quantitative, comprehensive, or even representative survey or study of the burdens
associated with Commission rules and forms. We estimate that all of these hours will be
related to satisfying reporting obligations under rule 20a-1.
The estimates associated with rule 20a-1’s burden hours are as follows:
Table 1: Summary of Burden Hours and Burden Hour Costs Estimates Per
Response for the Information Collection in Rule 20a-1
Reporting
Record
Keeping
Third Party
Disclosure
Total

1

Time Per Response (hours)
85

Cost Per Response
$24,735

0

$0

0

$0

85

$24,735

The industry burden is calculated by multiplying the total annual hour burden to prepare
and file a proxy statement (113,305 hours) by the estimated hourly wage rate ($291).
The estimated wage rate figure is based on hourly wage rates for compliance attorneys
($365) and senior accountants ($216), and the estimate that attorneys and accountants
will divide time equally on compliance with the proxy voting disclosure requirements,
yielding a weighted wage rate of $291 (($365 x .50) + ($216 x .50) = $291). Hourly
wage estimates are based upon SIFMA’s report on Management & Professional Earnings
in the Securities Industry 2013, modified to account for an 1800-hour work-year and
inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and
overhead.

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Table 2: Summary of Annual Responses, Burden Hours, and Burden Hour Costs
Estimates for the Information Collection in Rule 20a-1

Reporting
Record Keeping
Third Party
Disclosure
Total

13.

Annual Number of
Responses
1,333

Annual Time
Burden (Hours)
113,305

Annual Cost
Burden (Dollars)
$32,971,755

0
0

0

$0

0

$0

1,333

113,305

$32,971,755

Cost to Respondents

Preparing, filing, and distributing proxy materials will not require any investment
in capital equipment. Proxy solicitation activities will typically involve costs for
purchased services such as outside legal counsel, proxy statement mailing, and proxy
tabulation services not included in Item 12 of this Supporting Statement. The staff
estimates these to be approximately $30,000 per proxy solicitation. This estimate is
based on a range of costs depending upon the nature and complexity of the matters
disclosed in the proxy materials and the number of Fund shareholders receiving proxy
materials. Estimates range from $7,500 to in excess of $117,000. Based on the staff’s
estimate, the total annual cost to the Fund industry (not including Item 12 costs) for
preparing, filing and distributing proxy materials is approximately $39,990,000 (1,333
responses x $30,000 per response = $39,990,000). We estimate that 1% of these costs
will be related to satisfying reporting obligations under rule 20a-1, and 99% of these
costs will be related to satisfying third party disclosure obligations.
The estimates associated with rule 20a-1’s cost burden are as follows:

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Table 3: Summary of Costs Estimates Per Response
for the Information Collection in Rule 20a-1
Cost Per Response
$300

Reporting
Record Keeping
Third Party Disclosure

$0
$29,700

Total

$30,000

Table 4: Summary of Annual Responses and Costs Estimates
for the Information Collection in Rule 20a-1

Reporting
Record Keeping
Third Party
Disclosure
Total

14.

Annual Number of
Responses
1,333
0
1,333

Annual Cost Burden
(Dollars)
$399,900
$0

1,333

$39,990,000

$39,590,100

Cost to the Federal Government

The annual cost of reviewing and processing disclosure documents, including new
registration statements, post-effective amendments, proxy statements, shareholder
reports, and other filings of investment companies amounted to approximately $22.2
million in fiscal year 2018, based on the Commission’s computation of the value of staff
time devoted to this activity and related overhead.
15.

Changes in Burden

The increase in the total annual hour burden and total annual cost burden is due to
an increase in the estimated number of proxy solicitations filed annually. The estimated
number of proxy solicitations filed annually increased from 1,196 to 1,333. As a result,
the changes in burdens associated with rule 20a-1’s requirements are as follows:

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Table 5: Summary of Changes in Burden
for the Information Collection in Rule 20a-1
Change
Change Due
Program
Program
Due to
to
Change Due Change Due
Potential Previously
Requested
Adjustment
to New
to Agency
Violation Approved
in Agency
Statute
Discretion
of the
Estimate
PRA

Annual Number
of Responses for 1,333
this IC

Annual IC Time
113,305
Burden (Hour)
Annual IC Cost
$39,990,990
Burden (Dollars)

16.

137

1,196

11,645

101,660

$4,110,000

$35,880,000

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.
Exceptions to Certification Statement for Paperwork Reduction Act
Submissions
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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