Rule 7d-1 SUPPORTING STATEMENT 2019

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 7d-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 7(d) of the Investment Company Act of 1940 (15 U.S.C. 80a-7(d)) (the
“Act” or “Investment Company Act”) requires an investment company (“fund”)
organized outside the United States (“foreign fund”) to obtain an order from the
Commission allowing the fund to register under the Act before making a public offering
of its securities through the United States mail or any means of interstate commerce. The
Commission may issue an order only if it finds that it is both legally and practically
feasible effectively to enforce the provisions of the Act against the foreign fund, and that
the registration of the fund is consistent with the public interest and protection of
investors.
Rule 7d-1 (17 CFR 270.7d-1) under the Act, which was adopted in 1954, specifies
the conditions under which a Canadian management investment company (“Canadian
fund”) may request an order from the Commission permitting it to register under the Act.
Although rule 7d-1 by its terms applies only to Canadian funds, funds in other
jurisdictions generally have agreed to comply with the requirements of rule 7d-1 as a
prerequisite to receiving an order permitting the fund’s registration under the Act.
The rule requires Canadian funds that propose to register under the Act to file an
application with the Commission that contains various undertakings and agreements by
the fund. The requirement of the Canadian fund to file an application is a collection of

information under the Paperwork Reduction Act. Certain of the undertakings and
agreements, in turn, impose the following additional information collection requirements:
(1)

the fund must file with the Commission agreements between the fund and
its directors, officers, and service providers requiring them to comply with
the fund’s charter and bylaws, the Act, and certain other obligations
relating to the undertakings and agreements in the application;

(2)

the fund and each of its directors, officers, and investment advisers that is
not a U.S. resident, must file with the Commission an irrevocable
designation of the fund’s custodian in the United States as agent for
service of process;

(3)

the fund’s charter and bylaws must provide that (a) the fund will comply
with certain provisions of the Act applicable to all funds, (b) the fund will
maintain originals or copies of its books and records in the United States,
and (c) the fund’s contracts with its custodian, investment adviser, and
principal underwriter, will contain certain terms, including a requirement
that the adviser maintain originals or copies of pertinent records in the
United States;

(4)

the fund’s contracts with service providers will require that the provider
perform the contract in accordance with the Act, the Securities Act of
1933 (15 U.S.C. 77a), and the Securities Exchange Act of 1934 (15 U.S.C.
78a), as applicable; and

(5)

the fund must file, and periodically revise, a list of persons affiliated with
the fund or its adviser or underwriter.
As noted above, under section 7(d) of the Act, the Commission may issue an

order permitting a foreign fund’s registration only if the Commission finds that “by
reason of special circumstances or arrangements, it is both legally and practically feasible
effectively to enforce the provisions of the (Act).” The information collection
requirements are necessary to assure that the substantive provisions of the Act may be
enforced as a matter of contract right in the United States or Canada by the fund's
shareholders or by the Commission.

Rule 7d-1 also contains certain information collection requirements that are
associated with other provisions of the Act. These requirements are applicable to all
registered funds and are outside the scope of this Supporting Statement.
2.

Purposes and Use of the Information Collection

The collection of information requirements (as well as other requirements) of rule
7d-1 are designed to assure that appropriate arrangements are in place to confirm the
enforceability of the Act against the Canadian fund. Under international law, for
example, it is uncertain whether the Commission or a fund's shareholders could enforce
the Act’s provisions against the Canadian fund and associated persons (that is, those
persons in addition to the fund, such as the Canadian fund’s service providers, that must
meet the requirements of rule 7d-1) solely on the basis of the Canadian fund’s registration
under the Act. Thus, rule 7d-1 requires foreign funds to file an application containing
certain undertakings and agreements that confirm that the Commission and the fund’s
shareholders will be able to enforce the provisions of the Act as a matter of contract right
in the United States or Canada. The application itself allows Commission staff to
determine whether to permit the applicant to register under the Act.
In addition, the rule’s requirement to maintain records in the United States
(which, without the requirement, might be maintained in Canada or another foreign
jurisdiction) facilitates routine inspections and any special investigations of the fund by
Commission staff. The requirement to update the list of affiliated persons also assists the
staff in monitoring the fund's relationships with affiliates.
3.

Consideration Given to Information Technology

Rule 31a-2(f) under the Investment Company Act permits funds to maintain many
types of records (and produce them for the Commission's examination as necessary) on
micrographic media, including microfilm, microfiche, or similar medium, or any
electronic storage media, including any digital storage medium or system. Canadian
funds and their advisers generally may keep records in the United States as required by
rule 7d-1 in these forms.
The Commission’s Electronic Data Gathering, Analysis, and Retrieval system
(“EDGAR”) is designed to automate the filing, processing, and dissemination of full
disclosure filings. The system permits publicly held companies to transmit many filings
to the Commission electronically, including applications for orders under the Investment
Company Act, such as those submitted by Canadian or other foreign funds. EDGAR may
also be used in the future to obtain other types of information from sources outside the
Commission, such as updates of lists of affiliated persons, as required by rule 7d-1.
4.

Duplication

The requirement under rule 7d-1 to maintain original or duplicate books and
records in the United States is intended to assure that the provisions of the Act can be
enforced against a Canadian (or foreign) fund. Without the requirement, records could be
maintained only in Canada. The Commission’s ability to examine those records would
depend upon Canadian law. The inconvenience and expense of travel to Canada also
could adversely affect enforcement of the Act.
5.

Effect on Small Entities

The Commission does not believe that compliance with rule 7d-1 is unduly
burdensome for large or small entities. The information collection requirements of the

rule apply to all Canadian funds that seek the benefit of registration under the Act,
whether or not they are small entities. The requirements establish the enforceability of
the Act for all funds regardless of size, and in so doing, enable the Commission to fulfill
its statutory mandate.
6.

Consequences of Not Conducting Collection

Rule 7d-1’s requirement that Canadian funds file an application that contains
certain undertakings and agreements as a prerequisite to the fund’s registration under the
Act is not a recurring obligation. The rule also imposes requirements to maintain records
in the United States, and to update certain fund agreements, designations of the fund’s
custodian as service agent, and lists of affiliated persons as changes occur. Without the
rule’s information collection requirements, the Commission could not determine whether
the substantive provisions of the Act would be enforceable as a matter of contract right in
the United States by the fund’s shareholders or by the Commission.
On occasion, after a Canadian (or other foreign fund) has registered, it may file a
supplemental application seeking special exemptive relief from provisions of the Act
based on the fund’s particular circumstances. Rule 7d-1 does not mandate these
applications, which are submitted at a fund’s discretion.
7.

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

By requiring funds to maintain records in the United States, rule 7d-1 effectively
requires the fund to preserve these records either permanently or for six years after
pertinent transactions, depending on the record. This requirement applies to the records
of all registered funds, including any records maintained in Canada. 1

1

17 CFR 270.7d-1(b)(8)(iii).

The Commission believes that the long-term retention of records in the United
States is necessary to carry out its examination and enforcement responsibilities, and its
mandate to ensure that the Act’s provisions are legally enforceable. The Commission
periodically inspects the operations of registered funds to ensure compliance with the
rules and regulations under the Act; however, each fund may be inspected only at
intervals of several years due to limits on the Commission’s resources. Furthermore,
Congress has placed no time limit on the prosecution of persons engaged in certain types
of conduct that violate the securities laws. For these reasons, the Commission often
needs information relating to events or transactions that occurred years ago. In section
31(a) of the Act (15 U.S.C. 80a-30(a)), Congress specifically authorized the Commission
to require funds to “maintain and preserve” books and records “for such period or periods
as the Commission, by rules and regulations, may prescribe as necessary or appropriate in
the public interest or for the protection of investors.” Computerized record storage has
made long-term retention of records less burdensome.
8.

Consultation Outside the Agency

The Commission proposed rule 7d-1 for public comment before it was adopted on
April 27, 1954. The requirements of the rule were formulated after extended discussions
with Canadian funds that had applied for orders permitting registration before the rule
was adopted. The Commission considered all comments and suggestions and determined
to adopt the rule’s information collection requirements substantially as proposed.
Subsequent amendments have not significantly altered the rule’s information collection
requirements. The Commission requested public comment on the collection of
information requirements in rule 7d-1 before it submitted this request for extension and

approval to the Office of Management and Budget. The Commission received no
comments.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No PII collected/Not applicable. A System of Records Notice for applications
under the Investment Company Act is available at
https://www.sec.gov/about/privacy/sorn/secsorn2.pdf.
12.

Burden of Information Collection

The Commission believes that one foreign fund is registered under the Act
pursuant to rule 7d-1 and currently active. The burden hours under the rule associated
with the fund’s compliance with the Act’s requirements are reflected in the information
collection burdens applicable to those requirements for all registered funds. These
burdens are reflected in Table 1 below, and discussed subsequently.
Apart from requirements under the Act applicable to all registered funds, rule
7d-1 imposes ongoing burdens to maintain records in the United States, and to update, as
necessary, certain fund agreements, designations of the fund’s custodian as service agent,
and the fund’s list of affiliated persons. The Commission staff estimates that each year

under the rule, the active registrant and its directors, officers, and service providers
engage in the following collections of information and associated burden hours 2:
•

For the fund and its investment adviser to maintain records in the United States: 3
0 hours:
0 minutes of compliance clerk time.

•

For the fund to update its list of affiliated persons:
2 hours:
2 hours of support staff time.

•

For new officers, directors, and service providers to enter into and file agreements
requiring them to comply with the fund’s charter and bylaws, the Act, and certain
other obligations:
0.5 hours:
7.5 minutes of director time;
2.5 minutes of officer time;
20 minutes of support staff time.

•

For new officers, directors, and investment advisers who are not residents of the
United States to file irrevocable designation of the fund’s custodian as agent for
process of service:
0.25 hours:
5 minutes of director time;
10 minutes of support staff time.

Based on the estimates above, the Commission estimates that the total annual burden of
the rule's paperwork requirements is 2.75 hours. 4 We estimate that directors perform
0.21 hours of these burden hours at a total cost of $930.20,5 officers perform 0.04 of

2
3

As discussed above, we are assuming for purposes of this PRA that one registrant will
actively engage in the collections of information discussed herein.
The rule requires an applicant and its investment adviser to maintain records in the
United States (which, without the requirement, might be maintained in Canada or another
foreign jurisdiction), which facilitates routine inspections and any special investigations
of the fund by Commission staff. The registrant and its investment adviser, however,
already maintain the registrant’s records in the United States and in no other jurisdiction.
Therefore, maintenance of the registrant’s records in the United States does not impose
an additional burden beyond that imposed by other provisions of the Act. Those
provisions are applicable to all registered funds and the compliance burden of those
provisions is outside the scope of this Supporting Statement.

4

This estimate is based on the following calculation: (0 + 2 + 0.5 + 0.25) = 2.75 hours.

5

The director estimates are based on the following calculations: (7.5 minutes + 5 minutes)
/ 60 minutes per hour = 0.2083 hours; and 0.2083 hours x $4465 per hour = $930.20.
The per hour cost estimate is based on estimated hourly compensation for each board
member of $558.125 and an average board size of 8 members. The $4465 per hour

these burden hours at a total cost of $22.08,6 and support staff perform 2.5 of these
burden hours at a total cost of $175. 7 Thus, the Commission estimates the aggregate
annual cost of these burden hours associated with rule 7d-1 is $1,127.28. 8
If a fund were to file an application under rule 7d-1 to register under the Act, the
Commission estimates that the rule would impose initial information collection burdens
(for filing an application, preparing the specified charter, bylaw, and contract provisions,
designations of agents for service of process, and an initial list of affiliated persons, and
establishing a means of keeping records in the United States) of approximately 90 hours
for the fund and its associated persons. The Commission is not including these hours in
its calculation of the annual burden because no fund has applied to register under the Act
pursuant to rule 7d-1 in the last three years.
As noted above, after registration, a Canadian fund may file a supplemental
application seeking special relief designed for the fund's particular circumstances. Rule
7d-1 does not mandate these applications. For purposes of this PRA we are assuming one

estimate for a fund board of directors includes a CPI inflation adjustment from the 2009
estimate.
6

The officer estimates are based on the following calculations: 2.5 minutes / 60 minutes
per hour = 0.0416 hours; 0.0416 hours x $530 per hour = $22.08. The per hour cost
estimate, as well as other internal time cost estimates for management and professional
earnings, is based on the figure for chief compliance officers found in 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.

7

The support staff estimates are based on the following calculations: 2 hours + 20 minutes
+ 10 minutes = 2.5 hours; and 2.5 hours x $70 per hour = $175. The per hour cost
estimate, as well as other internal time cost estimates for office salaries, is based on the
figure for compliance clerks found in SIFMA’s Office Salaries in the Securities Industry
2013, 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 and overhead.

8

This estimate is based on the following calculation: $1,127.28 = $930.20 + $22.08 +
$175.

registrant has filed a substantive supplemental application within the past three years.
The Commission staff estimates that the rule would impose an additional information
collection burden of 5 hours on a fund to comply with the Commission’s application
process at a cost of $6,136.50. 9 The staff understands that funds also obtain assistance
from outside counsel to comply with the Commission’s application process and the cost
burden of using outside counsel is discussed in Item 13 below.
Therefore, the Commission staff estimates the aggregate annual burden hours of
the collection of information associated with rule 7d-1 is 13.25 hours, at a cost of
$9,518.34. 10 Amortized over three years we estimate an annual cost burden of $3,172.78
based on an hourly annual burden of 4.42 hours. 11 These estimates of average burden
hours are made solely for the purposes of the Paperwork Reduction Act. The estimate is
not derived from a comprehensive or even a representative survey or study of
Commission rules.

9

The staff estimates that, on average, the fund’s investment adviser spends approximately
4 hours to review an application, including 3.5 hours by an assistant general counsel at a
cost of $466 per hour, 0.5 hours by an administrative assistant, at a cost of $81 per hour,
and the fund’s board of directors spends an additional 1 hour at a cost of $4,465 per hour
for a total of 5 hours, at a total cost of $6,136.50. This estimate is based on the following
calculation: (3.5 hours x $466 per hour) + (0.5 hours x $81 per hour) + (1 hour x $4465
per hour) = $6,136.50.

10

These estimates are based on the following calculations: 2.75 hours year 1 + 5 hours year
1 + 2.75 hours year 2 + 2.75 hours year 3 = 13.25 hours; $1,127.28 year 1+ $6,136.50
year 1 + $1,127.28 year 2 + $1,127.28 year 3 = $9,518.34. As discussed above, the
ongoing compliance burdens for an active fund require updates each year, whereas we
estimate to receive one supplemental application each three year period.

11

The estimates are based on the following calculations: 4.42 hours = 13.25 cumulative
burden hours/3 years. Likewise, the amortized cost burden is based on the following
calculations: $9,518.34 cumulative 3-year cost burden/3 years = $3,172.78 average
annual cost burden.

Table 1: BURDEN ESTIMATES FOR RULE 7d-1
Burden Per Response
Internal
Burden

Wage Rate1

Aggregate Burden

Cost of Internal Burden

Annual
Cost Burden

Annual
Responses

Internal Burden

Cost of
Internal Burden

Annual
Cost Burden

1

7.75 hours

$7,013.90

$4,000

C URREN T L Y AP P ROVED ES T I MAT ES
Ongoing compliance with
Rule 7d-1
a)

Maintaining
records in the
United States

0 hours

×

Compliance clerk
(0 hours x $57/hour)

$0

b)

Fund
requirement to
update its list of
affiliated persons

2 hours

×

Support Staff
(2 hours x $57/hour)

$114

c)

Compliance
requirements for
new officers,
directors, and
service providers

d)

Designation of
agent for process
of service
Ongoing burden

0.5 hours

×

Directors time
(7.5 minutes x$4,400/hour)

$550 for Directors

Officers time
(2.5 minutes x $485/hour)

$20.21 for Officers

Support Staff
(20 minutes x $57/hour)

0.25 hours

×

$373.20 for Directors

Support Staff
(10 minutes x $57/hour)

$9.49 for Support Staff

2.75 hours

5 hours

7.75 hours

$382.69 subtotal
$1,085.90

×

Administrative Assistant
(0.5 hours x $74/hour)
Board of Directors time
(1 hour x $4,400/hour)

Total aggregate burden

$589.21 subtotal

Directors time
(5 minutes x$4,400/hour)

Assistant General Counsel (3.5
hours x $426/hour)
Rule 7d-1 Supplemental
Application Filing
Requirements:

$19 for Support Staff

$1,491 for Assistant
General Counsel
$37 for Support Staff
$4,400 for Directors
$5,928 subtotal
$7,013.90

$4,000

REVI S ED ES T I MAT ES
Ongoing compliance with
Rule 7d-1
a)

Maintaining
records in the
United States

0 hours

×

Compliance clerk1
(0 hours x $70/hour)

$0

b)

Fund
requirement to
update its list of
affiliated persons

2 hours

×

Support Staff
(2 hours x $70/hour)

$140

c)

Compliance
requirements for
new officers,
directors, and
service providers

d)

Designation of
agent for process
of service

Total Annual Ongoing
Compliance burden

0.5 hours

×

Directors time
(7.5 minutes x$4,465/hour)

$558.13 for Directors

Officers time2
(2.5 minutes x $530/hour)

$22.08 for Officers

Support Staff
(20 minutes x $70/hour)

0.25 hours

×

$372.08 for Directors

Support Staff
(10 minutes x $70/hour)

$11.66 for Support Staff

2.75 hours

5 hours

$603.54 subtotal

Directors time
(5 minutes x$4,465/hour)

$383.74 subtotal
$1,127.28

Assistant General Counsel (3.5
hours x $466/hour)
Rule 7d-1 Supplemental
Application Filing
Requirements:

$23.33 for Support Staff

×

Administrative Assistant
(0.5 hours x $81/hour)
Board of Directors time
(1 hour x $4,465/hour)

$1,631 for Assistant
General Counsel
$40.50 for Support Staff
$4,465 for Directors
$6,136.50 subtotal

Total aggregate three
year burden

13.25 hours 3

$9,518.344

Three year amortized
burden

4.42 hours

$3,172.78

$4,000

1

4.42

$3,172.78

$4,000

Notes:
1. 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. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the Securities Industry 2013.
2. The per hour cost estimate, as well as other internal time cost estimates for management and professional earnings, is based on the figure for chief compliance officers found in 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.
3. These estimates are based on the following calculations: 2.75 hours year 1 + 5 hours year 1 + 2.75 hours year 2 + 2.75 hours year 3 = 13.25 hours. As discussed below, we assumed ongoing compliance
burdens would occur yearly, and assumed we would receive one supplemental application during the three year period.
4. These estimates are based on the following calculations: $1,127.28 year 1 + $6,136.50 year 1 + $1,127.28 year 2 + $1,127.28 year 3 = $9,518.34. As discussed below, we assumed ongoing compliance
burdens would occur yearly, and assumed we would receive one supplemental application during the three year period.

13.

Cost to Respondents

If a Canadian or other foreign fund in the future applied to register under the Act
under rule 7d-1, the fund initially might have capital and start-up costs (not including
hourly burdens) of an estimated $20,000 to comply with the rule’s initial information
collection requirements. These costs include legal and processing-related fees for
preparing the required documentation (such as the application, charter, bylaw, and
contract provisions, designations for service of process, and the list of affiliated persons).
Other related costs would include fees for establishing arrangements with a custodian or
other agent for maintaining records in the United States, copying and transportation costs
for records, and the costs of purchasing or leasing computer equipment, software, or other
record storage equipment for records maintained in electronic or photographic form.
The Commission expects that the fund and its sponsors would incur these costs
immediately, and that the annualized cost of the expenditures would be $20,000 in the
first year. Some expenditures might involve capital improvements, such as computer
equipment, having expected useful lives for which annualized figures beyond the first
year would be meaningful. These annualized figures are not provided, however, because,
in most cases, the expenses would be incurred immediately rather than on an annual
basis. The Commission is not including these costs in its calculation of the annualized
capital/start-up costs because no fund has applied under rule 7d-1 to register under the
Act in the last three years.
As indicated above, a Canadian or foreign fund may file a supplemental
application seeking special relief designed for the fund’s particular circumstances. Rule
7d-1 does not mandate these applications. As discussed above, we are assuming one

15
registrant has filed a substantive supplemental application within the past three years. In
addition, as noted above, the staff understands that funds generally use outside counsel to
prepare the application. The staff estimates that outside counsel spends 10 hours
preparing a supplemental application, including 8 hours by an associate and 2 hours by a
partner. Outside counsel billing arrangements and rates vary based on numerous factors,
but the staff has estimated the average cost of outside counsel as $400 per hour, based on
information received from funds, intermediaries and their counsel. The Commission staff
therefore estimates that the fund would obtain assistance from outside counsel at a cost of
$4000. 12
These estimates of average costs are made solely for the purposes of the
Paperwork Reduction Act. The estimate is not derived from a comprehensive or even a
representative survey or study of the costs of Commission rules.
14.

Cost to the Federal Government

Rule 7d-1 has imposed minimal costs on the federal government for reviewing the
small number of applications and supporting documents filed with the Commission under
the rule since 1954. No new fund has applied under rule 7d-1 to register under the Act in
the last three years. The Commission staff in the Division of Investment Management
processes these and other exemptive applications. The annual cost of reviewing and
processing all applications under the Investment Company Act for orders from the
Commission for exemptive relief amounted to approximately $9.0 million in fiscal year
2019, based on the Commission’s computation for the value of staff time devoted to these
activities and related overhead. The Commission receives occasional reports updating
lists of affiliated persons as required by the rule.
12

This estimate is based on the following calculation: 10 hours x $400 per hour = $4000.

16
15.

Changes in Burden

The estimated number of 4.42 burden hours reflects a change of 3.33 hours from
the current allocation of 7.75 burden hours. The decrease is attributed in part to
amortizing the burden hours over the three year collection period. A single registrant filed
one supplemental application under rule 7d-1 in the three years prior to the current
allocation, and for purposes of this PRA, we are assuming one registrant has filed one
supplemental application under rule 7d-1 in the three years prior to this updated
allocation.
The estimated cost burden remains unchanged at $4,000. Neither the workload
for the lone registrant nor the estimated average cost of outside counsel has changed since
the previous allocation.
Table 2: CHANGE IN BURDEN ESTIMATES
Rule 7d-1

Annual No. of Responses
Previously Requested
approved

Rule 7d-1

16.

1

1

Change

0

Annual Time Burden (Hrs.)
Previously Requested
approved

7.75

4.42

Change

3.33

Burden Cost Burden ($)
Previously Requested
approved

$4,000

Information Collection Planned for Statistical Purposes

Not applicable.

$4,000

Change

$0

17
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submissions

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
Not applicable.