Form N-3 Supporting Statement

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.
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-3. 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-3 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-3.
Consistent with our rules for operating companies, we are not proposing to 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.

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-3 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
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requirement, registrants would be required to file Form N-3 in HTML format. While the affected
Form N-3 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 and Use of the Information Collection

The title for the collection of information is: Form N-3 under the Securities Act of 1933 and
under the Investment Company Act of 1940, registration of separate accounts organized as
management investment companies. 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.

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 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
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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
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 Not Conducting 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
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)].
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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.
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 proposed amendments and related information
collection requirements before it submitted this request for revision and approval to the OMB.
Before adopting the proposed amendments to Form N-3, the Commission will receive and evaluate
public comments on the proposal and its collection of information requirements.
9.

Payment or Gift

Not Applicable.
10.

Confidentiality

Not Applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection collects basic Personally Identifiable
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Information (PII) that may include names, job titles and work addresses. However, the agency has
determined that the information collection does 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 1/29/2016, is provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12/13. Estimate of Hour and Cost Burden of Information Collection
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. 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. The hour and cost 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 and cost 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
following estimates of average burden hours and costs are made solely for purposes of the
Paperwork Reduction Act 2 and are not derived from a quantitative, comprehensive, or even
representative survey or study of the burdens associated with Commission rules and forms.

2

44 U.S.C. 3501 et seq.
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In our most recent Paperwork Reduction Act submission for Form N-3, Commission staff
estimated the annual compliance burden to comply with the collection of information requirement of
Form N-3 was approximately 2,500 hours, with an annual internal time cost equivalent of the hour
burden of approximately $809,740.80, and estimated annual external cost burden of $164,144. 3
The proposed amendments to Form N-3 are expected to increase the burdens and costs for
registrants to prepare and file registration statements and reports on the affected forms, but we
believe the burdens associated with hyperlinking exhibits would be small. 4 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-3 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. 5
The table below shows the total annual compliance burden, in hours and in costs, of the
collections of information on Form N-3 resulting from the proposed amendments. 6 The burden
estimates were calculated by multiplying the estimated number of responses by the estimated

3

These estimates are based on the last time the form’s information collection was submitted for PRA
renewal in 2017.

4

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

5

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

6

For convenience, the estimated hour and cost burdens in the table have been rounded to the nearest
whole number.
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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% of the
burden of preparation is carried by outside professionals retained by the company at an average
cost of $400 per hour. 7
Form

Form N-3

Proposed
number of
affected
responses
(A)
20

Incremental
burden
hours/form

T otal
incremental
burden hours

(B)

(C) = (A) ×
(B)
20

1

25% internal
burden

75% outside
professional

Professional
costs

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E ×
$400

5

15

$6,000

The figures above reflect our estimated increase of approximately 0.25 internal burden
hours per filing. Given an estimated internal time cost of $329 per filing (based on updated data
concerning funds and fund personnel salaries),8 we estimate that in the aggregate, registrants will
annually incur an additional internal burden of 5 hours 9 and time cost of $1,190 10 to comply with the

7

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.

8

This estimate is based on the following calculation: Blended rate for a compliance attorney ($345)
and a senior programmer ($313) = $329. The Commission estimates the wage rate associated with
these burden hours based on salary information for the securities industry compiled by the Securities
Industry and Financial Markets Association. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the Securities Industry 2013
(adjusted to account for the effects of inflation).

9

This estimate is based on the following calculation: 0.25 internal burden hours x 20 responses = 5
hours.

10

This estimate is based on the following calculation: 5 hours x $329 (blended rate for a compliance
attorney ($345) and a senior programmer ($313)) = $1,190.
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proposed amendments to Form N-3. We therefore estimate that with the additional hour burdens
and time costs associated with the proposed amendments, the total annual internal burden to comply
would be 2,505 burden hours 11 and time costs of $810,930.8012 for Form N-3.
14.

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 this activity and related overhead. A portion of
those costs relate to processing and reviewing Form N-3 filings submitted to the Commission. 15.
Change in Burden
The new total annual hour burden for preparing and filing registration statements on Form
N-3 is 2,505 (reflecting an increase of 5 hours over the previous burden estimate of 2,500 hours).
In addition, the new annual external cost burden for preparing and filing registration statements on
Form N-3 is $170,144 (reflecting an increase of $6,000 over the previous annual external cost
burden of $164,144). The changes in burden hours and external costs are due to the staff’s
estimates of the additional time burdens and external costs that would result from our proposed
amendments to Form N-3 regarding hyperlinking.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.

11

This estimate is based on the following calculation: 2,500 (prior estimate) + 5 (additional hours) =
2,505 hours.

12

This estimate is based on the following calculation: $809,740.80 (prior estimate) + $1,190 (additional
internal cost) = $810,930.80.
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17.

Approval to Omit OMB 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.
Submission

Exceptions to Certification Statement for Paperwork Reduction Act

Not Applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not Applicable.

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