Form N-3 Draft Supporting Statement (new)

Form N-3 Draft Supporting Statement (new).pdf

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.

OMB: 3235-0316

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OMB CONTROL NUMBER: 3235-0316

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”). 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. Section 5(b) of the
Securities Act makes it unlawful to carry or cause to be carried a security for purposes of sale or
for delivery after the sale “unless accompanied or preceded” by a prospectus that meets the
requirements of section 10(a) of the Act (which, in turn, generally requires a prospectus relating
to a security to contain the information contained in the registration statement). For separate
accounts organized as management investment companies that offer variable annuity contracts,
Form N-3 provides the information required to appear in prospectus meeting the requirements of
section 10(a) of the Securities Act (as well as the information required to appear in the statement
of additional information (“SAI”)).
On March 11, 2020, the Commission issued a release adopting rule and form
amendments designed to enhance disclosures for variable annuities and variable life insurance
contracts (together, “variable contracts”). The rules use a layered disclosure approach that would

permit a person to satisfy its prospectus delivery obligations under the Securities Act for a
variable contract by sending or giving a summary prospectus that presents key information about
a variable contract’s terms, benefits, and risks, with access to more detailed information available
online and electronically or in paper format on request. 1
The Commission also adopted amendments to Form N-3 to update and enhance the
disclosures to investors in variable annuity contracts, and to implement the new summary
prospectus regime. The Commission amended certain disclosures that Form N-3 currently
requires with respect to the separate account’s investment objectives and risks, management of
the registrant, investment advisory and other services, portfolio managers, and brokerage
allocation and other practices. In addition, amended Form N-3 requires certain new disclosures
regarding, among other things: the Key Information Table, an overview of the contract, principal
risks, optional benefits, loans, and the Appendix of available investment options. The
amendments also reduced or eliminated certain disclosures currently required by the form,
including the requirements to include condensed financial information for each class of
accumulation units of the registrant.
2.

Purpose and Use of the Information 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 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
1

Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable
Life Insurance Contracts, Investment Company Act Release No. 33814 (Mar. 11, 2020), available
at https://www.sec.gov/rules/final/2020/33-10765.pdf (“Adopting Release”).

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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. Registration statements
on Form N-3 are required to be filed with the Commission electronically on EDGAR. See 17
CFR 232.101(a)(1)(i) and (iv). The public may access filings on EDGAR through the
Commission’s internet website (http://www.sec.gov) or by using an EDGAR terminal located in
the Commission’s public reference rooms. Prospectuses and SAIs may be sent to investors by
electronic means so long as certain requirements are met. 2
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 Commission reviews all rules periodically, as required by the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The current and proposed disclosure requirements for
2

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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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.
No small entities currently file registration statements on Form N-3. Therefore, the
interactive data amendments for variable contract issuers registering on these forms would not
affect any small entities.
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 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

Before adopting the amendments to Form N-3, the Commission solicited and evaluated
public comments on the proposal and its collection of information requirements. Specifically,
the public was given the opportunity to comment on the Commission’s estimates for the burdens
of Form N-3 as proposed and as compared to the existing approved burden inventory in the
proposing release for the amendments. The Commission’s solicitation of public comments

4

included estimating and requesting public comments on the burden estimates for all information
collections under this OMB control number (i.e., both changes associated with the rulemaking
and other burden updates). While comments were received from filers, investors and other
market participants, and were considered by the Commission as discussed in the Adopting
Release, none of these related to the proposed burden estimates for the amendments to Form N3. 3 In addition, the Commission and 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 staff with a means of ascertaining and acting upon paperwork burdens that may confront the
industry.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, is required under
this collection of information. The information collection collects basic Personally Identifiable
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
3

See Adopting Release, supra footnote 1.

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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.

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 (44 U.S.C. 3501 et seq.) and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules and
forms.
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 initial registration statements and
post-effective amendments on 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. We currently estimate for Form N-3 a total of 2,522 internal
burden hours.
The table below summarizes the estimated adjustments to the Form N-3 collection of
information from the proposed amendments, the estimated adjustments to the Form N-3
collection of information from the final amendments, and the final PRA estimates for internal
and external burdens associated with amended Form N-3:
FORM N–3 PRA ESTIMATES
Internal Hour
Burden

Wage Rate

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Internal Time Costs

Annual External
Cost Burden

ESTIMATES FOR IN ITIA L REGISTRATION STA TEMEN TS

×

$269
(blended rate for
compliance attorney
and intermediate
accountant)

$457

--

×

$269
(blended rate for
compliance attorney
and intermediate
accountant)

$538
×3
$1,614

--

7.7 hours

$2,071

--

Number of initial
registration statements

×0

×0

Total additional burden for
initial registration
statements

0 hours

$0

Amendments
(not related to investment
options)

1.7 hours

Amendments (per
investment option x 3
investment options),

2 hours
×3
6 hours

Total additional burden per
filing

--

ESTIMATES FOR POST-EFFECTIVE AMEN DMEN TS

Amendments
(not related to investment
options)

Amendments
(per investment option
x 3 investment options)

10 hours

-2 hours
×3
-6 hours

×

$269
(blended rate for
compliance attorney
and intermediate
accountant)

×

$269
(blended rate for
compliance attorney
and intermediate
accountant)

$2,690

-$538
×3
-$1,614

Total additional burden
per filing

4 hours

$1,076

Number of post-effective
amendments

×6

×6

Total additional annual
burden for post-effective
amendments

24 hours

$6,456

--

--

--

--

TOTA L ESTIMA TED BURDENS IN CLUDING AMEN DM EN TS
Current burden estimates

2,522 hours

$715,112

$165,340

Revised burden estimates

2,836 hours

$762,884

$123,114

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The table above summarizes our PRA initial and ongoing annual burden estimates
associated with Form N-3 as amended. In the aggregate, we estimate the total annual
hour burden to comply with amended Form N-3 to be 2,836 hours, at an average time
cost of $762,884.
13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to prepare and submit
registration statements on Form N-3. The cost burden does not include the hour burden
discussed in Item 12 above. We currently estimate for Form N-3 a total annual external
cost burden of $165,340. As outlined in the table above, we estimate the total external
cost burden to comply with amended Form N-3 to be $123,114.
14.

Costs to 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 $21.2
million in fiscal year 2019, based on the Commission’s computation of the value of staff
time devoted to this activity and related overhead.
15.

Changes in Burden

As summarized in the table above, the estimated hourly burden associated with
Form N-3 has increased from 2,522 hours to 2,836 hours (an increase of 314 hours).
Further, the estimated cost burden has decreased from $165,340 to $123,114 (a decrease
of $42,226). These revised estimates reflect the change in our methodology for
estimating burdens attributable to investment options, the increase in estimated burdens
associated with the amendments, the increase in the estimated average number of
investment options per Form N-3 registration statement from two to three investment
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options, and current estimates for the number of post-effective amendments filed
annually. These changes in burden also reflect the Commission’s revision and update of
burden estimates for all information collections under this OMB control number (whether
or not associated with rulemaking changes), and the Commission requested public
comment on all information collection burden estimates for this OMB control number.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
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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File Typeapplication/pdf
File TitleSUPPORTING STATEMENT FOR PROPOSED RULES
File Modified2020-06-01
File Created2020-06-01

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