Supporting Statement (Form N-CSR) (10-14)

Supporting Statement (Form N-CSR) (10-14).pdf

Form N-CSR under the Securities Exchange Act of 1934 and under the Investment Company Act of 1940, Certified Shareholder Report of Registered Management Investment Companies

OMB: 3235-0570

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OMB CONTROL NUMBER: 3235-0570

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Form N-CSR
A. JUSTIFICATION
1. Necessity for the Information Collection
Form N-CSR1 is a combined reporting form used by registered management
investment companies (“funds”) to file certified shareholder reports under the
Investment Company Act of 1940 (“Investment Company Act”)2 and the Securities
Exchange Act of 1934 (“Exchange Act”). 3 Specifically, Form N-CSR is to be used
for reports under section 30(b)(2) of the Investment Company Act 4 and section 13(a)
or 15(d) of the Exchange Act, 5 filed pursuant to rule 30b2-1(a) under the Investment
Company Act.6 Reports on Form N-CSR are to be filed with the Securities and
Exchange Commission (“Commission”) no later than 10 days after the transmission
to stockholders of any report that is required to be transmitted to stockholders under
rule 30e-1 under the Investment Company Act. 7
On August 5, 2020, the Commission proposed rule and form amendments
that would modernize the disclosure framework for open-end management

1

17 CFR 249.331 and 274.128.

2

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

3

15 U.S.C. 78a et seq.

4

15 U.S.C. 80a-29(b)(2).

5

15 U.S.C. 78m(a) and 78o(d).

6

17 CFR 270.30b2-1(a).

7

17 CFR 270.30e-1.

investment companies.8 The disclosure framework would feature concise and
visually engaging shareholder reports that would highlight key information that is
particularly important for retail investors to assess and monitor their fund9
investments. Certain information that may be less relevant to retail investors—and of
more interest to financial professionals and investors who desire more in-depth
information—would no longer appear in funds’ shareholder reports but would be
available online, delivered free of charge upon request, and also filed on a semiannual basis on Form N-CSR.

As part of the proposed layered disclosure framework, the Commission
proposed amendments to Form N-CSR to require funds to continue to file certain
information, which is currently included in fund shareholder reports, on Form NCSR. Under the proposed amendments, funds would have to file the following (in
addition to the current filing requirements) on Form N-CSR: financial statements for
funds; financial highlights for funds; remuneration paid by directors, officers and
others of funds; changes in and disagreement with accountants for funds; matters
submitted to fund shareholders for a vote; and statement regarding the basis for the

8

Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors,
and Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee
Information in Investment Company Advertisements, Securities Act Release No. 10814
(Aug. 5, 2020) available at https://www.sec.gov/rules/proposed/2020/3310814.pdf (the “Tailored Shareholder Report Proposal”).

9

For the purposes of the discussion of the proposed amendments to Form N-CSR in
this PRA renewal, a “fund” is an open-end management investment company
registered on Form N-1A or a series thereof, unless otherwise specified. Mutual
funds and most exchange-traded funds (“ETFs”) are open-end management
companies registered on Form N-1A.

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board’s approval of investment advisory contract. These Form N-CSR filing
requirements would further the proposed layered disclosure framework by making
available a broader set of fund information than the information that would appear
in funds’ annual and semi-annual reports under the Commission’s proposal. The
information that would be filed on Form N-CSR is less retail-focused than the
information that would appear in funds’ annual and semi-annual reports, but would
be available for investors who desire more in-depth information, financial
professionals, and other market participants.

The Commission proposed a requirement for funds to file this information on
Form N-CSR, instead of proposing a different approach (for example, proposing that
funds would only have to make this information available on their websites and not
also have to file it on Form N-CSR) for several reasons. The information included on
Form N-CSR would continue to provide shareholders and other market participants
with access to historical, immutable data regarding the fund on the Commission’s
Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. This
historical information also would facilitate the Commission’s fund monitoring
responsibilities and could create significant efficiencies in the location of information
for data gathering, search, and alert functions used in those monitoring activities. 10
Additionally, because Form N-CSR is filed with the Commission on EDGAR, a
fund can incorporate by reference information that is disclosed on Form N-CSR,

10

For example, filing on EDGAR facilitates the financial statement reviews that section
408 of the Sarbanes-Oxley Act mandates. See infra footnote 12.

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including the fund’s financial statements, into a fund’s registration statement, subject
to certain limitations.11 Finally, a fund’s principal executive and financial officer(s)
are required to certify the financial and other information included on Form N-CSR,
and are subject to liability for material misstatements or omissions on Form NCSR. 12
2.

Purpose and Use of the Information Collection
A registrant is required to disclose the information specified by Form N-CSR,

and the Commission will make this information public. The information provided in
reports on Form N-CSR may be used by the Commission in its regulatory, disclosure
review, inspection, and policymaking roles. Unlike many other federal information
collections, which are primarily for the use and benefit of the collecting agency, this
information collection is also for the use and benefit of investors. The information

11

See rule 0-4 under the Investment Company Act [17 CFR 270.0-4] (additional rules on
incorporation by reference for funds); rule 411 under the Securities Act [17 CFR
230.411] (general rules on incorporation by reference in a prospectus); rule 303 of
Regulation S-T [17 CFR 232.303] (specific requirements for electronically filed
documents); General Instruction D to Form N-1A.

12

See rule 30a-2 under the Investment Company Act [17 CFR 270.30a-2] and Item 13(a)(2)
of Form N-CSR; see also Certification of Disclosure in Companies’ Quarterly and
Annual Reports, Investment Company Act Release No. 25722 (Aug. 28, 2002) [67 FR
57275 (Sept. 09, 2002)].
The Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 (2002) (the “SarbanesOxley Act”) requires the principal executive and principal financial officer of most
management investment companies to provide two different certifications in their
periodic reports. Section 302 of the Sarbanes-Oxley Act requires a certification that,
among other things, relates to the accuracy of the information included in the N-CSR
filing. Section 906 of the Sarbanes-Oxley Act added new Section 1350 to Title 18 of the
United States Code, which requires a certification that, among other things, represents
that the N-CSR filing fairly presents, in all material respects, the fund’s financial
condition and results of operations, and is subject to specific Federal criminal provisions.

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filed with the Commission permits the verification of compliance with securities law
requirements and assures the public availability and dissemination of the
information.
3.

Consideration Given to Information Technology
The EDGAR system 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.
Reports on Form N-CSR are filed with the Commission electronically on EDGAR.13
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.
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-CSR are not generally duplicated
elsewhere. While the Commission’s 2020 proposal would require funds to file the
same information on Form N-CSR that they would have to make available online
(on a website other than EDGAR), we believe that the proposed Form N-CSR filing

13

See rule 101(a)(1)(iii)–(iv) of Regulation S-T [17 CFR 232.101(a)(1)(iii)–(iv)].

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requirement is not duplicative with the proposed website availability requirement for
the reasons discussed in the final paragraph of section A.1. above.
5.

Effect on Small Entities
The Commission reviews all rules periodically, as required by the Regulatory

Flexibility Act, 14 to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The current disclosure requirements for
reports on Form N-CSR do not distinguish between small entities and other funds.
The burden on smaller funds, however, to prepare reports on Form N-CSR may be
proportionally greater than for larger funds. The Commission believes, however, that
imposing different requirements on smaller funds would not be consistent with
investor protection and the purposes of certified shareholder reports.
6.

Consequences of Not Conducting Collection
Funds are required to file reports on Form N-CSR with the Commission no

later than 10 days after the transmission to stockholders of any report that is required
to be transmitted to stockholders under rule 30e-1 under the Investment Company
Act. Less frequent collection would mean that current information might not be
available to fund investors.

14

5 U.S.C. 601 et seq.

6

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
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 the paperwork burdens confronting the industry. The Commission
has requested public comment on the collection of information requirements on the
proposed amendments to Form N-CSR. Before the Commission submits a final
request for approval to the Office of Management and Budget, the Commission will
consider all comments received and address them in any adopting release.
9.

Payment or Gift
No payment or gift to respondents was provided.

10.

Confidentiality
No assurance of confidentiality was provided.

11.

Sensitive Questions
No information of a sensitive nature, including social security numbers, will be

required under this collection of information.

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The information collection collects basic Personally Identifiable Information (PII)
that may include name and job title. 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.

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 15 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission
rules and forms. Compliance with Form N-CSR is mandatory. Responses to the
collection of information will not be kept confidential.

In our most recent Paperwork Reduction Act submission for Form N-CSR,
Commission staff estimated the annual compliance burden to comply with the

15

44 U.S.C. 3501 et seq.

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collection of information requirement of Form N-CSR is 181,167 burden hours with
an internal cost burden of $58,290,931.5, and an external cost burden estimate of
$5,199,584. 16 The hour burden estimates for preparing and filing reports on Form
N-CSR are based on the Commission’s experience with the contents of the form. The
number of burden hours may vary depending on, among other things, the complexity
of the filing and whether preparation of the reports is performed by internal staff or
outside counsel.

The table below summarizes our PRA initial and ongoing annual burden
estimates associated with the proposed amendments to Form N-CSR.

16

On July 14, 2020, the Office of Management and Budget approved without change a
revision of the currently approved information collection estimate for Form N-CSR
(the “July 2020 estimates”). The July 2020 estimates increased the total burden
estimates for Form N-CSR; the July 2020 estimates are higher than the total
estimated burdens that were included in the Commission’s Tailored Shareholder
Report Proposal. The total estimated burdens in the table below reflect the higher
July 2020 estimates for total estimated burdens.

9

FORM N-CSR PRA ESTIMATES
Internal initial
burden hours

Internal annual
burden hours1

Wage Rate2

Internal Time Costs

Annual external cost
burden

PROPOSED ESTIMA TES FOR INITIA L N -CSR FILIN GS
Total additional
burden per filing
(proposed new
Items 7-11 of
Form N-CSR)

18 hours

11 hours3

Number of filings

×24,8204

Total additional
burden for Form NCSR

273,020 hours

×

$336
(blended rate for
compliance
attorney and
senior
programmer)

$3,696

--

× 24,820
$91,743,720

--

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

+181,167 hours

$5,199,584

Revised burden
estimates

454,187 hours

$5,199,584

Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting requirements that
we believe otherwise would be involved in preparing and filing Form N-CSR. The Commission’s estimates of the relevant wage rates are based
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 figures are modified by 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.
3. This estimate assumes that, after the initial 18 hours that a fund would spend preparing the new items on Form N-CSR, which we annualize
over a 3-year period, the fund would incur 5 additional burden hours associated with ongoing preparation of these items per year. The estimate
of 11 hours is based on the following calculation: ((18 initial hours / 3) + 5 hours of additional ongoing burden hours) = 11 hours.
4. Funds make two filings on Form N-CSR annually. Therefore, this estimate is based on the following calculation: 12,410 funds registered on
Form N-1A x 2 = 24,820 filings.

13.

Cost 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.

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14.

Change in Burden
Under the proposed amendments to Form N-CSR, the estimated hourly burden

associated with Form N-CSR would increase from 181,167 hours to 454,187 (an
increase of 273,020 hours). This increase is due to the staff’s estimates of the time
costs that would result from the proposed amendments’ requirements that funds file
additional information on Form N-CSR.
15.

Information Collection Planned for Statistical Purposes
The results of any information collection will not be published.

16.

Approval to Omit OMB Expiration Date
The Commission is not seeking approval to not display the expiration date for

OMB approval.
17.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission
The Commission is not seeking an exception to the certification statement.

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

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File TitlePAPERWORK REDUCTION ACT SUPPORTING STATEMENT
File Modified2020-11-13
File Created2020-11-13

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