N-4 Supporting Statement 2-10-2015

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-4

A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-4 (17 CFR 239.17b and 274.11c) is the form used by insurance company
separate accounts organized as unit investment trusts that offer variable annuity contracts
to register as investment companies 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 registration statement be effective before
any securities are sold, and Section 8 of the Investment Company Act (15 U.S.C. 80a-8)
provides for the registration of investment companies. Pursuant to Form N-4, separate
accounts organized as unit investment trusts that offer variable annuity contracts provide
investors with a prospectus and a statement of additional information (“SAI”) covering
essential information about a separate account. 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 or at the time of sale or delivery of securities.
2.

Purpose of the Information Collection

The purpose of Form N-4 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 a 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.

Role of Improved Information Technology

The Commission’s electronic filing system (“EDGAR”) automates 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-4 is required to be filed with the Commission
electronically on EDGAR. (17 CFR 232.101(a)(1)(i) and (iv)) 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-4 generally are not 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 disclosure requirements
for registration statements on Form N-4 do not distinguish between small entities and
other registrants. The burden on smaller registrants, however, to prepare and file

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registration statements may be greater than for larger registrants. This burden includes
the cost of producing, printing, filing, and disseminating prospectuses and SAIs. The
Commission believes, however, that imposing different requirements on smaller entities
would not be consistent with investor protection and the purposes of registration
statements.
In any event, no small entities currently file registration statements on Form N-4.
6.

Consequences of Less Frequent Collection

The purpose of Form N-4 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 a 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 a security.
7.

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

Not Applicable.
8.

Consultation Outside the Agency

Form N-4 has previously been amended through rulemaking actions pursuant to
the Administrative Procedure Act (5 U.S.C. 500 et. seq.). Comments are generally
received from registrants, trade associations, the legal and accounting professions, and
other interested parties. 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

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exchanges. These various forums provide the Commission and the staff with a means of
ascertaining and acting upon paperwork burdens that may confront the industry. The
Commission requested public comment on the Form N-4 collection of information before
it submitted this request for extension and approval to the Office of Management and
Budget. The Commission received no comments in response to its request.
9.

Payment or Gift to Respondents

Not Applicable.
10.

Assurance of Confidentiality

Not Applicable.
11.

Sensitive Questions

Form N-4 collects Personally Identifiable Information (PII). Records include
information on officers, directors, principal shareholders, and certain other persons
having a relationship with or transaction with a registrant. The records describe the
individual’s relationship to a registrant and other relevant material business information
about the individual. The records do not include Social Security Numbers. A System of
Records Notice has been published in the Federal Register at 4 FR 4550 and can also be
found at http://www.sec.gov/about/privacy/sorn/secsorn1.pdf.
12.

Estimate of Hour Burden
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. Providing the information required by Form N-4 is
mandatory. Responses will not be kept confidential.

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The estimate of the annual number of registration statements filed on Form N-4 is
based on the number of filings received by the Commission in the 12-month period
ending December 31, 2014. The hour burden estimates for preparing and filing
registration statements on Form N-4 is based on past consultations with filers and the
Commission’s experience with its contents. The number of burden hours may vary
depending on, among other things, the complexity of the filing and whether preparation
of the registration statement is performed internally or by outside counsel.
Form N-4 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 Commission estimates that the burden hours that would be
imposed by Form N-4 are as follows:
Calculation of Hour Burden for Initial Form N-4 Filings
•
•
•
•
•

Number of initial Form N-4 filings annually
Average number of portfolios per filing
Number of portfolios in initial Form N-4 filings
annually
Current hour burden per portfolio for initial Form
N-4 filing
Total annual hour burden for initial Form N-4 filings
(210 x 278.5)

210
1
210
278.5
58,485.00

Calculation of Hour Burden for Post-Effective Amendments
•
•
•
•
•

Number of post-effective amendments filed annually
Average number of portfolios per filing
Number of portfolios in post-effective amendments
to Form N-4 filings annually
Current hour burden per portfolio for post-effective
amendments
Total annual hour burden for post-effective
amendments (1,443 x 197.25)

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1,443
1
1,443
197.25
284,631.75

Total Annual Hour Burden
•

Annual hours for initial Form N-4 filings + annual
hours for post effective amendments
(58,485.00 + 284,631.75)

343,116.75

Based on the estimated wage rate, the total cost to the fund industry of the hour
burden for complying with Form N-4 is approximately $109,282,685. 1
13.

Estimate of Total Annual Cost Burden

Cost burden is the cost of goods and services purchased to prepare and update
filings on Form N-4, such as for the services of independent auditors and outside counsel.
The cost burden does not include the cost of the hour burden discussed in Item 12.
Estimates are based on the Commission’s experience with the filing of registration forms.
The current estimated annual cost burden for preparing an initial Form N-4 filing
is $23,013 per portfolio and the estimated annual current cost burden for preparing a
post-effective amendment filing on Form N-4 is $21,813 per portfolio. 2 The Commission
estimates that, on an annual basis, 210 portfolios will be referenced in initial Form N-4

1

The cost to the industry is calculated by multiplying the total annual hour burden
(343,116.75 hours) by the estimated hourly wage rate of $318.50. The estimated wage
figure is based on published rates for Compliance Attorneys ($334) and Senior
Programmers ($303). The $334/hour figure for a Compliance Attorney and $303/hour
figure for a Senior Programmer are from 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. The estimated wage rate was further based on the estimate that
Compliance Attorneys and Senior Programmers would divide time equally, resulting in a
weighted wage rate of $318.50 (($334 x .50) + ($303 x .50)).

2

The previous cost burden for preparing an initial Form N-4 filing was $22,319 per
portfolio and the previous cost burden for preparing a post-effective amendment to a
previously effective registration statement was $21,155 per portfolio. To account for the
effects of inflation since 2012, a rate of 3.11% was applied, which was calculated using
the Consumer Price Index.

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filings and 1,443 portfolios will be referenced in post-effective amendment filings on
Form N-4. Thus, the estimated total annual cost burden allocated to Form N-4 would be
$36,308,889, as follows:

Cost Burden of Preparing and Filing Initial Form N-4
•
•
•

Cost burden per portfolio for preparing and filing
initial Form N-4
Number of portfolios in initial Form N-4 filings
annually
Cost burden of preparing and filing initial
Form N-4 (210 x $23,013)

$23,013

210
$4,832,730

Cost Burden of Preparing and Filing Post-Effective Amendments
•
•
•

Cost burden per portfolio for preparing and filing
post-effective amendments
Number of portfolios in post-effective amendments
to Form N-4 filings annually
Cost burden of preparing and filing post-effective
amendments (1,127 x $21,155)

$21,813

1,443

$31,476,159
Total Annual Cost Burden for Form N-4
•

14.

Initial Form N-4 + post-effective amendments
($4,832,730 + $31,476,159)

$36,308,889

Estimate of Cost to the Federal Government

The annual cost of reviewing and processing disclosure documents, including new
registration statements, post-effective amendments, proxy statements, and shareholder
reports of investment companies amounted to approximately $19.2 million in fiscal year
2014, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead.

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15.

Explanation of Changes in Burden

Currently, the approved total annual hour burden for preparing and filing
registration statements on Form N-4 is 256,834.75 hours and the total annual cost burden
allocated to Form N-4 is $26,609,241. These burdens were based on the previous
estimate of 1,251 total annual responses (124 initial responses + 1,127 post-effective
amendments = 1,251 total annual responses). The new estimate of the total annual hour
burden is 343,116.75 hours and the new estimate of the total annual cost burden is
$36,308,889. These new burdens are based on the new estimated total annual number of
responses of 1,653 (210 initial responses + 1,443 post-effective amendments = 1,653 total
annual responses). The increase to the total annual hour burden of 86,282 hours and the
increase to the total annual cost burden of $9,699,648 are due to a 70% increase in
estimated responses representing initial filings, as well as a 2.8% increase in the
estimated number of responses representing post-effective amendments.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.
17.

Approval to not Display Expiration Date

We request authorization to omit the expiration date on the electronic version of
the form. Including the expiration date on the electronic version of the form will result in
increased costs, because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be
displayed.
18.

Exceptions to Certification Statement

Not Applicable.

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B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not Applicable.

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