Supporting Statement (Form N-CSR) - Fast Act Adoption

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 March 20, 2019, the Commission issued a release adopting amendments to
certain of the Commission’s forms that are used by investment companies, including
Form N-CSR.8 The Commission adopted amendments to Rule 102 of Regulation ST to apply hyperlinking and HyperText Markup Language (“HTML”) format
requirements to registrants filing Form N-CSR to facilitate access to the Form’s
exhibits for investors and other users of the information. Under the amendments,
affected registrants must 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 applies to registration
statements on Form N-CSR. Consistent with our rules for operating companies, we
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.

8

Investment Company Act Release No. 33426 (Mar. 20, 2019) (the “Adopting
Release”).

are not requiring registrants to refile electronically any exhibits filed only in paper.
Under the amendments, an electronic filer is also required to correct an inaccurate or
nonfunctioning link or hyperlink to an exhibit.
In connection with the exhibit hyperlinking requirements, the Commission
also adopted amendments to Rule 105 of Regulation S-T to require investment
company registrants to make Form N-CSR 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 requirement, registrants are required to file Form N-CSR in HTML
format. While the affected Form N-CSR filings ware required to be filed in HTML
pursuant to the amendments to Rule 105, registrants may continue 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 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
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
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 Commission’s Electronic Data Gathering, Analysis, and Retrieval
(“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.9
The public may access filings on EDGAR through the Commission’s Internet Web
9

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

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site (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.
5. Effect on Small Entities
The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, 10 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.
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
Before adopting the amendments to Form N-CSR, the Commission received and
evaluated public comments on the proposal and its collection of information
requirements. Moreover, 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

10

5 U.S.C. 601 et seq.

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informal exchanges. These various forums provide the Commission and staff with a
means of ascertaining and acting upon paperwork burdens confronting the industry.
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.
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 11 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
collection of information requirement of Form N-CSR is 179,443 burden hours with
an internal cost burden of $57,723,571, and an external cost burden estimate of
$3,129,984. 12 The hour burden estimates for preparing and filing reports on Form
11

44 U.S.C. 3501 et seq.

12

This estimate is based on the last time the rule’s information collection was
submitted for PRA revision in 2019.

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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 amendments to Form N-CSR 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 will be small.
We assume that the average burden hours of requiring exhibit hyperlinks will 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-CSR and the staff’s experience, we estimate that the average burden for a
registrant to hyperlink to exhibits will be one hour per response for each of the
affected forms. As discussed in the Adopting Release, we are not making any
adjustments to the paperwork burden of affected forms due to the amendments to
simplify and modernize the rules and forms governing incorporation by reference.
The table below shows the total annual compliance burden, in hours and in
costs, of the collection of information on Form N-CSR resulting from the
amendments.13 The burden estimates were calculated by multiplying the estimated
number of responses by the estimated average amount of time it will 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.14
Form

Form N-CSR

Number of
affected
responses

Incremental
burden
hours/form

Total
incremental
burden hours

(A)

(B)

6,898

1

(C) = (A) ×
(B)
6,898

25% internal
burden

75% outside
professional

Professional
costs

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E × $400

1,725

5,174

$2,069,600

13

For convenience, the estimated hour and cost burdens in the table have been
rounded to the nearest whole number.

14

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

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The figures above reflect our estimated increase of approximately 0.25 internal
burden hours per fund. Given an estimated time cost of $329 per fund (based on
updated data concerning funds and fund personnel salaries), 15 we estimate that in the
aggregate, funds will annually incur an additional internal burden of 1,724.5 hours 16
and time cost of $567,360.5 17 to comply with the amendments to Form N-CSR.
We estimate that, with the additional hour burdens and time costs associated
with the amendments, the total annual internal burden to comply will be 179,443
burden hours,18 and time costs of $57,723,571, 19 for Form N-CSR.
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 $22.2 million in fiscal year 2018, based on the Commission’s
computation of the value of staff time devoted to this activity and related overhead.

15

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 1800hour 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, yielding
effective hourly rates of $345 and $313, respectively. See Securities Industry and
Financial Markets Association, Report on Management & Professional Earnings in
the Securities Industry 2013. We estimate that compliance attorneys and senior
programmers would divide their time equally, yielding an estimated hourly wage rate
of $329. ($345 per hour for compliance attorneys + $313 per hour for senior
programmers) ÷ 2 = $329 per hour.

16

This estimate is based on the following calculation: 0.25 internal burden hours x
6,898 responses = 1,724.5 hours.

17

This estimate is based on the following calculation: 1,724.5 hours x $329 (blended
rate for a compliance attorney ($345) and a senior programmer ($313)) = $567,360.5.

18

This estimate is based on the following calculation: 179,443 + 1,724.5 = 181,167.5
hours.

19

This estimate is based on the following calculation: $57,723,571+ $567,360.5=
$58,290,931.5.

6

14. Change in Burden
The estimated hourly burden associated with Form N-CSR has increased from
179,443 hours to 181,167.5 hours (an increase of 1,724.5 hours). In addition, the
annual external cost burden has increased from $3,129,984 to $5,199,584 (an
increase of $2,069,600). This increase is primarily due to the staff’s estimates of the
time costs that will result from our amendments to Form N-CSR regarding
hyperlinking.
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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