Form N-6 Supporting Statement_Fast Act 2017

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-6

A.
1.

JUSTIFICATION

Necessity for the Information Collection

Form N-6 (17 C.F.R. 239.17c and 274.11d) is the form used by insurance
company separate accounts organized as unit investment trusts that offer variable life
insurance policies 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 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-6 also
requires separate accounts organized as unit investment trusts that offer variable life
insurance policies 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-6. 1 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-6 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-6.
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.2
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-6 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
requirement, registrants would be required to file Form N-6 in HTML format. While the

1

Investment Company Act Release No. 32858 (Oct. 11, 2017) (the “Proposing Release”).

2

See Proposing Release at footnotes 315-18.

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affected Form N-6 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 of the Information Collection
The purpose of Form N-6 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.

Role of Improved 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-6 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 Internet Web site (http://www.sec.gov) or at EDGAR
terminals located at the Commission’s public reference rooms.

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4.
Efforts to Identify 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-6 are not generally duplicated elsewhere.
5.
Effect on Small Entities
The current disclosure requirements for the registration statements and
shareholder reports do not distinguish between small entities and other funds. The
burden on smaller funds, however, to prepare and file registration statements may be
greater than for larger funds. This burden includes the cost of producing, printing, filing,
and disseminating the 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.
In any event, no small entities currently file registration statements on Form N-6.
6.

Consequences of Less Frequent Collection

The Investment Company Act requires that insurance company separate accounts
make initial filings and file annual amendments to their registration statements on Form
N-6. Less frequent collection of the information collected on Form N-6 would mean that
current information might not be available for investors in these life insurance policies.
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 proposed amendments to Form N-6, the Commission will
receive and evaluate public comments on the proposal and its collection of information
requirements. Moreover, the Commission and staff of the Division of Investment
Management participate in an ongoing dialogue with representatives of the investment

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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 confronting the industry.
9.

Payment or Gift to Respondents

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

Form N-6 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 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 3 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Compliance with the disclosure requirements of Form N-6 is mandatory.
Responses to the disclosure requirements will not be kept confidential

3

44 U.S.C. 3501 et seq.

5

Form N-6 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. In our most recent Paperwork Reduction Act submission for Form
N-6, Commission staff estimated the annual compliance burden to comply with the
collection of information of Form N-6 to be 85,269 burden hours with an internal cost
burden of approximately $27,158,176.50, and an external cost burden estimate of
$5,316,892. 4 The proposed amendments to Form N-6 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. 5 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-6 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. 6

4

This estimate is based on the last time the rule’s information collection was submitted for
PRA renewal in 2015.

5

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

6

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

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The table below shows the total annual compliance burden, in hours and in costs,
of the collection of information on Form N-6 resulting from the proposed amendments. 7
The burden estimates were calculated by multiplying the estimated number of responses
by the estimated 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. 8
Form

Form N-6

Proposed
number of
affected
responses
(A)
472

Incremental
burden
hours/form

Total
incremental
burden hours

(B)

(C) = (A) ×
(B)
472

1

25% internal
burden

75% outside
professional

Professional
costs

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E × $400

118

354

$141,600

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), 9 we estimate that in the aggregate,

7

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

8

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 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 1800-hour 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

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funds will annually incur an additional internal burden of 118 hours 10 and time cost of
$38,822 11 to comply with the proposed amendments to Form N-6.
We estimate that with the additional hour burdens and time costs associated with
the proposed amendments the total annual internal burden to comply would be 85,387
burden hours, 12 and time costs of $27,196,998.5, 13 for Form N-6.
13.

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 $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.
14.
Explanation of Changes in Burden
The total hour burden associated with Form N-6 has increased from 85,269 to
85,387 (an increase of 118). In addition, the annual external cost burden has increased
from $5,316,892 to $5,458,492 (an increase of $141,600). The changes in burden hours
and external cost burdens are due to the staff’s estimates of the time costs and external
costs that would result from our proposed amendments to Form N-6 regarding
hyperlinking.
15.

Information Collection Planned for Statistical Purposes

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.
10

This estimate is based on the following calculation: 0.25 internal burden hours x 472 responses =
118 hours.

11

This estimate is based on the following calculation: 118 hours x $329 (blended rate for a
compliance attorney ($345) and a senior programmer ($313)) = $38,822.

12

This estimate is based on the following calculation: 85,269 + 118 = 85,387 hours.

13

This estimate is based on the following calculation: $27,158,176.5+ $38,822= $27,196,998.5.

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The results of any information collection will not be published.
16.

Approval not to Display Expiration Date

The Commission is not seeking approval to not display the expiration date for
OMB approval.
17.

Exceptions to Certification Statement

The Commission is not seeking an exception to the certification statement.
B.

Collections of Information Employing Statistical Methods

The collection of information will not employ statistical methods.

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