130809 _ N-2 Supporting Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Submission for
Form N-2
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-2 (17 CFR 239.14 and 274.11a-1) is the form used by closed-end
management investment companies (“closed-end funds”) to register as investment
companies under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.)
(“Investment Company Act”) and 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. The primary
purpose of the registration process is to provide disclosure of financial and other
information to current and potential investors for the purpose of evaluating an investment
in a security. 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.
A closed-end fund is required to register as an investment company under Section
8(a) of the Investment Company Act (15 U.S.C. 80a-8(a)). Form N-2 permits a
closed-end fund to provide investors with a prospectus covering essential information
about the fund when the fund makes an initial or additional offering of its securities.
More detailed information is provided to interested investors in the Statement of
Additional Information (“SAI”). The SAI is provided to investors upon request and
without charge.

2.

Purpose of the Information Collection

The purpose of Form N-2 is to meet the filing and disclosure requirements of the
Securities Act and the Investment Company Act and to enable funds to provide investors
with information necessary to evaluate an investment in a fund. 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

The Commission's electronic filing system, EDGAR, is designed to automate the
filing, processing, and dissemination of all disclosure filings. The system permits
publicly held companies to transmit their filings to the Commission electronically. This
automation has increased the speed, accuracy, and availability of information, generating
benefits to investors and financial markets. All registered investment companies filing
Form N-2 with the Commission are required to use EDGAR.
4.

Efforts to Identify Duplication

The Form N-2 registration statement is the principal disclosure document used by
closed-end funds. In general, to avoid duplication a fund may incorporate by reference,
in answer or partial answer to any item in Form N-2 not required to be included in the
prospectus, any information contained elsewhere in the registration statement or any
information contained in other statements, applications, or reports filed with the
Commission.

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5.

Effect on Small Entities

Form N-2 must be filed by all closed-end funds, regardless of size. It would not
be in the best interest of investors to reduce the reporting and recordkeeping requirements
for small entities.
6.

Consequences of Less Frequent Collection

In the absence of the disclosure requirements in Form N-2, investors in closedend funds may not receive information necessary to make informed investment decisions,
and consumer confidence in the securities industry could be adversely affected. Form
N-2 also satisfies the Investment Company Act requirement that investment companies
register with the Commission before they conduct business. In the absence of a Form
N-2 registration statement, closed-end funds would not be able to comply with the filing
requirements of the Investment Company Act.
A closed-end fund must file its registration statement on Form N-2 only when
making initial or additional offerings of securities or when amending its registration
statement. Less frequent collection would mean that information current to a particular
offering would not be available to fund investors and the Commission would not have
current information to perform its regulatory functions.
7.

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

Not applicable.
8.

Consultation Outside the Agency

Form N-2 has previously been amended through rulemaking actions pursuant to
the Administrative Procedure Act. Comments are generally received from registrants,

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trade associations, the legal and accounting professions, and other interested parties. In
addition, the Commission and staff of the Commission’s Division of Investment
Management participate in an ongoing dialogue with representatives of the investment
company industry through public conferences, meetings, and informal exchanges. The
Commission requested public comment on the collection of information requirements in
Form N-2 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

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

Form N-2 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/secprivacyoffice.htm.1

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See “(SEC-1) Registration Statements Filed Pursuant to Provisions of the Securities Act of 1933,
Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, and Investment
Company Act of 1940.”

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12.

Estimate of Time Burden

The estimate of the annual number of registration statements filed on Form N-2 is
based on the average annual number of filings received by the Commission over the past
three years. The hour burden estimates for preparing and filing Form N-2 are based on
the Commission’s experience with the contents of the form, as well as Commission
staff’s discussions with industry representatives. The number of burden hours may vary
depending on, among other things, the complexity of the filing and whether preparation
of the form is performed by fund staff or outside counsel. The estimated average burden
hours are made solely for purposes of the Paperwork Reduction Act and are not derived
from a quantitative, comprehensive, or even representative survey or study of the burdens
associated with Commission rules and forms.
Form N-2 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 will be
imposed by Form N-2 are as follows:
Calculation of Hour Burden of Initial Form N-2 Filings

Number of initial Form N-2 filings annually
Average number of portfolios per filing
Number of portfolios referenced in initial Form N-2
filings annually
Current hour burden per portfolio for initial Form N-2
filing
Total annual hour burden for initial Form N-2 filings
(162 x 515)
Calculation of Hour Burden of Post-Effective Amendments

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162
1
162
515
83,430

Number of post-effective amendments filed annually

29

Average number of portfolios per filing
Number of portfolios in post-effective amendments
to Form N-2 filings annually
Current hour burden per portfolio for preparing posteffective amendments
Total annual hour burden to prepare post-effective
amendments (29 x 107)

1
29
107
3,103

Total Annual Hour Burden
Annual hours for post effective amendments +
annual hours for initial Form N-2 filings
(83,430 + 3,103)

86,533

Based on the estimated wage rate, the total cost to the fund industry of the hour
burden for complying with Form N-2 is approximately $27.185 million.2
13.

Total Annual Cost Burden

Cost burden is the cost of goods and services purchased to prepare and update
Form N-2, such as for the services of independent auditors and outside counsel. The cost
burden does not include the hour burden discussed in Item 12. Estimates are based on the
Commission’s experience with the filing of registration forms, as well as Commission
staff’s discussions with industry representatives.

2

The cost to the industry is calculated by multiplying the total annual hour burden (86,533
hours) by the estimated hourly wage rate of $314.16. The estimated wage figure is based
on published rates for attorneys, paralegals, and assistant general counsels, modified to
account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm
size, employee benefits and overhead, yielding effective hourly rates of $310, $175, and
$467, respectively. See SIFMA’s Report on Management & Professional Earnings in the
Securities Industry 2012 (Oct. 2012). The estimated wage rate was further based on the
estimate that attorneys, paralegals, and assistant general counsels would divide time
equally, resulting in a weighted wage rate of $314.16 (($310 x . 33) + ($175 x .33) +
($467 x .33)).

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The current estimated cost burden for preparing an initial Form N-2 is $28,449
per portfolio and for preparing a post-effective amendment to a previously effective
registration statement is $10,135 per portfolio. The Commission estimates that, on an
annual basis, 162 portfolios will be referenced in initial filings on Form N-2 and 29
portfolios will be referenced in post-effective amendments of Form N-2 filings. Thus,
the total cost burden allocated to Form N-2 would be as follows:
Cost Burden of Preparing and Filing Initial Form N-2

Cost burden per portfolio for initial Form N-2 filings
Number of portfolios referenced in initial Form N-2
filings annually
Cost burden of initial
Form N-2 filings (162 x $31,941)

$31,941
162
$5,174,442

Cost Burden of Preparing and Filing Post-Effective Amendments
Cost burden per portfolio of post-effective
amendments Form N-2 filings
Number of portfolios referenced in post-effective
amendments to Form N-2 filings annually
Cost burden of post-effective amendments to Form
N-2 filings (29 x $10,814)

$10,814
29
$313,606

Total Cost Burden for Form N-2
Initial Form N-2 filings + post-effective amendments
($5,174,442 + $313,606)
14.

$5,488,048

Cost to the Federal Government

The annual cost of reviewing and processing new registration statements,
post-effective amendments, proxy statements, and shareholder reports of investment
companies amounted to approximately $19.8 million in fiscal year 2012, based on the

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Commission’s computation of the value of staff time devoted to this activity and related
overhead.
15.

Changes in Burden

Currently, the approved annual hour burden for preparing and filing registration
statements on Form N-2 is 87,097 hours based on the previous estimate of 205 responses.
The new estimate of the total hour burden is 86,533 hours based on the new estimated
total number of responses of 191. The decrease in the total annual hour burden is 564
hours. This decrease is attributable to a decrease in the number of Form N-2 filings.
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. 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.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

Not Applicable.

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