Form N-17D-1 Supporting Statement (9-25-2013)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection for
Form N-17D-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 17(d) of the Investment Company Act (15 U.S.C. 80a-17(d)) (the “Act”)
authorizes the Commission to adopt rules that protect investment companies (“funds”) and their
shareholders from self-dealing and other forms of overreaching by affiliated persons when the
fund and the affiliated person participate in any joint enterprise or other joint arrangement or
profit-sharing plan. 1 Rule 17d-1 under the Act (17 CFR 270.17d-1) prohibits funds and their
affiliated persons from participating in a joint enterprise, unless an application regarding the
transaction has been filed with and approved by the Commission. Paragraph (d)(3) of the rule
provides an exemption from this requirement for any loan or credit advance to, or acquisition of
securities or other property of, a small business concern, or any agreement to do any of these
transactions (“investments”) made by a small business investment company (“SBIC”) and a bank
that is an affiliated person of (1) the SBIC or (2) an affiliated person of the SBIC (“affiliated
bank"). The exemption requires the Commission to prescribe reports about the investments, and
the Commission has designated Form N-17D-1 (“form”) as the form for reports required by
paragraph (d)(3) of rule 17d-1. 2
An SBIC and its affiliated bank must file Form N-17D-1, which has two parts, with the
Commission. Part I describes any investment in a small business concern made at the same time
by the SBIC and the affiliated bank (or an investment made by either entity when the other has
1

See 15 U.S.C. 80a-2(a)(3) (definition of “affiliated person”).

2

See 17 CFR 270.17d-2.

2
an existing investment). The SBIC must list the name and address of the small business concern
and the nature of its business, and the name and address of the affiliated bank and the basis of its
affiliation with the SBIC. The SBIC and the affiliated bank also must report any outstanding
investments in the small business concern, and the small business concern’s use of the proceeds
of investments made during the reporting period. If the SBIC invested at the same time or after
the affiliated bank, the report must state any changes in the nature and amount of the affiliated
bank's investment during the period beginning a year before the SBIC’s investment up to the date
of the report. Finally, the report must state the name of any affiliated person of the SBIC or the
affiliated bank (or any affiliated person of any affiliated person of the SBIC or affiliated bank)
who has any interest in the transactions, the basis of the affiliation, the nature of the interest, and
the consideration the affiliated person received or will receive.
Part II of the form requires a report about any disposition of an investment, default in the
payment of interest or principal, or extension or modification of the terms of any investment
made by an SBIC in a small business concern in which an affiliated bank also has invested. The
report must identify the investment and describe in detail any disposition, default, extension, or
modification involved. If the SBIC has disposed of an investment, the report must state the
profit or loss realized. If a loss was sustained, default occurred, or the terms of the investment
were extended or modified, the report must describe the circumstances of the event.
The SBIC and affiliated bank must file a form for every semi-annual accounting period
during which one or more of the events referenced in Part I or II occurred. The SBIC and the
affiliated bank may file the form jointly or separately, as long as the separate reports together
contain all the information requested by the form. The Commission processes but does not

3
review the form routinely. The form is available to members of the public for inspection and
copying. Therefore, it is useful for any person who wishes to monitor joint transactions by
SBICs and their affiliated banks.
2.

Purpose of the Information Collection

As discussed above, Form N-17D-1 provides information to the Commission and the
public about joint transactions by SBICs and their affiliated banks. Joint transactions with
affiliates create the risk that the affiliated persons of the SBIC may engage in self-dealing or
other forms of overreaching at the expense of shareholders. Disclosures on the form provide
information about these joint transactions to persons seeking to make an informed decision about
investing in an SBIC. The form also affords the Commission the opportunity to monitor
compliance with the Act in this area.
If the Commission did not collect the information contained in the form, neither the
Commission nor the investing public would be able to monitor or evaluate the potentially
abusive joint transactions engaged in by SBICs and their affiliated banks. If the rules did not
permit SBICs to file the form, SBICs would have to go through the more time-consuming and
expensive process of filing an application for an exemptive order from the Commission. Thus,
the exemption conditioned on filing the form allows SBICs greater flexibility to engage in these
joint transactions.
3.

Role of Improved Information Technology

The Commission's electronic filing system, called EDGAR, for Electronic Data
Gathering, Analysis and Retrieval, is designed to automate the filing, processing, and

4
dissemination of full disclosure filings. Form N-17D-1 is not currently required to be filed on
EDGAR, but may be in the future.
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. Form N-17D-1 does not call for duplicative information and the information called for in
the form is not otherwise available to the Commission or the public.
5.

Effect on Small Entities

The form was developed to meet the special needs of SBICs, many of which are small
entities. As discussed above, one of the purposes of the form is to allow such entities to avoid
the more onerous and expensive exemptive application process. The Commission believes the
benefits of disclosure to investors and the flexibility to SBICs of filing the form justify the costs
of providing the information on the form.
6.

Consequences of Less Frequent Collection

SBICs and affiliated banks must file the form no later than 30 days after the six-month
accounting period in which the contemporaneous investment occurs. Less frequent collection
would permit the potentially abusive affiliated transactions to proceed for too long without
disclosure to the Commission and investors. Investors could be harmed and the Commission
would have no meaningful way of making a current assessment of these transactions.
7.

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

Not applicable.

5
8.

Consultations Outside the Agency

The Commission adopted the form, after notice and public comment, on November 17,
1961. 3 The Commission requested public comment on the collection of information requirement
of Form N-17D-1 before it submitted this request for extension and approval to the Office of
Management and Budget. The Commission received no comments in response to this request.
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 paperwork burdens confronting the
industry.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
11.

Sensitive Questions

There are no sensitive questions asked. The form does not collect any Personally Identifiable
Information (PII).

3

Adoption of Rules and a Related Form Applicable to Small Business Investment Companies
Licensed by the Small Business Administration to Provide Exemption from Certain Requirements
of Sections 17(a), 17(d) and 18(c) of the Investment Company Act of 1940, Investment Company
Act Release No. 3361 (Nov. 17, 1961) [26 FR 11238 (Nov. 29, 1961)].

6
12.

Estimate of Time Burden

Most of the information requested on the form should be readily available to the SBIC or
the affiliated bank in records kept in the ordinary course of business, or with respect to the SBIC,
pursuant to the recordkeeping requirements under the Act. Commission staff estimates that it
should take approximately one hour for an accountant or other professional to complete the
form. 4 Up to three SBICs may file the form annually. 5 No SBIC has filed the form in recent
years, however. Thus, Commission staff estimates that no more than one SBIC is likely to file
the form in any year. Thus, the estimated total annual burden of filling out the form is 1 hour, at
an estimated total annual cost of $193. 6
The estimate of average burden hours is made solely for purposes of the Paperwork
Reduction Act. The estimate is not derived from a comprehensive or even a representative
survey or study of the costs of Commission rules.
13.

Total Annual Cost Burden

Commission staff estimates that the only cost burden of the form is identified in item 12
of this Supporting Statement.

4

This estimate of hours is based on past conversations with representatives of SBICs and
accountants that have filed the form.

5

As of September 23, 2013, three SBICs were registered with the Commission.

6

Commission staff estimates that the annual burden would be incurred by a senior accountant with
an average hourly wage rate of $193 per hour. See Securities Industry and Financial Markets
Association, Report on Management and Professional Earnings in the Securities Industry 2012,
modified to account for an 1800-hour work year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.

7
14.

Cost to the Federal Government

The Commission processes, but does not review, the reports on Form N-17D-1. The
Commission’s operational cost of processing the form is nominal.
15.

Changes in Burden

Not applicable. The burden has not changed.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.

18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.