Form N-5 Supporting Statement

SUPPORTING STATEMENT
Form N-5
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-5 1 is the form used by small business investment companies (“SBICs”) to
register their securities under the Securities Act of 1933 (“Securities Act”) 2 and to register
under the Investment Company Act of 1940 (“Investment Company Act”). 3 Section 5 of
the Securities Act requires a company to file a registration statement with the
Commission before it offers a new issue of securities to the public by the use of the mails
or other channels of interstate commerce, 4 and Section 8 of the Investment Company Act
requires an SBIC to register as an investment company. 5 Section 5(b) of the Securities Act
requires that investors be provided with a prospectus containing certain required
information prior to the sale or at the time of confirmation or delivery of the securities. 6
Form N-5 is the registration statement form adopted by the Commission for use by an
SBIC that has been licensed as such under the Small Business Investment Act of 1958 or
which has received the preliminary approval of the Small Business Administration
(“SBA”) and has been notified by the SBA that the company may submit a license
application. Form N-5 is an integrated registration form and may be used as the
registration statement under both the Securities Act and Investment Company Act. A
registration statement on Form N-5 is deemed filed under both Acts unless it is indicated
on the facing page that the filing is being made for purposes of only one of the Acts.
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-5. 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-5 to facilitate access to the Form’s exhibits for investors and
other users of the information. Under the proposed amendments, affected registrants

1

17 CFR 239.24 and 274.5.

2

15 U.S.C. 77a et seq.

3

15 U.S.C. 80a-1 et seq.

4

15 U.S.C. 77e.

5

15 U.S.C. 80a-8.

6

15 U.S.C. 77e(b).

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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-5.
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.
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-5 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-5 in HTML format. While the affected Form
N-5 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 and Use of the Information Collection

The purpose of Form N-5 is to meet the filing and disclosure requirements of both the
Securities Act and Investment Company Act, and to provide investors with information
sufficient to evaluate an investment in an SBIC. 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 that is 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.

Consideration Given to Information Technology

The Commission’s Electronic Data Gathering, Analysis, and Retrieval System
(“EDGAR”) automates the filing, processing, and dissemination of full disclosure filings.

2

This automation has increased the speed, accuracy, and availability of information,
generating benefits to investors and financial markets. Registration statements on Form
N-5 are required to be filed with the Commission electronically on EDGAR. 7 The public
may access filings on EDGAR through the Commission’s Web site (http://www.sec.gov)
or at EDGAR terminals located at the Commission’s public reference rooms.
Prospectuses may be sent to investors by electronic means so long as certain requirements
are satisfied. 8
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 information in Form N-5 is not generally duplicated elsewhere.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, 9 to identify methods to minimize recordkeeping or reporting requirements
affecting small businesses. With respect to registration under the Investment Company
Act, the requirements of Form N-5 do not distinguish between small entities and other
SBICs. Although the burden on smaller SBICs to prepare and file registration statements
may be greater than for larger SBICs, the Commission believes that imposing different
requirements on smaller SBICs would not be consistent with investor protection and the
purposes of registration statements.
With respect to the registration of securities by SBICs that are registered under the
Investment Company Act, Rules 601 to 610a under the Securities Act exempt certain
small offerings of securities from registration under the Securities Act provided that the
companies file with the Commission advance notice of such offerings on Form 1-E 10 and
deliver an offering circular containing the information specified in Schedule A 11 to each
offeree. 12

7

See rules 101(a)(1)(i) and (iv) of Regulation S-T [17 CFR 232.101(a)(1)(i) and (iv)].

8

See Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)].

9

5 U.S.C. 601 et seq.

10

17 CFR 239.200.

11

17 CFR 230.610a.

12

17 CFR 230.601 to 230.610a.

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6.

Consequences of Not Conducting Collection

An SBIC must file a registration statement on Form N-5 when licensed as an SBIC by
the SBA. An SBIC must also file Form N-5 if it chooses to sell securities to the public in
order to meet the requirements of Sections 5 and 10(a)(3) of the Securities Act for
delivery of a current prospectus to offerees. A registration statement on Form N-5 must be
updated annually.
In the absence of the disclosure requirements in Form N-5, investors in SBICs may
not receive information crucial to making informed investment decisions. In addition,
Form N-5 satisfies the Investment Company Act requirement that investment companies
register with the Commission before they conduct business. In the absence of a Form N-5
registration statement, SBICs would not be able to comply with the filing requirements of
the Investment Company Act.
Moreover, if information were collected less frequently, the Commission would be
unable to fulfill its responsibilities under the Investment Company Act and investors
would not have current information on which to base their investment decisions.
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

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 staff with a means of ascertaining and acting upon the paperwork
burdens confronting the industry. The Commission requested public comment on the
proposed amendments and related collection of information requirements before it
submitted this request for revision and approval to the Office of Management and Budget.
Before adopting the proposed amendments to Form N-5, the Commission will receive
and evaluate public comments on the proposal and its collection of information
requirements.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality was provided.
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11.

Sensitive Questions

No questions of a sensitive nature are involved. The information collection does not
include personally identifiable information.
12./13. 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 13 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-5 is mandatory. Responses to the collection of
information will not be kept confidential.
In our most recent Paperwork Reduction Act submission for Form N-5, 14
Commission staff estimated the annual compliance burden to comply with the collection
of information requirement of Form N-5 to be 117 burden hours, with an estimated
internal cost burden of $32,409. We further estimated the external cost burden to be
about $10,000 per year.
The proposed amendments to Form N-5 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. 15
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-5 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. 16
The table below shows the total annual compliance burden, in hours and in costs,
of the collections of information on Form N-5 resulting from the proposed amendments. 17
The burden estimates were calculated by multiplying the estimated number of responses
13

44 U.S.C. 3501 et seq.

14

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

15

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

16

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

17

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

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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. 18
Form

Form N-5

Proposed
number of
affected
responses
(A)
1

Incremental
burden
hours/form

Total
incremental
burden hours

(B)

(C) = (A) ×
(B)
1

1

25% internal
burden

75% outside
professional

Professional
costs

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E × $400

0

1

$400

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), 19 we estimate that in the aggregate,
funds will annually incur an additional internal burden of 0.25 hours 20 and time cost of
$82.25 21 to comply with the proposed amendments to Form N-5. 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 117.25 burden hours 22 and time costs of
$32,491.25 23 for Form N-5.

18

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.

19

This estimate is based on the following calculation: Blended rate for a compliance attorney ($345)
and a senior programmer ($313) = $329. The Commission estimates the wage rate associated with
these burden hours based on salary information for the securities industry compiled by the
Securities Industry and Financial Markets Association. See Securities Industry and Financial
Markets Association, Report on Management & Professional Earnings in the Securities Industry
2013 (adjusted to account for the effects of inflation).

20

This estimate is based on the following calculation: 0.25 internal burden hours x 1 response = 0.25
hours.

21

This estimate is based on the following calculation: 0.25 hours x $329 (blended rate for a
compliance attorney ($345) and a senior programmer ($313)) = $82.25.

22

This estimate is based on the following calculation: 117 + 0.25 = 117.25 hours.

23

This estimate is based on the following calculation: $32,409 + 82.25 = $32,491.25.

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14.

Costs 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 $22.9 million in
fiscal year 2016, based on the Commission’s computation of the value of staff time
devoted to this activity and related overhead.
15.

Changes in Burden

The total annual hour burden of 117.25 represents an increase of 0.25 hours over the
previous hour estimate of 117 hours. In addition, the annual cost burden of $10,400
represents an increase of $400 over the previous external cost burden estimate of $10,000
per year. The changes in burden hours and external costs are due to the staff’s estimates
of the time costs and external costs that would result from our proposed amendments to
Form N-5 regarding hyperlinking.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
Not applicable.

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