Supporting Statement (Form N-2) (Nov 18, 2019)

OMB Control Number: 3235-0026
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection 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.
On June 5, 2018, the Commission issued a release adopting new rule 30e-3 under

the Investment Company Act and certain amendments to other rules and forms. 1 New
rule 30e-3 will provide certain funds and unit investment trusts with an optional method
to satisfy shareholder report transmission requirements by making such reports and
certain other materials publicly accessible on a website, as long as they satisfy certain
other conditions of the rule regarding (a) availability of the report and other materials;
(b) notice to investors of the website availability of the report; and (c) delivery of paper
copies of materials upon request. In connection with our adoption of rule 30e-3, the
Commission is amending certain rules and forms including Form N-2. Form N-2 is
amended to require certain legend requirements on the prospectuses and annual and
semi-annual reports if relying on rule 30e-3. Responses to the disclosure requirements
are not kept confidential.
2.

Purpose and Use 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.

Consideration Given to Information Technology

The Commission's electronic filing system, EDGAR, is designed to automate the
filing, processing, and dissemination of all disclosure filings. The system permits
1

See Securities Act Release No. 10506 (June 5, 2018) [83 FR 29158 (June 22, 2018)] (“Adopting
Release”).

2

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 Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it adopts changes in its
rules. For closed-end funds filing on Form N-2 for purposes of registering their fund,
these requirements are not duplicated elsewhere. Form N-2, not specifically duplicated
elsewhere with respect to its registrants, sets forth the filing and disclosure requirements
for closed-end funds.
5.

Effect on Small Entities

Form N-2 must be filed by all closed-end funds, regardless of size. The burden
on smaller funds to prepare and file registration statements may be greater than for larger
funds. The Commission believes, however, that imposing different requirements on
smaller investment companies would not be consistent with investor protections for
consistent levels of disclosure information regardless of fund size and for the purposes of
registering closed-end funds securities to comply with the Investment Company Act and
the Securities Act. For example, it would not be in the best interest of investors to reduce
the reporting and recordkeeping requirements for small entities because the information
is provided to investors to evaluate an investment in a fund, regardless of size. The
Commission reviews all rules periodically, as required by the Regulatory Flexibility Act,
to identify methods to minimize recordkeeping or reporting requirements affecting small
businesses.
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6.

Consequences of Not Conducting 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

The Commission requested public comment on the collection requirements for
conditioning reliance on rule 30e-3 with requirements to require legends on prospectuses
and semi-annual and annual reports before it submitted this request for revision and
approval to the Office of Management and Budget. The Commission and 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 paperwork burdens confronting the
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industry.
9.

Payment or Gift

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
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 names, job titles and work
addresses. 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.
12/13. Estimate of Hour and Cost Burden of Information Collection
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. Compliance with the disclosure requirements of Form N-2 is
mandatory. Responses to the disclosure requirements will not be kept confidential. The
following estimates of average burden hours and costs are made solely for purposes of
the Paperwork Reduction Act and are not derived from a quantitative, comprehensive, or
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even representative survey or study of the burdens and costs associated with Commission
rules and forms.
In our most recent Paperwork Reduction Act submission for Form N-2,
Commission staff estimated the annual compliance burden to comply with the collection
of information of Form N-2 to be 73,250 burden hours and an external cost burden
estimate of $4,668,396. 2
Pursuant to the amendments in connection with the rule 30e-3 adoption, we
estimate that these funds will incur 1 burden hour for the first summary prospectus,
statutory prospectus, or shareholder report reflecting these requirements and 0.5 hours for
each additional summary prospectus, statutory prospectus, or annual and semi-annual
report reflecting these requirements. These related disclosure requirements will only
apply during the extended transition period. In light of the short period during which
these additional requirements will be effective and the modest impact they are likely to
have on external service providers such as website hosting services, outside counsel and
auditors, and printing and mailing services, we do not expect them to result in additional
expenses passed on to funds by their service providers in the form of additional external
cost burden. Thus, we do not estimate there will be any external costs to comply with
these disclosure requirements.
We estimate that there are 711 funds that could file registration statements or
amendments to registration statements on Form N-2. 3 Of this group, we estimate that 640

2

These estimates are based on the last time the form’s information collection was submitted for PRA
renewal in 2016.

3

This estimate is based on data from Commission filings as well as Investment Company Institute
statistics as of December 31, 2017, available at http://www.ici.org/research/stats.

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funds will rely on rule 30e-3. 4 Consequently, we estimate that the total annual hour
burden associated with the amendments to Form N-2 and relating to prospectuses is 320
hours. 5 In addition, we estimate that the total annual hour burden associated with the
amendments to Form N-2 is 533 hours. 6 In total, we estimate that the aggregate annual
hour burden associated with the amendments to Form N-2 will be 853 hours per year. 7
We estimate that with the additional hour burdens associated with the
amendments the total annual internal burden to comply would be 74,103 burden hours for
Form N-2. 8 Based on the Commission’s estimate of 74,103 hours and an estimated wage
rate of about $284 per hour, 9 the total annual cost to registrants of the hour burden for
complying with the amendments to Form N-2 is about $21 million.10

4

711 funds × 0.9 = 640 funds.

5

640 funds × 1 hour in the first year = 640 hours. 640 funds × 0.5 hours in the second year = 320
hours. 640 funds × 0 hours in the third year = 0 hours. (640 + 320 + 0) ÷ 3 years = 320 hours per
year on an amortized basis. The Commission notes that this is a conservative estimate because
funds registered on Form N-2, in reliance of Investment Company Act rule 8b-16(b), on average
prepare and file prospectuses less frequently than funds registered on Form N-1A.

6

640 funds × (1 hour for the first report in the first year + 0.5 hours for the second report in the first
year) = 960 hours. 640 funds × 0.5 hours × 2 reports in the second year = 640 hours. 640 funds × 0
hours in the third year = 0 hours. (960 + 640 + 0 hours) ÷ 3 years = 533 hours per year on an
amortized basis.

7

853 hours = 320 hours + 533 hours.

8

This estimate is based on the following calculation: 73,250 + 853 = 74,103 hours.

9

The Commission’s estimate concerning the wage rate is based on salary information for the
securities industry compiled by the Securities Industry and Financial Markets Association. The
estimated wage figure is based on published rates for intermediate accountants and attorneys,
modified to account for an 1,800-hour work year; multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead; and adjusted to account for the effects of inflation, yielding
effective hourly rates of $166 and $401, respectively. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the Securities Industry 2013. We
estimate that intermediate accountants and attorneys will divide their time equally, yielding an
estimated hourly wage rate of $284. ($166 per hour for intermediate accountants + $401 per hour for
attorneys) ÷ 2 = $284 per hour.

10

74,103 hours per year × $284 per hour = $21,045,252 per year.

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Table 1: Summary of Revised Annual Responses, Burden Hours, and
Burden Hour Costs for Form N-2
No. of Responses 11
640
14.

Burden Hours
74,103

Burden Hour Costs
$21,045,252

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 $22.2 million in fiscal year 2017, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead.
15.

Change in Burden

The total annual hour burden of 74,103 hours represents an increase of 853 hours
over the previous burden hour estimate of 73,250 hours. In addition, the annual external
cost burden of $4,668,396 has not changed. The changes in burden hours are due to the
staff’s estimates of the time costs that would result from our amendments to Form N-2 in
connection with the adoption of rule 30e-3.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.
17.

Approval to Omit OMB Expiration Date

Not Applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission

Not Applicable.
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We note that the number of responses estimated for Form N-2 burdens is unchanged from the PRA
extension approved in 2017, which is 166. However, this PRA revision only for purposes of
calculating the PRA burden changes related to the adoption of rule 30e-3 estimates 640 responses.

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B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
Not Applicable.

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