N-2 Supporting Statement

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 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-2. 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-2 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-2.
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-2 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-2 in HTML format. While the

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affected Form N-2 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-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
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

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The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it adopts changes in its
rules. The requirements of Form N-2 are not generally duplicated elsewhere.
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 protection and the
purposes of the registration statements. 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.
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

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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,
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 proposed amendments to Form N-2 and
related collection of information requirements in Form N-2 before it submitted this
request for extension and approval to the Office of Management and Budget. Before
adopting the proposed amendments to Form N-2, the Commission will receive and
evaluate public comments on the proposal and its collection of information requirements.
9.

Payment or Gift

Not applicable.
10.

Assurance of 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

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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. 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
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

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of information of Form N-2 to be 73,250 burden hours, with an internal cost burden of
approximately $24.9 million, and an external cost burden estimate of $4,668,396. 1
The proposed amendments to Form N-2 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. 2
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-2 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. 3
The table below shows the total annual compliance burden, in hours and in costs,
of the collections of information on Form N-2 resulting from the proposed amendments. 4
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
1

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

2

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

3

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

4

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

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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. 5
Forms

Form N-2

Proposed
number of
affected
responses
(A)
166

Incremental
burden
hours/form

T otal
incremental
burden hours

(B)

(C) = (A) ×
(B)
166

1

25% internal
burden

75% outside
professional

Professional
costs

(D) = (C) ×
0.25

(E) = (C) ×
0.75

(F) = E × $400

42

125

$50,000

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),6 we estimate that in the aggregate,
funds will annually incur an additional internal burden of 41.5 hours 7 and time cost of
$13,653.50 8 to comply with the proposed amendments to Form N-2.

5

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.

6

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).

7

This estimate is based on the following calculation: 0.25 internal burden hours x 166 responses =
41.5 hours.

8

This estimate is based on the following calculation: 41.5 hours x $329 (blended rate for a
compliance attorney ($345) and a senior programmer ($313)) = $13,653.50.

8

We estimate that with the additional hour burdens and time costs associated with
the proposed amendments, the total annual hour burden to comply would be 73,291.5 9
burden hours and time costs of $24,918,65410 for Form N-2.
14.

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 $22.9 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.

Change in Burden

Currently, the approved annual hour burden for preparing and filing registration
statements on Form N-2 is 73,250. The new estimated total annual hour burden of
73,291.5 hours reflects an increase in total annual hour burden of 41.5 hours. The annual
cost burden of $4,718,396 represents an increase of $50,000 over the previous external
cost burden estimate of $4,668,396. 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-2 regarding hyperlinking.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.
17.

Approval to Omit OMB Expiration Date

9

This estimate is based on the following calculation: 73,250 (current hourly burden) + 41.5
(additional hourly burden) = 73,291.5 hours.

10

This estimate is based on the following calculation: $2,490,500 (current cost burden) + $13,653.50
(additional cost burden) = $24,918,654.

9

Not Applicable.
18.
Submission

Exceptions to Certification Statement for Paperwork Reduction Act

Not Applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

Not Applicable.

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