Form N-5 Supporting Statement (2017 revision)

SUPPORTING STATEM ENT
For the Paperwork Reduction Act Information Collection Submission for
Form N-5
A.

J USTIFICATION
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
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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N-5 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-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.
This automation has increased the speed, accuracy, and availability of information,
generating benefits to investors and financial markets. Registration statements on Form N-5
2

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.

3

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 199513 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
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
17

See Proposing Release at Section IV.B.3.b.
For convenience, the estimated hour and cost burdens in the table have been rounded to the
nearest whole number.

5

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 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

T otal
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

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.

6

annual internal burden to comply would be 117.25 burden hours 22 and time costs of
$32,491.25 23 for Form N-5.
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 INFORM ATION EM PLOYING
STATISTICAL M ETHODS
Not applicable.

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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