Form N-2 Supporting Statement_Names Adopting Release

OMB CONTROL NUMBER: 3235-0026
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-2
A.
1.

JUSTIFICATION
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 (“registered closed-end funds”) to register 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”). Form N-2 is also used by business development companies
(“BDCs”), which are closed-end management investment companies that do not register
under the Investment Company Act (but instead elect to be subject to certain provisions
of the Investment Company Act (15 U.S.C. 80a-2(a)(48)) to register and offer their
securities under the 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 management investment company (that is not a BDC) 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 registered closed-end fund and a BDC 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 available to interested investors in the Statement of Additional Information
(“SAI”), which is provided to investors upon request and without charge.
On September 20, 2023, the Commission issued a release that, among other
things, adopted amendments to investment companies’ registration forms—specifically,
Form N-1A, Form N-2, Form N-8B-2, and Form S-6—that will require each fund that is
require to adopt an implement an “80% investment policy” under rule 35d-1 under the
Investment Company Act (the “names rule”) to include disclosure in its prospectus that
defines the terms used in its name, including the specific criteria the fund uses to select
the investments that the term describes, if any. 1 These amendments are designed to help
investors better understand how a fund’s investment strategy corresponds with the
investment focus that the fund’s name suggests as well as to provide additional
information about how the fund’s management seeks to achieve the fund’s objective.
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 closed-end fund or BDC.
1

Investment Company Names, Investment Company Act Release No. IC-35000 (Sept. 20, 2023)
(the “Names Rule Adopting Release”). The Names Rule Adopting Release includes amendments
to the names rule that address the rule’s requirement for certain funds to adopt an “80%
investment policy” to invest at least 80% of the value of their assets in accordance with the
investment focus that the fund’s name suggests, update the rule’s notice requirements, and
establish recordkeeping requirements. The Names Rule Adopting Release also includes enhanced
prospectus disclosure requirements for terminology used in fund names, and additional
requirements for funds to report information on Form N-PORT regarding compliance with the
names-related regulatory requirements.

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Unlike many other federal information collections, which are primarily for the use and
benefit of the collecting agency, this information collection is also for the use and benefit
of investors. The information filed with the Commission permits the 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, called “EDGAR” (for Electronic Data

Gathering, Analysis and Retrieval), 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. Form N-2 is
required to be filed with the Commission electronically on EDGAR. 2 The public may
access filings on EDGAR through the Commission’s website (http://www.sec.gov) or at
EDGAR terminals located at the Commission’s public reference rooms.
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 requirements of Form N-2 are not generally duplicated elsewhere.
5.

Effect on Small Entities
The Commission reviews all rules periodically, as required by the Regulatory

Flexibility Act, 3 to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The disclosure requirements for registration

2

17 CFR 232.101(a)(1)(i) and (iv).

3

5 U.S.C. 601 et seq.

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statements on Form N-2 do not distinguish between small entities and other investment
companies. The burden on smaller investment companies of preparing and filing
registration statements may be proportionately greater than for larger investment
companies. This burden includes the cost of producing, printing, filing, and disseminating
prospectuses. 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 statement requirements.
6.

Consequences of Not Conducting Collection
In the absence of the disclosure requirements in Form N-2, investors in closed-

end 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 Investment Company Act requirements that certain investment companies
must register with the Commission before they conduct business. In the absence of a
Form N-2 registration statement, closed-end funds (that are not BDCs) would not be able
to comply with the registration requirements of the Investment Company Act, and
registered closed-end funds and BDCs would not be able to offer their shares under the
Securities Act.
A closed-end fund must file a registration statement on Form N-2 only when
making initial or additional offerings of securities under the Securities Act, 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.

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7.

Inconsistencies with Guidelines in 5 CFR 1320.5(D)(2)
Not applicable.

8.

Consultations Outside the Agency
Before adopting the amendments affecting Form N-2, the Commission solicited

and evaluated public comments on the proposal and its collection of information
requirements. Specifically, the public was given the opportunity to comment on the
Commission’s estimates for the burden of Form N-2 as proposed and as compared to the
existing approved burden inventory in the proposing release for the amendments. 4 The
Commission’s solicitation of public comments included estimating and requesting public
comments on the burden estimates for all information collections under this OMB control
number (i.e., both changes associated with the rulemaking and other burden updates). The
Commission received one comment addressing the costs of prospectus disclosure under
the proposed amendments. 5 This comment was considered by the Commission as
discussed in the Names Rule Adopting Release. In addition, 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 that may
confront the industry.
9.

Payment or Gift
No payment or gift to respondents was provided.

4

See Investment Company Names, Investment Company Act Release No. 34593 (May 25, 2022)
[87 FR 36594 (June 17, 2022)] (the “Names Rule Proposing Release”).

5

See Names Rule Adopting Release at section V.C.

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10.

Confidentiality
No assurance of confidentiality was provided.

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 a name and job title.
However, the agency has determined that the information collection does not constitute a
system of records 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 these collections of information. The EDGAR PIA, published on March
22, 2023, is provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12.

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 6 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Compliance with the disclosure requirements of Form N-2 is mandatory.
Responses to the disclosure requirements will not be kept confidential.
The table below summarizes the Commission’s PRA initial and ongoing annual
burden estimates associated with the amendments to Form N-2.

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44 U.S.C. 3501 et seq.

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TABLE 1: FORM N-2 ESTIMATES
Initial hours

Internal time
costs

Annual external
cost burden

$126,938

$20,775.23

298

298

298

94,569 hours3

$37,827,524

$6,191,017

$3,560

$9925

× 626 funds

x 626

$2,228,560

$620,992

$4,872

$1,1305

× 663 funds

x 663

$3,230,136 +
$37,827,524 =
$41,057,660

$749,190 +
$6,191,017 =
$6,940,207

Annual hours1

Wage rate2

Preparing and Filing
Reports on Form N-2
Generally

317.345

$400 (estimate of wage
rate in most recently
approved supporting
statement)

Number of Responses
Current Burden
Requirement

CURRENTLY APROVED BURDENS

x

PROPOSED BURDENS
Proposed New Names
Rule Disclosure

7 hours

10 hours

×

$356 (1:1 blend of
attorney and senior
programmer)

× 626 funds3

Number of Funds

TOTAL PROPOSED ESTIMATED BURDENS INCLUDING AMENDMENTS
6,260 hours

Total New Annual Burden
FINAL ESTIMATED BURDENS

New Names Rule
Disclosure
Number of Funds

15 hours4

12 hours

×

$406 (1:1 blend of
attorney and senior
programmer)

× 663 funds6

TOTAL FINAL ESTIMATED BURDENS INCLUDING AMENDMENTS

Total New Annual Burden

7,956 hours +
94,569 hours
= 102,525
hours

Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. The estimated wage figures are based on published rates for the professionals described in this chart, modified to account
for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account
for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on
Management & Professional Earnings in the Securities Industry 2013.
3. We note that the current burden requirement reflected in Table 3 of the Names Rule Adopting Release included a scriveners’
error, which incorrectly reflected the currently approved burden as 722,948 hours (with an annual external cost burden of
$47,835,854). This scriveners’ error did not, however, affect the estimates of the burden associated with the amendments to
Form N-2, which appear in this table as they appear in Table 3 of the Names Rule Adopting Release.
3. The currently-approved PRA burden for rule 35d-1 was based on the Commission’s estimate that 83% of funds were covered
by rule 35d-1. At proposal, we estimated that 75% of funds would be covered by the proposed rule amendments. The prior PRA
burden was based on an estimate using a different analytical approach than we employed when estimating the burdens of the
proposed and final amendments. The Commission estimated that 62% of funds were currently subject to rule 35d-1, and that
the proposed rule amendments would increase this estimate to 75% of funds. The Commission estimated, across approximately
835 closed-end funds registered with the Commission, that there were approximately 626 closed-end funds that had names
that would be covered by the proposed rule amendments, or 75% of closed-end funds covered by the rule amendments (736
registered closed-end funds +99 BDCs = 835 Form N-2 registrants x 75% = 626 Form N-2 registrants).
4. The estimated initial burden was increased from the estimate associated with the proposed rule amendments based on
developments in our analysis with respect to estimating the burdens associated with initial disclosure-related burdens. This
burden has been increased to reflect internal review processes that we understand are conventional when updating prospectus
disclosures to reflect a new disclosure requirement, as well as the time that we understand, based on staff experience with the
disclosure review process, drafting disclosure in response to new disclosure requirements typically takes.

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5. The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the
estimated wage rate of $565/hour, for 2 hours, for outside legal services. The Commission’s estimates of the relevant wage
rate for external time costs, such as outside legal services, take into account staff experience, a variety of sources including
general information websites, and adjustments for inflation.
6. Based on our current analysis, we estimate that 60% of funds are currently subject to rule 35d-1, and that the final
amendments will increase this estimate to 76% of funds. The Commission estimates, across approximately 873 closed-end
funds registered with the Commission, that approximately 663 closed-end funds have names that will be covered by the final
rule, or 76% of closed-end funds (748 registered closed-end funds + 125 BDCs = 873 Form N-2 registrants x 76% = 663 Form
N-2 registrants.

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Although the estimates associated with the final amendments to Form N-2 are
based on an estimate of 663 funds that would be affected by the new disclosure
requirements, we estimate that there are 873 Form N-2 registrants (“respondents”) as
discussed in footnote 6 to Table 1 above, and we continue to estimate 298 annual
responses on Form N-2, based on staff analysis of the number of annual filings on this
form. 7
13.

Cost to Respondents
Cost burden is the cost of goods and services purchased to prepare and amend

registration statements on Form N-2, such as for the services of independent auditors and
outside counsel. The cost burden does not include the hour burden discussed in Item 12
above. Estimates are based on the Commission’s experience with the filing of registration
forms. We estimate that the annual cost of outside services associated with the final
amendments to Form N-2 would be approximately $1,130 per fund with a total annual
external cost burden for Form N-2 of $6,940,207, as detailed in Table 1 above.
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 $29
million in fiscal year 2022, based on the Commission’s computation of the value of staff
time devoted to this activity and related overhead.

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Of the 873 Form N-2 registrants, we estimate that 37 closed-end funds (27 registered closed-end
funds and 10 BDCs) are small entities. See Names Rule Adopting Release at section VI.C.

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15.

Change in Burden
As summarized in Table 1 above, the estimated hourly burden associated with

Form N-2 has increased from 94,569 hours to 102,525 hours (an increase of 7,956 hours).
Thus, the estimated hours per response have increased from about 317 hours to about 344
hours. The estimated cost burden associated with Form N-2 has increased from
$6,191,017 to $6,940,207 (an increase of $749,190). This increase is due to the new
requirement for each fund that is required to adopt and implement an 80% investment
policy to include disclosure in its prospectus that defines the terms used in its name,
including the specific criteria the fund uses to select the investments that the term
describes, if any. These changes in burden also reflect the Commission’s revision and
update of burden estimates for all information collections under this OMB control
number (whether or not associated with rulemaking changes), and the Commission
requested public comment on all information collection burden estimates for this OMB
control number.
16.

Information Collections Planned for Statistical Purposes
The results of any information collection will not be published.

17.

Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date for OMB

approval.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions
The Commission is not seeking an exception to the certification statement.

B.

STATISTICAL METHODS
The collection of information will not employ statistical methods.

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