Form N-2 Supporting Statements (Cyber)

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 February 9, 2022, the Commission proposed rules related to cybersecurity risk
management for registered investment advisers, registered investment companies, and
business development companies as well as amendments to certain rules that govern
investment adviser and fund disclosures under the Investment Advisers Act of 1940 and
the Investment Company Act. 1 The Commission proposed several amendments to Form
1

Cybersecurity Risk Governance and Incident Disclosure, Securities Act Release No.
11028 (Feb. 9, 2022) available at https://www.sec.gov/rules/proposed/2022/33-11028.pdf
(“Cybersecurity Risk Governance and Incident Disclosure Proposal”).

N-2 to require a description of any significant fund cybersecurity incident that has
occurred in its last two fiscal years, using a structured data language. 2 These amendments
are designed to enhance investor protection by ensuring cybersecurity incident-related
information is available to increase understanding and insight into a fund’s cybersecurity
history.
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.
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 Data Gathering, Analysis and Retrieval
(“EDGAR”) system 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. 3 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, 4 to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The proposed disclosure requirements for
2

Although the interactive data filing requirements are included in the instructions to Form
N-2, we are separately reflecting the hour and cost burdens for these requirements in the
burden estimate for Investment Company Interactive Data (OMB control number 32350642) and not in this estimate.

3

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

4

5 U.S.C. 601 et seq.

2

registration 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

The proposals affect Form N-2, which sets forth the disclosure requirements for
registration statements filed by registered closed-end funds and BDCs to help investors
make informed investment decisions. Less frequent collection would deprive investors of
access to information that is important to 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.

CONSULTATIONS 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
paperwork burdens confronting the industry. In addition, the Commission has requested
public comment on the proposed amendments to Form N-2, including the collection of
information requirements resulting from the proposed amendments. Before adopting
these amendments, the Commission will receive and evaluate public comments on the
proposed amendments and their associated collection of information requirements.
9.

PAYMENT OR GIFT
No payment or gift to respondents was provided.

10.

CONFIDENTIALITY
No assurance of confidentiality was provided.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature will be required under the following
collections of information in connection with these rulemaking amendments. These
information collections collect basic Personally Identifiable Information (PII) that may
include a name and job title. However, the agency has determined that these information

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collections do 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 February 5, 2020 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 5 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. In our most recent Paperwork Reduction Act submission for Form N-2, we
estimated for Form N-2 a total aggregate annual hour burden of 94,627 hours, and a total
aggregate annual external cost burden of $6,260,392. 6 Compliance with the disclosure
requirements of Form N-2 is mandatory, and the responses to the disclosure requirements
will not be kept confidential. The table below summarizes our PRA initial and ongoing
annual burden estimates associated with the proposed amendments to Form N-2.

5

44 U.S.C. 3501 et seq.

6

On February 4, 2022, the Office of Management and Budget approved with change a
revision of the currently approved information collection estimate for Form N-2. These
burdens have been updated since the Cybersecurity Risk Governance and Incident
Disclosure Proposal to reflect the currently approved information collection estimate.

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Table 1: Burden Estimates for Initial and Ongoing Registration Statements Filed on
Form N-2
Internal
initial
burden hours

Internal annual
burden hours1

Wage rate2

Internal time
costs

Annual external
cost burden

$5,340

$9925

PROPOSED FORM N-2 ESTIMATES
Cybersecurity incident
disclosures3

21 hours

$356
(blended rate for
compliance attorney and
senior programmer)

15 hours

4

Number of funds

× 786 funds6

× 786 funds

x 3937

Total new aggregate annual
burden

11,790 hours

$4,197,240

$389,856

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS
Current aggregate annual
burden estimates

+ 94,627 hours

+ $6,260,392

Revised aggregate annual
burden estimates

106,417 hours

$6,650,248

Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. The Commission’s estimates of the relevant wage rates are based on salary information for the securities industry compiled by Securities
Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013, as modified by Commission staff for 2020. The
estimated figures are modified by firm size, employee benefits, overhead, and adjusted to account for the effects of inflation.
3. This estimate represents the average burden for a filer. Filers that experience one or several fund cybersecurity incidents are expected to incur
higher burdens.
4. Includes initial burden estimates annualized over a three-year period, plus 8 ongoing annual burden hours. The estimate of 15 hours is based
on the following calculation: ((21 initial hours /3) + 8 additional ongoing burden hours) = 15 hours.
5. This estimated burden is based on the estimated wage rate of $496/hour, for 2 hours, for outside legal services. The Commission’s estimates
of the relevant wage rates 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. Includes 691 registered closed-end funds and 95 BDCs.
7. We estimate that 50% of funds will use outside legal services for these collections of information. This estimate takes into account that funds
may elect to use outside legal services (along with in-house counsel), based on factors such as fund budget and the fund’s standard practices for
using outside legal services, as well as personnel availability and expertise.

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.
As summarized in Table 1 above, in our most recent Paperwork Reduction Act
submission for Form N-2, Commission staff estimated about $6,260,392 in external cost
burden per year. We estimate that the annual cost of outside services associated with

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these amendments to Form N-2 is approximately $992 per fund and the total annual
external cost burden for Form N-2 is $389,856. 7
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 $25.7
million in fiscal year 2020, based on the Commission’s computation of the value of staff
time devoted to this activity and related overhead.
15.

CHANGE IN BURDEN

The estimated hourly burden and external cost associated with Form N-2 has
increased as follows:
Table 2: Comparison of Current and Revised Burden Hours and External Cost for
Registration Statements Filed on Form N-2
Annual Time Burden (hours)

Form N-2

External Cost Burden (dollars)

Currently
Approved

Revised
Estimate

Change

Currently
Approved

Revised
Estimate

Change

94,627

106,417

11,790

$6,260,392

$6,650,248

$389,856

The changes in annual burden hours and external cost burden are due to our
proposed amendments to Form N-2 requiring a description of any significant fund
cybersecurity incident that has occurred in the fund’s last two fiscal years.
16.
INFORMATION COLLECTIONS PLANNED FOR STATISTICAL
PURPOSES

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This estimate is based on the following calculation: 393 funds x $992 per filing =
$389,856.

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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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