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Securities Offering Reform for Closed-End Investment Companies

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Start Preamble Start Printed Page 33290

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

The Securities and Exchange Commission (the “Commission”) is adopting rules that will modify the registration, communications, and offering processes for business development companies (“BDCs”) and other closed-end investment companies under the Securities Act of 1933. As directed by Congress, we are adopting rules that will allow these investment companies to use the securities offering rules that are already available to operating companies. These rules will extend to closed-end investment companies offering reforms currently available to operating company issuers by expanding the definition of “well-known seasoned issuer” to allow these investment companies to qualify; streamlining the registration process for these investment companies, including the process for shelf registration; permitting these investment companies to satisfy their final prospectus delivery requirements by filing the prospectus with the Commission; and permitting additional communications by and about these investment companies during a registered public offering. In addition, we are amending certain rules and forms to tailor the disclosure and regulatory framework to these investment companies. These amendments also will modernize our approach to securities registration fee payment by requiring closed-end investment companies that operate as “interval funds” to pay securities registration fees using the same method as mutual funds and exchange-traded funds and extend the ability to use this payment method to issuers of certain continuously offered, exchange-traded products (“ETPs”). Additionally, we are expanding the ability of certain registered closed-end funds or BDCs that conduct continuous offerings to make changes to their registration statements on an immediately effective basis or on an automatically effective basis a set period of time after filing. Lastly, we are adopting certain structured data reporting requirements, including for filings on the form providing annual notice of securities sold pursuant to the rule under the Investment Company Act of 1940 that prescribes the method by which certain investment companies (including mutual funds) calculate and pay registration fees.

DATES:

Effective Dates: This rule is effective August 1, 2020, except for amendatory instructions 21, 22, 30, 31, 33, 34, 41, 42, and 45 which are effective August 1, 2021.

Compliance Dates: The applicable compliance dates are discussed below in section II.J.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Asaf Barouk, Attorney-Adviser; Joel Cavanaugh, Senior Counsel; Terri G. Jordan, Senior Counsel; Amy Miller, Senior Counsel; Angela Mokodean, Senior Counsel; Amanda Hollander Wagner, Branch Chief; David J. Marcinkus, Branch Chief; Jacob D. Krawitz, Branch Chief; or Brian McLaughlin Johnson, Assistant Director, at (202) 551-6792, Investment Company Regulation Office, Division of Investment Management; Charles Kwon, Senior Counsel, Office of Rulemaking, at (202) 551-3430, Division of Corporation Finance; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

The Commission is adopting amendments to:

Commission referenceCFR citation (17 CFR)
SECURITIES ACT OF 1933 (“SECURITIES ACT”)1
Rule 134§ 230.134
Rule 138§ 230.138
Rule 156§ 230.156
Rule 163§ 230.163
Rule 163A§ 230.163A
Rule 164§ 230.164
Rule 168§ 230.168
Rule 169§ 230.169
Rule 172§ 230.172
Rule 173§ 230.173
Rule 405§ 230.405
Rule 415§ 230.415
Rule 418§ 230.418
Rule 424§ 230.424
Rule 430A§ 230.430A
Rule 430B§ 230.430B
Rule 433§ 230.433
Rule 456§ 230.456
Rule 457§ 230.457
Rule 462§ 230.462
Rule 486§ 230.486
Rule 497§ 230.497
Form S-1§ 239.11
Form S-3§ 239.13
Form N-14§ 239.23
Form F-1§ 239.31
Form F-3§ 239.33
REGULATION S-T [17 CFR 232.10 THROUGH 232.903]
Rule 11§ 232.11
Rule 405§ 232.405
SECURITIES EXCHANGE ACT OF 1934 (“EXCHANGE ACT”)2
Schedule 14A§ 240.14a-101
Rule 103 of Regulation FD§ 243.103
INVESTMENT COMPANY ACT OF 1940 (“INVESTMENT COMPANY ACT”)3
Rule 8b-16§ 270.8b-16
Rule 23c-3§ 270.23c-3
Rule 24f-2§ 270.24f-2
Form 24F-2§ 274.24
SECURITIES ACT AND INVESTMENT COMPANY ACT
Form N-2§§ 239.14 and 274.11a-1
EXCHANGE ACT AND INVESTMENT COMPANY ACT
Form N-CSR§§ 249.331 and 274.128

Table of Contents

I. Introduction

II. Discussion

A. Scope of Closed-End Investment Companies Affected by the Final Rule

B. Registration Process

1. Current Shelf Offering Process for Affected Funds

2. Amendments to the Registration Process for Affected Funds

3. Short-Form Registration on Form N-2

C. Well-Known Seasoned Issuer Status

1. WKSI Definition

2. WKSI Eligibility

3. Ineligible Issuer Definition

D. Automatic or Immediate Effectiveness for Filings by Affected Funds Conducting Certain Continuous Offerings

E. Final Prospectus Delivery Reforms

F. Communications Reforms

1. Offering Communications

2. Broker-Dealer Research Reports

G. Other Rule Amendments

1. Rule 418 Supplemental Information

2. Amendments to Incorporation by Reference Into Proxy Statements

3. Rule 103 of Regulation FD

H. New Registration Fee Payment Method for Interval Funds and Issuers of Certain Exchange-Traded Products

I. Disclosure and Reporting Parity ProposalsStart Printed Page 33291

1. Structured Data Requirements

2. Periodic Reporting Requirements

3. Current Reporting Requirements for Affected Funds

4. Online Availability of Information Incorporated by Reference

5. Amendments to Certain Registered CEFs' Annual Report Disclosure

J. Effective and Compliance Dates

III. Economic Analysis

A. Introduction and Baseline

1. Number of Affected Funds

2. Current Securities Offering Requirements for Affected Funds

3. Current Disclosure Obligations of Affected Funds

B. Potential Benefits Resulting From the Proposed Implementation of the Statutory Mandates

1. Improved Access to Capital and Lower Cost of Capital

2. Facilitated Communication With Investors

C. Potential Costs Resulting From the Proposed Implementation of the Statutory Mandates

1. Compliance Costs

2. Other Costs

D. Alternatives to Adopted Approach To Implementing Statutory Mandates

E. Discussion of Discretionary Choices

1. New Registration Fee Payment Method for Interval Funds and Issuers of Certain Exchange-Traded Products

2. Structured Data Requirements

3. Periodic Reporting Requirements

4. Discretionary Amendments to Incorporation by Reference Requirements

5. Automatic or Immediate Effectiveness of Filings by Affected Funds Conducting Certain Continuous Offerings

IV. Paperwork Reduction Act Analysis

A. Background

B. Summary of the Amendments and Impact on Information Collections

1. Amendments to Form N-2 Registration Statement

2. Structured Data Reporting Requirements

3. New Annual Reporting Requirements Under 17 CFR 270.30e-1 (Rule 30e-1) and Exchange Act Periodic Reporting Requirements for BDCs

4. Securities Offering Communications

5. Prospectus Delivery Requirements

6. Form 24F-2

7. Amendments Permitting the Registration of Offerings of an Indeterminate Number of Exchange-Traded Vehicle Securities and the Payment of Registration Fees for Such Offerings on an Annual Net Basis

8. Amendments to Form N-14

V. Final Regulatory Flexibility Analysis

A. Need and Objectives of the Final Rule

B. Significant Issues Raised by Public Comments

C. Small Entities Subject to the Rule

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

1. Registration Process and Final Prospectus Delivery

2. Communications Rules

3. New Registration Fee Payment Method for Interval Funds

4. Disclosure and Reporting Requirements

5. Automatic or Immediate Effectiveness for Filings by Affected Funds Conducting Certain Continuous Offerings

E. Agency Action To Minimize Effect on Small Entities

1. Alternatives to the Adopted Approach To Implementing Statutory Mandates

2. Alternative Approaches to Discretionary Choices

VI. Other Matters

VII. Statutory Authority

I. Introduction

We are adopting rules that will modify the registration, communications, and offering processes for business development companies (“BDCs”) and registered closed-end investment companies (“registered CEFs”), including interval funds (collectively, “affected funds”) under the Securities Act.[4] In 2005, the Commission adopted securities offering reforms for operating companies to modernize the securities offering and communication processes while maintaining the protection of investors under the Securities Act.[5] At that time, the Commission specifically excluded all investment companies—including affected funds—from the scope of the reforms.[6] Now, as directed by Congress, we are adopting rules that will allow affected funds to use the securities offering rules that are already available to operating companies.

The Small Business Credit Availability Act (the “BDC Act”) directs us to allow a BDC to use the securities offering rules that are available to other issuers required to file reports under section 13(a) or section 15(d) of the Exchange Act.[7] As discussed in detail below, the BDC Act identifies with specificity the required revisions.[8] The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Registered CEF Act”) (and, together with the BDC Act, the “Acts”) directs us to adopt rules to allow any registered CEF that is listed on a national securities exchange (a “listed registered CEF”) or that makes periodic repurchase offers under rule 23c-3 to use the securities offering rules that are available to other issuers that are required to file reports under section 13(a) or section 15(d) of the Exchange Act, subject to appropriate conditions.[9] Unlike the BDC Act, the Registered CEF Act does not identify with specificity the revisions that are required.

In 2019, we proposed rules that would modify the registration, communications, and offering processes for affected funds under the Securities Act.[10] As discussed in greater detail below, most commenters supported the proposal.[11] Many of the commenters who supported the proposal generally also recommended modifications to some of the proposed rules.[12] For example, some commenters recommended further expanding the scope of issuers that would qualify as “well-known seasoned issuers” to include smaller issuers or those without Start Printed Page 33292public float.[13] Commenters also recommended eliminating or modifying the proposed requirement that certain additional affected funds file current reports on Form 8-K.[14] Other commenters recommended that the Commission expand the scope of issuers permitted to file certain immediately effective registration statements.[15] Several commenters that are sponsors to exchange-traded products recommended that the Commission expand the scope of issuers permitted to pay registration fees on an annual net basis.[16] Finally, one commenter expressed concern with the proposal, recommending that large BDCs and registered CEFs be subject to additional scrutiny.[17] As discussed in detail below, we are adopting the proposed rules with certain modifications, after consideration of comments received.

Our action will institute a number of reforms:

  • First, it will streamline the registration process to allow eligible affected funds to use a short-form shelf registration statement to sell securities “off the shelf” more quickly and efficiently in response to market opportunities.
  • Second, the final rule will allow affected funds to qualify as “well-known seasoned issuers” (“WKSIs”) under rule 405 under the Securities Act.
  • Third, it will allow affected funds to satisfy final prospectus delivery requirements using the same method as operating companies.
  • Fourth, it will allow affected funds to use certain rules currently available to operating companies, such as communications safe harbors for certain factual business information and forward-looking information, “free writing prospectuses,” and broker-dealer research reports (referred throughout this release as the “communications rules”).
  • Fifth, the final rule will allow certain continuously-offered affected funds to make certain changes to their registration statements on an immediately-effective basis or on an automatically effective basis a set period of time after filing.
  • Finally, it will tailor the disclosure and regulatory framework for affected funds in light of the amendments to the offering rules applicable to them. These amendments include structured data requirements to make it easier for investors and others to analyze fund data; new annual report disclosure requirements to provide key information in annual reports; a requirement that interval funds pay securities registration fees using the same method that mutual funds and exchange-traded funds (“ETFs”) use today; and a provision that will allow certain ETPs that are not registered under the Investment Company Act to elect to pay securities registration fees in the same manner.

As discussed in detail below, the final rule will affect different categories of affected funds differently, just as different categories of operating companies are treated differently under these rules currently. For example, some of the provisions will apply to all affected funds, that is, all BDCs and registered CEFs. Many of the provisions, however, will apply only to “seasoned funds.” These are listed affected funds that are current and timely in their reporting and therefore generally eligible to file a short-form registration statement under the proposal if they have at least $75 million in “public float.” [18] Some of the provisions will apply only to seasoned funds that also qualify as WKSIs, that is, listed affected funds that qualify as seasoned funds and generally have at least $700 million in public float.[19] Additionally, the final rule provides unlisted affected funds with the flexibility to make certain filings that become effective either immediately upon filing or automatically after 60 days.[20] The final rule therefore will provide additional flexibilities to both listed and unlisted affected funds. Tables 1 and 2 below summarize these different impacts.

Table 1

EntitySummary definition
Affected fundsAffected funds include all BDCs and registered CEFs, including interval funds.
Seasoned funds 1Seasoned funds are affected funds that are current and timely in their reporting and therefore generally eligible to file a short-form registration statement if they have at least $75 million in “public float.” See supra footnote 18.
WKSIsWKSIs are seasoned funds that generally have at least $700 million in “public float.”
ETPsETPs are issuers that are not registered investment companies and whose assets consist primarily of commodities, currencies or derivative instruments that reference commodities or currencies; whose securities are listed for trading on a national securities exchange; and that purchase or redeem securities for a ratable share of their assets at NAV.
Notes:
1. Some of the rule changes that are shown below as affecting “seasoned funds” will only affect those seasoned funds that elect to file a registration statement on Form N-2 using an instruction permitting funds to use the form to file a short-form registration statement.
Start Printed Page 33293

Table 2

RuleSummary description of ruleEntities affected by changesDiscussed below in
Affected Funds (Including BDCs, Registered CEFs, and Interval Funds)
Registration Provisions:
General Instruction F.4.a of Form N-2Requires online posting of information incorporated by referenceAffected FundsSection II.I.4.
Securities Act Rules 424 and 497Provide the processes for filing prospectus supplementsAffected FundsSection II.B.3.d.
Investment Company Act Rule 23c-3Subjects interval funds to the registration fee payment system based on annual net salesInterval FundsSection II.H.
Securities Act Rule 486Allows continuously-offered unlisted affected funds to make certain filings that are immediately effective upon filing or automatically effective 60 days after filingContinuously-offered unlisted affected funds not relying on rule 23c-3Section II.D.
General Instruction G of Form N-14Permits certain registrants to incorporate by referenceBDCsSection II.B.3.b.
Communication Provisions:
Securities Act Rule 134Permits issuers to publish factual information about the issuer or the offering, including “tombstone ads.”Affected FundsSection II.F.1.
Securities Act Rule 163APermits issuers to communicate without risk of violating the gun-jumping provisions until 30 days prior to filing a registration statementAffected FundsSection II.F.1.
Securities Act Rules 168 and 169Permit the publication and dissemination of regularly released factual and forward-looking informationAffected FundsSection II.F.1.
Securities Act Rules 164 and 433Permit use of a “free writing prospectus.”Affected FundsSection II.F.1.
Prospectus Delivery Provisions:
Securities Act Rules 172 and 173Permit issuers, brokers, and dealers to satisfy final prospectus delivery obligations if certain conditions are satisfiedAffected FundsSection II.E.
Periodic Reporting Provisions:
Investment Company Act Rule 8b-16A requirement that funds that rely on paragraph (b) of the rule describe in the annual report the fund's current investment objectives, policies and risks, and certain key changes in enough detail to allow investors to understand each change and how it may affect the fundRegistered CEFsSection II.I.5.
Instruction 4.g to Item 24 of Form N-2A requirement for narrative disclosure about the fund's performance in the fund's annual reportRegistered CEFsSection II.I.2.b.
Item 4 of Form N-2; Instruction 10 to Item 24 of Form N-2Requires disclosure of certain financial informationBDCsSection II.I.2.c.
Structured Data Reporting Requirements:
Structured Financial Statement DataA requirement that BDCs tag their financial statements using Inline eXtensible Business Reporting Language (“Inline XBRL”) formatBDCsSection II.I.1.a.
Prospectus Structured Data RequirementsA requirement that registrants tag certain information required by Form N-2 using Inline XBRLAffected FundsSections II.I.1.b and II.I.1.c.
Form 24F-2 Structured FormatA requirement that filings on Form 24F-2 be submitted in a structured formatForm 24F-2 Filers, including open-end funds and unit investment trustsSection II.I.1.d.
Seasoned Funds
Registration Provisions:
Securities Act Rule 415Permits registration of securities to be offered on a delayed or a continuous basisSeasoned FundsSection II.B.3.
General Instructions A.2 and F.3 of Form N-2Provide for backward and forward incorporation by referenceSeasoned FundsSection II.B.3.b.
Securities Act Rule 430BPermits certain issuers to omit certain information from their prospectuses at effectivenessSeasoned FundsSection II.B.3.d.
Start Printed Page 33294
Securities Act Rule 418Exempts some registrants from an obligation to furnish certain engineering, management, or similar reportsSeasoned FundsSection II.G.1.
Regulation FD Rule 103Provides that a failure to make a public disclosure required solely by 17 CFR 243.100 (rule 100 of Regulation FD) will not disqualify a “seasoned” issuer from use of certain formsSeasoned FundsSection II.G.3.
Communication Provisions:
Securities Act Rule 138Permits a broker or dealer to publish or distribute certain research reports about securities other than those it is distributingSeasoned FundsSection II.F.2.
Proxy Statements:
Item 13 of Schedule 14APermits certain registrants to use incorporation by reference to provide information that otherwise must be furnished with certain types of proxy statementsSeasoned FundsSection II.G.2.
Periodic Reporting Provisions:
Instruction 4.h.(2) to Item 24 of Form N-2A requirement for information about the investor's costs and expenses in the registrant's annual reportSeasoned FundsSection II.I.2.a.
Instruction 4.h.(3) to Item 24 of Form N-2A requirement for information about the share price of the registrant's stock and any premium or discount in the registrant's annual reportSeasoned FundsSection II.I.2.a.
Instruction 4.h.(1) to Item 24 of Form N-2A requirement for information about each of a fund's classes of senior securities in the registrant's annual reportSeasoned FundsSection II.I.2.a.
Instruction 4.h.(4) to Item 24 of Form N-2A requirement to disclose outstanding material unresolved staff comments that remain unresolved for a substantial period of timeSeasoned FundsSection II.I.2.d.
WKSIs
Registration Provisions:
Securities Act Rule 462Provides for effectiveness of registration statements immediately upon filing with the CommissionWKSIsSection II.B.3.c.
Communication Provisions:
Securities Act Rule 163Permits oral and written communications by or on behalf of WKSIs at any timeWKSIsSection II.F.1.
ETPs
Registration Provisions:
Securities Act Rules 415, 424, 456 and 457; Forms S-1, S-3, F-1 and F-3Permits ETPs to register an indeterminate amount of certain securities and pay registration fees based on annual net salesETPsSection II.H.

II. Discussion

A. Scope of Closed-End Investment Companies Affected by the Final Rule

As we proposed, the final rule will apply to all BDCs and registered CEFs, with certain conditions and exceptions discussed below and generally illustrated in Tables 1 and 2 above. The BDC Act applies to all BDCs, including BDCs that are listed on a securities exchange and those that are unlisted.[21] In contrast, the Registered CEF Act extends to all registered CEFs listed on a securities exchange, as well as interval funds, but excludes other unlisted registered CEFs.[22]

Although the Registered CEF Act only requires us to allow interval funds and listed registered CEFs to use the securities offering rules available to operating companies, that Act does not preclude us from exercising our discretion to extend these rules to all registered CEFs. The Commission therefore proposed to apply the rules to all BDCs and all registered CEFs, including unlisted registered CEFs, with certain conditions and exceptions.[23] We believed that this approach would benefit unlisted registered CEFs and their investors by avoiding the adverse consequences that could result from treating unlisted registered CEFs differently from all other registered CEFs and unlisted BDCs.

We believed that applying such a distinction is unnecessary because, for purposes of these rules, unlisted registered CEFs are not distinguishable Start Printed Page 33295from unlisted BDCs, which the rule amendments must cover. Unlisted registered CEFs, like unlisted BDCs, also would benefit from parity of treatment.[24] We did not receive comment on this aspect of the proposal. Because we continue to believe that this approach will benefit unlisted registered CEFs and their investors by providing new investor protections and avoiding adverse consequences from differential treatment, the final rule will apply to all BDCs and registered CEFs as proposed.

The Commission proposed to generally apply the specific requirements of the BDC Act to both BDCs and registered CEFs because it believed that, except where dictated by meaningful differences between BDCs and registered CEFs, consistent application of the proposed rules across affected funds would result in more efficient offering processes and more consistent investor protections.[25] We continue to believe that both Acts share the overall purpose of providing offering and communication rule parity to the investment companies covered by each Act.[26] We did not receive public comment on this aspect of the proposal, and, for the reasons stated above, we are adopting it as proposed.

B. Registration Process

We are adopting, substantially as proposed, amendments to our rules and forms to streamline the registration process for affected funds by permitting them to use the more flexible registration process available to operating companies. These amendments collectively will allow affected funds to offer and sell securities “off the shelf” more quickly and efficiently in response to market opportunities.

1. Current Shelf Offering Process for Affected Funds

Issuers, including affected funds, whose offerings are registered or qualified to be registered on Form S-3 may conduct primary offerings “off the shelf” under Securities Act rule 415(a)(1)(x), the provision for offerings made on a delayed or continuous basis.[27] In a rule 415(a)(1)(x) shelf offering, a seasoned issuer can register an unallocated dollar amount of securities for sale at a later time.[28] The issuer can then take down securities “off the shelf” for sale in a public offering as market conditions warrant. This allows seasoned issuers to quickly access the public securities markets from time to time to take advantage of favorable market conditions.[29]

Affected funds currently can make shelf offerings under rule 415(a)(1)(x) if they meet the eligibility criteria for Form S-3, even though affected funds register their securities offerings on Form N-2.[30] Our rules for operating companies, however, are more flexible and efficient than for affected funds. In particular, seasoned operating companies can use a short-form registration statement on Form S-3. Certain seasoned operating companies also can rely on Securities Act rule 430B to omit certain information from the “base” prospectus when the registration statement becomes effective and later provide that information in a subsequent Exchange Act report incorporated by reference, a prospectus supplement, or a post-effective amendment.[31] The ability to “forward incorporate” information in Exchange Act reports filed after the registration statement becomes effective allows operating companies to efficiently update their prospectuses and access capital markets without the expense and delay of filing post-effective amendments in most cases.

Affected funds, on the other hand, currently have limited ability to incorporate information by reference into their registration statements and cannot forward incorporate information from subsequently-filed Exchange Act reports.[32] When an affected fund sells securities, including as part of a takedown “off the shelf,” its registration statement must include all required information.[33] In particular, the affected fund's registration statement must include current financial information, including any annual update required by section 10(a)(3) of the Securities Act.[34] Affected funds provide any section 10(a)(3) update to the registration statement by filing a post-effective amendment, which involves the expense and potential delay associated with the fund's preparation of the amendment and also provides our staff with time to review the amendment for compliance with the applicable disclosure and accounting requirements and to provide comments where appropriate.[35]

Affected funds also cannot currently rely on rule 430B, which allows certain issuers to omit information from a prospectus, or the process that operating companies follow to file prospectus supplements.[36] In addition, affected funds cannot currently file automatic shelf registration statements because only WKSIs can file these registration statements. These differences can result in additional expense or delay for affected funds relative to operating companies and can affect the timing of an affected fund's capital raising.[37]

2. Amendments to the Registration Process for Affected Funds

The amendments we are adopting are designed to streamline the registration process for affected funds in parity with operating companies. Specifically, and as discussed in more detail below, the amendments will permit affected funds to:

  • File a short-form registration statement on Form N-2 that will Start Printed Page 33296function like a Form S-3 registration statement. An affected fund that files this short-form registration statement can use it to register shelf offerings, including shelf registration statements that are filed by affected funds that qualify as WKSIs and become effective automatically, and can satisfy Form N-2's disclosure requirements by incorporating by reference information from the fund's Exchange Act reports;
  • Rely on rule 430B to omit information from their base prospectuses, and to use the process operating companies follow to file prospectus supplements; and
  • Include additional information in periodic reports to update their registration statements.

Commenters generally supported our general approach to streamlining the registration process for affected funds. Commenters stated that the proposed amendments would allow affected funds to raise capital more efficiently and cost-effectively and would provide affected funds with greater flexibility to manage the timing of their offerings in response to market opportunities.[38] One commenter stated that affected funds will benefit from the proposed amendments because they no longer will have to file post-effective amendments to shelf registration statements to update their financial statements. Instead, that information will be in annual reports and incorporated by reference into their registration statements.[39]

3. Short-Form Registration on Form N-2

We are adopting, as proposed, new General Instruction A.2 in Form N-2, which will allow affected funds to file a short-form registration statement on Form N-2 that will function like a registration statement filed on Form S-3.[40] If a fund files a registration statement under this new instruction, the fund's registration statement will incorporate certain past and future Exchange Act reports by reference, allowing the fund to use a short-form registration statement and avoid the need to make post-effective amendments in most cases. An affected fund may use the new instruction to register a shelf offering under rule 415(a)(1)(x), and we are adopting conforming amendments to that rule to make this clear.[41] The new instruction, however, is not limited to offerings under rule 415(a)(1)(x). Rather, an affected fund may use the new instruction to register any of the securities offerings that operating companies are permitted to register on Form S-3.[42]

a. Eligibility To File a Short-Form Registration Statement

As proposed, we are adopting amendments to permit an affected fund to file a short-form registration statement under the short-form registration instruction on Form N-2 if:

  • For either a BDC or a registered CEF, the fund meets both the registrant requirements and the transaction requirements of Form S-3 (i.e., the fund could register the offering on Form S-3 if it were an operating company); [43] and
  • for registered CEFs only, the fund also has been registered under the Investment Company Act for at least 12 calendar months immediately preceding the filing of the registration statement and has timely filed all reports required to be filed under section 30 of the Investment Company Act during that time.[44]

An affected fund generally will meet the registrant requirements of Form S-3 if it has timely filed all reports and other materials required under the Exchange Act during the prior year.[45] An affected fund will generally meet the transaction requirements of Form S-3 for a primary offering if the fund's public float is $75 million or more.[46] Requiring affected funds to satisfy the requirements of Form S-3 in order to file a short-form registration statement provides parity between affected funds and operating companies, consistent with Congress's mandates in the BDC Act and Registered CEF Act.

Commenters generally supported the proposal to permit affected funds to file short-form registration statements.[47] Several commenters, however, urged that we provide additional bases other than public float for an affected fund to be eligible to file a short-form registration statement (or to qualify as a WKSI).[48] While the arguments advanced by commenters apply to our proposed short-form registration requirement, commenters focused primarily on our proposed public float threshold for WKSI status.[49] Accordingly, we discuss these comments below in section II.C.2. For the reasons discussed in that section, we are not changing the public float requirement or adopting new requirements for affected funds to file a short-form registration statement. We are adopting the proposed $75 million public float requirement for an affected fund to file a short-form registration statement on Form N-2 to provide affected funds parity with operating companies.

Certain affected funds, including most interval funds,[50] do not list their securities on an exchange and thus do not have public float. As a result, these affected funds generally would not be able to satisfy the transaction requirement necessary to file a short-form registration statement.[51] In Start Printed Page 33297addition, as we noted in the Proposing Release, because interval funds make continuous offerings, they (as well as other continuously offered, non-listed affected funds) would not be able to file a short-form registration statement that omits information required to be in an issuer's prospectus when it is offering its securities.[52]

Interval funds also have their own offering provision, Securities Act rule 415(a)(1)(xi),[53] and post-effective amendments to their registration statements are immediately effective upon filing or automatically effective 60 days after filing under rule 486 under the Securities Act, depending on the substance of the amendments.[54] As a result, interval funds currently have a tailored registration process that, although different in certain respects from that of operating companies, may provide many of the same efficiencies, including the ability to raise capital as the opportunity arises. As discussed below in section II.D, we are adopting amendments to rule 486 to allow any affected fund that conducts continuous offerings under rule 415(a)(1)(ix), such as continuously-offered tender offer funds, to rely on rule 486. We believe these amendments will benefit such continuously-offered affected funds by allowing them to maintain effective registration statements in a more efficient, cost-effective manner, similar to the benefits that the rules we are adopting will provide to affected funds that file short-form registration statements.

As proposed, in addition to satisfying the registrant requirements of Form S-3, a registered CEF also must have timely filed all reports required under section 30 of the Investment Company Act for the preceding 12 months in order to register an offering under the short-form registration instruction. A registered CEF therefore must have timely filed during the prior year all required Exchange Act reports, such as annual and semi-annual reports to shareholders filed with the Commission on Form N-CSR, as well as reports required only under section 30 of the Act, such as reports on Forms N-CEN and N-PORT.

As we stated in the Proposing Release, an issuer's Exchange Act filings provide the basic source of information to the market and to potential purchasers, and investors in the secondary market use that information in making their investment decisions.[55] Although all affected funds file reports under the Exchange Act, registered CEFs also file reports under the Investment Company Act. These Investment Company Act reports also provide important information to the market and investors, including information about an affected fund's portfolio holdings that will be publicly reported on a quarterly basis on Form N-PORT. We believe that the market will analyze this portfolio holdings information in a similar manner to how it analyzes financial statements for operating companies to determine changes in prospects for growth and performance. Portfolio holdings disclosure on Form N-PORT, for example, provides important information that is comparable to information BDCs include in Exchange Act reports for purposes of providing a quarterly flow of key information to the market. Moreover, requiring registered CEFs to have timely filed their Investment Company Act reports also will provide parity among BDCs, registered CEFs, and operating companies. This is because once Form N-PORT fully replaces Form N-Q, registered CEFs will only file Exchange Act reports semi-annually on Form N-CSR, whereas BDCs and operating companies file Exchange Act reports on Forms 10-K, 10-Q and 8-K.[56] As such, all issuers will be required to have filed their quarterly and other required reports in order to file a short-form registration statement.

We received one comment on this particular aspect of the proposal. This commenter expressed support for this aspect of the proposal, stating that it provides parity between registered CEFs and operating companies.[57]

b. Information Incorporated by Reference

As proposed, the same rules on incorporation by reference that apply to Form S-3 registration statements also will apply to a short-form registration statement filed on Form N-2.[58] We did not receive comments on these amendments and are adopting them as proposed. Specifically, an affected fund relying on the short-form registration instruction will be required to:

  • Specifically incorporate by reference into the prospectus and statement of additional information (“SAI”): (1) Its latest annual report filed pursuant to section 13(a) or section 15(d) of the Exchange Act that contains financial statements for the registrant's latest fiscal year for which a Form N-CSR or Form 10-K was required to be filed; and (2) all other reports filed pursuant to section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the annual report (backward incorporation by reference); [59] and
  • State that all documents subsequently filed pursuant to section 13(a), 13(c), 14, or 15(d) of the Exchange Act prior to the termination of the offering shall be deemed to be incorporated by reference into the prospectus and SAI (forward incorporation by reference).[60]

We also are adopting, as proposed, an instruction to Form N-2 that will permit an affected fund filing a short-form registration statement on Form N-2 to satisfy the disclosure requirements for its prospectus or SAI by incorporating the information by reference from Exchange Act reports.[61] This provision, Start Printed Page 33298which is substantively identical to a parallel item in Form S-3, will give affected funds filing a short-form registration statement on Form N-2 the option to either provide required disclosure directly in the prospectus or SAI or to satisfy Form N-2's disclosure requirements with information incorporated by reference.[62] We did not receive any comments on these particular amendments to Form N-2.

We also are adopting, as proposed, conforming changes to Form N-2's undertakings.[63] Form N-2 currently requires an undertaking that would prevent seasoned funds that file a short-form shelf registration statement from incorporating information by reference as proposed, because it requires funds to file post-effective amendments in certain circumstances without providing an exception that would allow the required information to be supplied via incorporation by reference.[64] In contrast, operating companies registering an offering on Form S-3 are not required under the applicable undertaking to file post-effective amendments if the required information is included in an Exchange Act report incorporated by reference or a prospectus supplement that is part of the registration statement.[65] To implement the statutory mandates and provide parity for affected funds, we are adopting amendments to Form N-2's undertakings to provide the same approach for affected funds filing a short-form registration statement on that form that applies to operating companies that file on Form S-3.[66]

The Proposing Release requested comment on whether we should modify incorporation by reference provisions in other registration forms filed by affected funds to provide parity or consistency across registration statements. In particular, we asked if we should amend Form N-14 to provide that BDCs may incorporate by reference to the same extent as registered CEFs.[67] Commenters supported this approach,[68] which would provide for more consistent treatment between registered CEFs and BDCs.

We are modifying Form N-14 to allow BDCs to incorporate by reference to the same extent as registered CEFs. As commenters observed, this change will provide consistent treatment for BDCs and registered CEFs. This change also will reduce the length of a BDC's Form N-14 prospectus, which in some cases can exceed 1,000 pages, because BDCs cannot currently incorporate information by reference. To effectuate this change, we are amending the instruction in Form N-14 that governs incorporation by reference to specifically include BDCs and clarify that current reports include those filed pursuant to section 13(a) or 15(d) of the Exchange Act.[69] Additionally, in response to comments,[70] we are eliminating the requirement that registrants file with the Form N-14 registration statement the documents that contain information that is incorporated by reference into the prospectus or SAI.[71] Such documents are filed on EDGAR and readily available to Commission staff.

c. Affected Funds' Use of Rule 415(a)(1)(x) and Automatic Shelf Registration Statements  [72]

We are adopting, as proposed, two additional amendments to allow Start Printed Page 33299affected funds to use the shelf registration system in parity with operating companies. First, we are amending rule 415(a)(1)(x) to clarify that affected funds may use that rule by adding references to a registration statement filed under the short-form registration instruction.[73] Second, we are adopting a new general instruction to permit affected funds that qualify as WKSIs to file an automatic shelf registration statement.[74] A WKSI can register unspecified amounts of different types or classes of securities on an automatic shelf registration statement.[75] An automatic shelf registration statement and any amendments to the registration statement will be effective immediately upon filing.[76] Automatic shelf registration provides WKSIs with significant flexibility to take advantage of market windows, structure terms of securities on a real-time basis to accommodate investor demand, and determine or change the plan of distribution in response to changing market conditions. WKSIs using an automatic shelf registration statement further benefit by being able to pay filing fees at any time in advance of a shelf takedown or on a “pay-as-you-go” basis at the time of each takedown off the shelf registration statement in an amount calculated for that takedown.[77] Our amendments will extend these same benefits to affected funds that qualify as WKSIs, as directed by the BDC Act and the Registered CEF Act.[78] We did not receive any comments on these particular amendments.[79]

d. Omitting Information From a Base Prospectus and Prospectus Supplements

The BDC Act directed us to include a process for a BDC to file a prospectus in the same manner as under rule 424(b).[80] Consistent with this directive and with the Registered CEF Act, we are amending, as proposed, rule 424(f) to allow affected funds to file a prospectus under rule 424.[81] As discussed in the Proposing Release, affected funds registering shelf offerings under Securities Act rule 415 generally can omit required information from the base prospectus that is unknown or not reasonably available to the fund when the registration statement becomes effective.[82] WKSIs and certain issuers eligible to use Form S-3 for primary offerings are permitted under rule 430B to omit certain additional information. A base prospectus that omits statutorily-required information is not a final prospectus under section 10(a) of the Securities Act.[83] Filing a prospectus supplement pursuant to rule 424 is one way to provide information required for a prospectus to satisfy the requirements of section 10(a).[84]

Our rules, however, provide different processes for operating companies and investment companies to file prospectuses. Operating companies currently follow rule 424 to file prospectus supplements, whereas investment companies follow rule 497.

Although these rules provide similar processes, they have certain key differences. For example, rule 424(b) is designed to work together with rule 415(a)(1)(x), and provides additional time for an issuer to file a prospectus. Rule 497 does not contain provisions specifically related to offerings under rule 415(a)(1)(x) and requires the fund to file a prospectus with the Commission before using it. Rule 424 also requires an issuer to file a prospectus when the issuer makes changes from or additions to a previously-filed prospectus that are substantive, whereas rule 497 requires funds to file every prospectus that varies from any previously-filed prospectus.

Under the amendment to rule 424(f), an affected fund will be able to file any type of prospectus enumerated in rule 424(b) to update, or to include information omitted from, a prospectus or in connection with a shelf takedown.[85] We also are amending rule 497 to provide that rule 424 would be the exclusive rule for affected funds to file a prospectus supplement other than an advertisement that is deemed to be a prospectus under 17 CFR 230.482 (rule 482).[86] This will avoid any confusion that might result if affected funds were permitted to file prospectuses under both rule 424 and rule 497, while also continuing to require affected funds to file rule 482 advertisements as they and other investment companies do today.

We also are adopting, as proposed, an amendment to permit affected funds to use rule 430B in parity with operating companies.[87] We received no comments on this aspect of the proposal. Thus an affected fund may omit certain information from its prospectus in two circumstances:

  • A WKSI filing an automatic shelf registration statement may omit the plan Start Printed Page 33300of distribution and information as to whether the offering is a primary one or an offering on behalf of selling security holders.
  • If an issuer is eligible to file a registration statement on Form S-3 to register a primary offering pursuant to General Instruction I.B.1 of Form S-3, and is registering the resale of securities on behalf of selling security holders, it may omit the identities of selling security holders and the amount of securities to be registered on their behalf, subject to certain conditions.[88]

e. Additional Information in Periodic Reports

As discussed above, the amendments we are adopting will permit certain affected funds to forward incorporate information from their Exchange Act reports. These funds may wish to include information in their periodic reports that is not required to be included in these reports in order to update their registration statements. We therefore proposed to include a new instruction to Form N-2 that would allow a fund to include additional information so as long as the fund included a statement in the report identifying information that it included for this purpose to provide context for investors.[89] After considering comments we received, we are not adopting this proposed instruction.

The commenters that addressed this proposed new instruction to Form N-2 recommended against requiring this identifying statement in periodic reports on the grounds that it unnecessarily emphasized information included to update the fund's registration statement and could potentially distract investors from other information that may be more material to their investment decisions.[90] These commenters also stated that requiring funds to identify this information would not be consistent with an integrated disclosure regime in which the information is incorporated by reference. We have determined not to adopt the identification requirement. After considering comments, we are persuaded that requiring an affected fund to highlight information just because it updates the fund's registration statement could unnecessarily emphasize it.

C. Well-Known Seasoned Issuer Status

We are adopting, as proposed, amendments that will allow certain affected funds to qualify as WKSIs. Issuers that qualify as WKSIs are permitted to receive the greatest degree of benefits from the modifications to the communications and registration rules that the Commission adopted in 2005.[91] A WKSI, for example, can file a registration statement or amendment that becomes effective automatically in a broader variety of contexts than a non-WKSI. In addition, subject to certain conditions, a WKSI may communicate at any time, including through a free writing prospectus, without violating the “gun-jumping” provisions of the Securities Act.[92]

To qualify as a WKSI, the issuer must meet the registrant requirements of Form S-3, i.e., it must be “seasoned” [93] and generally must have at least $700 million in public float.[94] An issuer is not eligible for WKSI status if, among other bases: (1) It is not current and timely in its Exchange Act reports, or (2) it is the subject of a judicial or administrative decree or order arising out of a governmental action involving violations of the anti-fraud provisions of the Federal securities laws (the “anti-fraud prong” of the ineligible issuer definition).[95]

1. WKSI Definition

As proposed, we are amending rule 405 to delete the exclusion of affected funds from the definition of WKSI.[96] In addition, we are adopting, as proposed, an amendment to the WKSI definition to include a reference to the registrant requirements of the proposed short-form registration instruction on Form N-2.[97] We received no comments on our proposal to make these particular amendments to rule 405. Commenters generally supported permitting affected funds to qualify as WKSIs.[98]

2. WKSI Eligibility

The BDC Act directed us to amend Securities Act rule 405 to allow a BDC to qualify as a WKSI, and the Registered CEF Act directed us to allow a registered CEF covered by the Act to use the securities offering rules that are available to operating companies.[99] Consistent with these directives, and to provide parity in the offering rules for affected funds and operating companies, we are adopting, as proposed, amendments to allow affected funds to qualify as WKSIs if they satisfy the same $700 million public float requirement that applies to operating companies.

Our securities offering rules provide WKSIs with certain registration and communication flexibilities because, among other reasons, they have a demonstrated market following (i.e., they are “well-known”).[100] The Commission has used public float as an approximate measure of an issuer's market following and the extent to which the market absorbs information about the issuer that is ultimately reflected in the price of the issuer's securities.[101] The $700 million public Start Printed Page 33301float requirement is meant to encompass issuers that are presumptively the most widely followed in the marketplace and whose disclosures and other communications therefore are subject to market scrutiny by investors, the financial press, analysts, and others.[102]

Although the comments we received generally supported permitting affected funds to qualify as WKSIs, commenters also suggested specific modifications to the proposed amendments to permit certain additional affected funds to qualify. Several commenters recommended that we eliminate the public float requirement for affected funds.[103] Other commenters recommended that we adopt a substantially lower public float threshold for affected funds, among other reasons, to make WKSI status available to a greater percentage of affected funds that have listed securities.[104] One such commenter offered a specific suggestion: That we reduce the public float threshold for affected funds from $700 million to $480 million.[105] This commenter stated that the $700 million public float requirement adopted in 2005 for operating companies permitted approximately 30% of operating companies to qualify as WKSIs, and stated that we should seek to achieve a similar 30% “target” by adopting a $480 million public float requirement for affected funds.

As the basis for the recommended elimination of or modification to the $700 million public float requirement for affected funds, these commenters stated that while affected funds may not have the same level of market following as operating companies with the requisite public float, market following is a less relevant standard for affected funds than it is for operating companies. These commenters suggested that certain distinguishing characteristics of affected funds compensate for their relative lack of market following and corresponding market scrutiny. For example, commenters stated that affected funds, as pass-through investment vehicles, have a less complex business than traditional operating companies, and thus require less market scrutiny.[106] Commenters also stated that market scrutiny is less relevant for affected funds because, unlike operating companies, affected funds must satisfy the investor protection requirements of the Investment Company Act and related Commission rules, including requirements relating to financial transparency, valuation of portfolio securities, transactions with affiliates, and board oversight, among others.[107]

Similarly, on the basis that public float is not a suitable criterion for determining WKSI status for affected funds, commenters also urged that we permit unlisted affected funds (which do not have public float) to qualify for WKSI status on the basis of their aggregate NAVs.[108] In addition to the reasons provided by commenters, discussed above, for eliminating or modifying the public float requirement,[109] these commenters stated that the intermediaries and distribution platforms through which unlisted affected funds are sold perform extensive due diligence on unlisted affected funds, resulting in these funds being subject to scrutiny “equal” to the market scrutiny indicated by a large public float.[110] Commenters also stated that technological advancements have made unlisted affected funds' financial disclosures directly accessible to investors, and that, particularly in light of the extensive disclosure funds provide, investors are less dependent on market analysts for financial information.[111]

After considering these comments, we are adopting, as proposed, WKSI requirements for affected funds that are in parity with the requirements for operating companies. We are not eliminating or modifying the $700 million public float requirement for affected funds, or permitting affected funds to qualify as WKSIs based on their aggregate NAVs. Our amendments will implement the BDC Act and Registered CEF Act, and are designed to provide parity in the offering rules for affected funds and operating companies.

As discussed above, commenters stated that there are certain distinctions between affected funds and operating companies that suggest that the $700 million public float requirement is not an appropriate criterion for determining WKSI status for affected funds. For example, commenters noted that affected funds generally have less complex businesses than operating companies, are subject to the requirements of the Investment Company Act, and provide extensive financial information to the market. We agree with commenters that the WKSI framework, which the Commission designed specifically for operating Start Printed Page 33302companies, is not well-tailored to the specific characteristics of affected funds. However, these rules are designed to provide WKSI status to issuers with a demonstrated market following, and the Commission has for many years used public float, based on a public trading market, as an approximate measure of a stock's market following and, consequently, the degree of efficiency with which the market absorbs information and reflects it in the price of a security.[112] Moreover, the offering rules for operating companies, which Congress specifically directed the Commission to extend to certain affected funds, are not premised on the characteristics of specific types of issuers, such as whether an issuer's business is less complex than other issuers' businesses or whether an issuer is subject to different regulatory requirements. Further, the market following for closed-end funds is significantly less robust than is the case for operating companies. As a result, in our view, it would not be appropriate to select a public float figure that is below the figure used to determine WKSI status for operating companies.

We also are not persuaded by commenters that allowing an affected fund, including an unlisted affected fund, to qualify on the basis of its aggregate NAV would be consistent with the requirements for an issuer to qualify as a WKSI, which Congress directed us to extend to affected funds.[113] In addition, permitting unlisted affected funds to qualify as WKSIs based on their aggregate NAVs would result in disparate treatment between unlisted affected funds and similarly situated operating companies under these rules. For example, unlisted real estate investment trusts (“unlisted REITs”) do not have a public float and therefore generally cannot qualify as WKSIs under the rules for operating companies. Unlisted REITs, however, have many of the characteristics that commenters cited in support of permitting unlisted affected funds to use their aggregate NAVs to qualify as WKSIs.[114] Nonetheless, unlisted REITs and other unlisted operating companies may not qualify as WKSIs unless they have the requisite public float or satisfy one of the alternative bases (which we also are adopting for affected funds).

Moreover, many of the distinctions between affected funds and operating companies that commenters raised are based on the characteristics of registered funds and BDCs generally, and are not unique to affected funds. We believe that the particular characteristics of registered funds, including affected funds, may be appropriate for the Commission to examine as part of a more comprehensive consideration of whether the securities offering rules for funds should be modified rather than in this rulemaking related to affected funds specifically.[115]

We do not agree with the commenters who stated that changing or eliminating the WKSI requirements for affected funds would be consistent with the intent of the Acts. We do not believe, as commenters suggested, that the BDC Act and Registered CEF Act were designed to result in a higher percentage of affected funds qualifying for WKSI status.[116] Rather, as discussed above, the Acts directed us to extend to affected funds the benefits of our securities offering rules that are available to operating companies. We believe that designing specific WKSI requirements for affected funds to permit a particular percentage of those funds to qualify as WKSIs would not provide parity of treatment. Moreover, the $700 million public float requirement for operating companies was not designed to result in a certain percentage of operating companies qualifying as WKSIs, as suggested by the commenter who recommended that the public float requirement for affected funds be lowered to $480 million.[117] In describing the $700 million public float threshold for operating companies, the Commission observed that the threshold would make the WKSI provisions available to approximately 30% of listed issuers, but this was describing the effect of the provision and not its intent.[118]

We also do not agree with commenters that the Registered CEF Act, by referring to interval funds, requires us to permit affected funds to qualify as WKSIs based on criteria other than the criteria that apply to operating companies.[119] The Registered CEF Act directed us to allow interval funds (in addition to listed CEFs) to use the securities offering rules that are available to other issuers required to file reports under section 13 or 15(d) of the Exchange Act.[120] As discussed throughout this release and summarized in Tables 1 and 2 above, the rules that we are amending in this release are available to all affected funds, including interval funds, that satisfy the relevant conditions of those rules. In addition, many of the rules we are amending are not conditioned on an issuer's public Start Printed Page 33303float, such as the amendments to permit affected funds to use the “access equals delivery” prospectus delivery framework available to operating companies.

We are adopting certain targeted amendments to permit certain non-interval affected funds to rely on rule 486 under the Securities Act. Unlike the WKSI requirements, rule 486 is specifically designed to apply to funds. These amendments to rule 486 will permit certain registered CEFs and BDCs that conduct continuous offerings—regardless of whether they qualify as WKSIs—to file post-effective amendments and certain registration statements that become either effective immediately upon filing under rule 486(b) or automatically effective after 60 days under rule 486(a).[121] Similar to the benefits the final rule will provide to affected funds that qualify as WKSIs or that are eligible to file short-form registration statements, these amendments will facilitate certain unlisted affected funds' ability to raise capital without delay by allowing the funds to more efficiently maintain effective registration statements while they engage in continuous offerings. The final rule, therefore, will provide certain listed affected funds with the flexibility to use a short-form registration statement and to file registration statements and amendments that become effective automatically. Additionally, unlisted affected funds generally will have the flexibility to make filings that become effective either immediately upon filing or automatically after 60 days. Thus the final rule will provide additional flexibilities to both listed and unlisted affected funds.

3. Ineligible Issuer Definition

We are adopting, as proposed, amendments to the definition of ineligible issuer in rule 405. Although all of the provisions in the ineligible issuer definition would apply to affected funds, our amendments are designed to tailor certain of these provisions for affected funds specifically. First, we are amending the definition of “ineligible issuer” to provide that a registered CEF would be ineligible if it has failed to file all reports and materials required to be filed under section 30 of the Investment Company Act during the preceding 12 months. This provision is consistent with the proposed short-form registration instruction and would mirror the current Exchange Act reporting provision in the ineligible issuer definition.[122] We did not receive any comments on this particular proposed amendment.

Second, we are adopting, as proposed, an amendment to the definition of ineligible issuer to give effect to the definition's anti-fraud prong in the context of affected funds. Specifically, we are adopting a parallel anti-fraud prong for affected funds, which provides that an affected fund is an ineligible issuer if within the past three years its investment adviser, including any sub-adviser, was the subject of any judicial or administrative decree or order arising out of a governmental action that determines the investment adviser aided or abetted or caused the affected fund to have violated the anti-fraud provisions of the Federal securities laws.[123] We believe this amendment is appropriate because investment companies typically are externally managed by an investment adviser, which is primarily responsible for the day-to-day management of the fund and the preparation of the fund's disclosures.[124]

We received several comments requesting that we clarify or modify certain aspects of the proposed amendments. Commenters suggested that we clarify that a violation of section 206(4) of the Advisers Act, or the rules adopted under section 206(4) (except for 17 CFR 275.206(4)-8 (rule 206(4)-8)), by an affected fund's investment adviser or sub-adviser would not give rise to WKSI ineligibility for the affected fund.[125] These commenters also recommended that we modify the proposed anti-fraud provision so that an affected fund would not be an ineligible issuer if the investment adviser (or sub-adviser) that was the subject of a judicial or administrative decree or order as described in the proposed rule no longer advises the affected fund at the time the affected fund seeks WKSI status.[126]

Under the anti-fraud prong for affected funds, an affected fund is ineligible for WKSI status if the affected fund's adviser or sub-adviser is determined to have aided or abetted or caused a violation by the fund of the anti-fraud provisions of the Federal securities laws. As such, only the anti-fraud provisions of the securities laws that apply to the affected fund itself can give rise to WKSI ineligibility. There could not be a violation of section 206(4) or the rules adopted thereunder by an affected fund, because the fund is not itself an adviser.

We also do not believe it would be appropriate, as commenters suggested, to modify the proposed amendments to permit an affected fund whose adviser or sub-adviser was determined to have aided or abetted or caused a violation by the fund of the anti-fraud provisions of the securities laws to preserve its WKSI eligibility by terminating the adviser or sub-adviser.[127] An operating company currently will be an ineligible issuer under the anti-fraud prong even if the operating company terminates all of the employees who aided or abetted the underlying violation of the Federal securities laws, and our amendments will provide comparable treatment if an affected fund were to terminate its adviser. The affected fund also may have the same board of directors that was in place when the affected fund violated the anti-fraud provisions. The specific facts and circumstances relating to a particular issuer's WKSI status under the ineligible issuer definition may, however, be considered through the Commission's process under rule 405 for granting waivers of ineligible issuer status.[128]

For these reasons, we are adopting the amendments to the ineligible issuer definition as proposed.

D. Automatic or Immediate Effectiveness for Filings by Affected Funds Conducting Certain Continuous Offerings

Based on comments that we received, we are expanding the scope of rule 486 to permit any registered CEF or BDC that conducts continuous offerings under rule 415(a)(1)(ix) (e.g., a continuously-offered tender offer fund) to rely on the rule. Rule 486 under the Securities Act currently permits interval funds to file post-effective amendments and certain registration statements that are either immediately effective upon filing under rule 486(b) or automatically effective 60 days after filing under rule 486(a).[129]

Start Printed Page 33304

As discussed in the Proposing Release, our staff has previously stated that it would not recommend that the Commission take enforcement action under certain provisions of the Securities Act if, on a case-by-case basis, specific listed registered CEFs that conduct offerings under rule 415(a)(1)(x) use rule 486(b) to file certain post-effective amendments that are immediately effective upon filing.[130] The Proposing Release noted that staff in the Division of Investment Management were reviewing these no-action letters to determine if they should be withdrawn in connection with any final rules. The Commission also requested comment on whether it should make rule 486(b) available to all or a broader group of registered CEFs and BDCs.[131] In response to this request, several commenters asked that we allow certain non-interval funds that conduct delayed or continuous offerings under rule 415 to rely on rule 486, in whole or in part.[132] For example, one commenter suggested that the existing no-action letters be retained or codified. This commenter stated that withdrawing the no-action letters would be disruptive to relevant non-WKSI funds and their ability to update their registration statements and receive automatic effectiveness.[133] Additionally, two commenters recommended that we permit affected funds that are continuously-offered unlisted funds to rely on rule 486 in its entirety, including rule 486(a) and rule 486(b). The commenters suggested that, like interval funds, these unlisted funds are continuously offered and would benefit if their filings could become immediately effective or automatically effective 60 days after filing.[134] One of these commenters stated that, for example, allowing continuously-offered unlisted affected funds to rely on rule 486 would benefit investors in these funds by allowing the funds to avoid the time and expense of an annual staff review of registration statements where no changes are made beyond immaterial updates and updates to audited financial information.[135]

In response to these comments, we are amending rule 486 to allow any registered CEF or BDC that conducts a continuous offering under rule 415(a)(1)(ix) to rely on rule 486.[136] We believe this rule amendment will allow these continuously-offered affected funds to maintain effective registration statements in a more efficient, cost-effective manner. For example, under rule 486(a), these funds will be able to make material changes to their registration statements on an automatically effective basis 60 days after filing. In addition, under rule 486(b), continuously-offered unlisted affected funds will be able, for example, to update their financial statements under section 10(a)(3) or make non-material changes to their registration statements on an immediately effective basis. The rule amendment will allow these funds to more efficiently maintain effective registration statements while they engage in continuous offerings. This is similar to the benefits the final rule will provide to affected funds that file short-form registration statements or qualify as WKSIs, as those funds also will be able to make certain updates to their registration statements more efficiently (i.e., through forward incorporation by reference or automatically effective registration statements and post-effective amendments).[137] We believe it is appropriate for any affected fund that conducts delayed or continuous offerings under rule 415(a)(1)(ix), (x), or (xi) to have a mechanism for bringing its financial statements up to date under section 10(a)(3) without delay.[138] Together, the amendments we are adopting in this release and current rule 486 will achieve this objective.

Continuously-offered unlisted affected funds relying on rule 486 will continue to be subject to applicable provisions in rule 415.[139] Moreover, these funds will need to comply with relevant conditions in rule 486.[140] If it appears to the Commission that a post-effective amendment or registration statement filed under rule 486(a) may be incomplete or inaccurate in any material respect, the Commission may suspend the effective date of that filing. Further, if it appears to the Commission that the fund has not complied with the conditions in rule 486(b), the Commission may suspend the fund's ability to rely on rule 486(b).[141]

In addition to allowing an affected fund to rely on rule 486 if the fund makes continuous offerings under rule 415(a)(1)(ix), we are also amending the scope of registration statements that rule 486 covers. Currently, rule 486 is available for post-effective amendments and for registration statements filed for purposes of registering additional shares of common stock for which a Form N-2 registration statement is effective. This generally reflects the scope of amendments and registration statement filings interval funds make after their initial registration statements are effective. However, unlike interval funds, the affected funds that will newly be eligible to rely on rule 486 generally are required to file new registration statements every three years under rule 415(a)(5) and (6). We are amending rule 486 to allow these registration statements to be immediately or automatically effective under the rule, depending on the substance of the disclosure.[142] Specifically, a registration Start Printed Page 33305statement a fund files to comply with rule 415(a)(5) and (6) could be immediately effective upon filing if it is filed for no purpose other than to comply with those provisions of rule 415 or for other purposes listed in rule 486(b), such as making non-material changes or updating the fund's financial statements under section 10(a)(3). If the registration statement does not qualify under rule 486(b) because, for example, it includes material changes to the fund's disclosure, the registration statement could be automatically effective 60 days after filing under rule 486(a). As a result of the amendments, affected funds that make continuous offerings under rule 415(a)(1)(ix) will be able to rely on rule 486 for registration statements filed to comply with rule 415(a)(5) and (6), regardless of whether they choose to register additional shares at the time these provisions requires them to file new registration statements. This will promote consistent treatment of these funds' filings under the rule.

Although one commenter suggested that we retain or codify the staff no-action letters discussed above to allow affected funds that conduct delayed or continuous offerings under rule 415(a)(1)(x) to file post-effective amendments that are immediately effective under rule 486(b), we believe the final rule makes such relief unnecessary.[143] For example, while these funds will need to file new registration statements every three years under rule 415, during the interim period they will be able to update their registration statements through the forward incorporation by reference provisions applicable to short-form registration statement filers.[144] The forward incorporation by reference provisions allow these funds to avoid filing the types of post-effective amendments that rule 486(b) covers, as well as other types of post-effective amendments (e.g., those making material changes to the fund's disclosure). Thus, we do not believe that affected funds that make delayed or continuous offerings under rule 415(a)(1)(x) will need to file the types of post-effective amendments rule 486(b) covers.

Moreover, while the commenter only referred to post-effective amendments, rule 486(b) also covers new registration statements under certain circumstances. For instance, when an eligible fund has an effective registration statement and wants to register additional shares without making material amendments to its existing disclosure, rule 486(b) allows that new registration statement to be immediately effective.[145] If we were to permit a fund that makes delayed or continuous offerings under rule 415(a)(1)(x) to rely on rule 486(b) in its entirety, then the new registration statement the fund must file every three years could effectively become an automatic shelf registration statement, even though the fund does not qualify as a WKSI (e.g., it does not have $700 million in public float).[146] As a result of these considerations, the no-action letters stating that the staff would not recommend an enforcement action if specific listed, registered CEFs conducted offerings under rule 415(a)(1)(x) using rule 486(b) will be withdrawn effective August 1, 2021 (one year from the effective date of the final rule).[147] Importantly, as recognized above, the final amendments provide a mechanism for these funds to efficiently update their registration statements.

E. Final Prospectus Delivery Reforms

We are adopting, as proposed, rule amendments that will allow an affected fund to satisfy its final prospectus delivery obligations by filing its final prospectus with the Commission.

The Securities Act requires registrants to deliver to each investor in a registered offering a prospectus meeting the requirements of section 10(a) (known as a “final prospectus”).[148] Section 5(b)(2) makes it unlawful to deliver a security for the purpose of sale or for delivery after sale unless accompanied or preceded by a final prospectus. After the effectiveness of a registration statement, a written communication that offers a security for sale, or confirms the sale of a security, may be provided to investors if a final prospectus is sent or given previously or at the same time. Otherwise, such a communication may not be provided unless it is otherwise permitted under Commission rules or meets the requirements of section 10(a).[149]

Rule 172 allows issuers, brokers, and dealers to satisfy final prospectus delivery obligations if a final prospectus is or will be on file with the Commission within the time required by the rules and other conditions are satisfied.[150] For example, rule 172 provides that a final prospectus will be deemed to precede or accompany a security for sale for purposes of section 5(b)(2) as long as the final prospectus is filed with the Commission or it will be filed as part of the registration statement.[151] Rule 172 applies only to final prospectuses and not to other documents.[152] Rule 173 requires the delivery of a copy of the final prospectus or, in lieu of a final prospectus, a notice to purchasers stating that a sale of securities was made pursuant to a registration statement or in a transaction in which a final prospectus would have been required to have been delivered in the absence of rule 172.[153]

Rules 172 and 173 do not apply to offerings of affected funds.[154] The BDC Act directs us to remove the exclusion for BDC offerings.[155] To implement the BDC Act, and to provide parity for registered CEFs consistent with the Registered CEF Act, we proposed to amend rules 172 and 173 to remove the exclusion for offerings of all affected funds. Commenters supported this approach, stating that the proposed amendments would reduce prospectus printing and delivery costs and provide parity for affected funds, consistent with Start Printed Page 33306the BDC Act and the Registered CEF Act.[156] We are adopting the amendments to rules 172 and 173 as proposed.[157]

F. Communications Reforms

1. Offering Communications

We are adopting amendments to the communications rules, as proposed, to extend to affected funds the rules that currently provide operating companies and other parties (such as underwriters) increased flexibility in their communications.[158] The amendments permit these communications notwithstanding the “gun-jumping provisions” in the Securities Act, which restrict the types of offering communications that issuers or other parties subject to the Act's provisions may use in connection with a registered public offering.[159] The gun-jumping provisions were designed to make the statutorily mandated prospectus the primary means for investors to obtain information regarding a registered securities offering.[160] Accordingly, the statute provides that unless otherwise permitted:

  • Before an issuer files a registration statement, all offers, in whatever form, are prohibited; [161]
  • After the issuer files a registration statement but before it has become effective, the only written offers that are permitted are those made using a preliminary prospectus that meets the requirements of section 10 of the Securities Act, which must be filed with the Commission; [162] and
  • Even after the registration statement is declared effective, offering participants still may make written offers only through a statutory prospectus, except that they may use additional written offering materials if a final prospectus that meets the requirements of Securities Act section 10(a) is sent or given prior to or with those materials.[163]

Since the adoption of the Securities Act, the Commission has recognized that certain communications before, during, and after the filing of a registration statement do not raise the investor protection concerns that the gun jumping provisions aim to address. For this reason, the Commission has adopted several rules to provide clarity to issuers on the types of communications that are permissible and how to communicate with investors without violating the gun jumping provisions. We proposed to extend those rules to affected funds in the Proposing Release. Commenters generally supported the proposed amendments to the communications rules.[164] Two commenters stated that the amendments would allow increased flexibility in communications and provide parity with operating companies.[165] One commenter added that the amendments would make it easier to execute offerings by affected funds and would decrease costs, leading to lower offering costs and potentially enhance capital formation while not negatively impacting investor protections.[166]

The Commission continues to believe that investors and the market will benefit from access to greater communications under conditions that preserve investor protections. To implement the BDC Act, and to provide parity for registered CEFs consistent with the Registered CEF Act, we are extending, as proposed, the communications rules currently available to operating companies to affected funds by removing the exclusions for affected funds and making other conforming changes.[167] Specifically, the amended rules will:

  • Permit affected funds to use rule 134 to publish factual information about the issuer or the offering, including “tombstone ads.” [168]
  • Permit affected funds to rely on rule 163A, which provides issuers a bright-line time period, ending 30 days prior to filing a registration statement, during which they may communicate without risk of violating the gun-jumping provisions.[169]
  • Permit affected funds that are reporting companies to rely on rule 168 to publish or disseminate regularly released factual business information and forward-looking information at any time, including around the time of a registered offering.[170] The amendments to rule 169 will also permit affected funds' continued publication or dissemination of regularly released factual business information that is intended for use by persons other than in their capacity as investors or potential investors.[171] We also are adopting amendments to rule 156 to state that nothing in that rule may be construed to prevent an affected fund from qualifying for an exemption under rule 168 or 169.[172] The contents of any rule 168 or 169 communication remain subject to the anti-fraud provisions of the Federal securities laws.
Start Printed Page 33307
  • Permit affected funds to rely on rules 164 and 433 to use a “free writing prospectus.” [173]
  • Permit affected funds that are WKSIs to engage at any time in oral and written communications, including use at any time of a free writing prospectus (before or after a registration statement is filed), subject to the same conditions applicable to other WKSIs.[174]

As we discussed in the Proposing Release, investment company communications currently are subject to rule 482.[175] Rule 482 communications can only be used by a fund that is selling or is proposing to sell its securities pursuant to a filed registration statement, and are prospectuses subject to prospectus liability under section 12 of the Securities Act.[176] The amendments to the communications rules provide affected funds with incremental flexibility in their communications, including additional flexibility to communicate before filing a registration statement, and some additional flexibility in using communications that are not subject to prospectus liability under section 12 of the Securities Act.[177] Moreover, as we discussed in the Proposing Release, both the BDC Act and Registered CEF Act direct the Commission to continue to make available Securities Act rule 482 communications, or “ads,” notwithstanding the amendments to the communications rules.[178] Affected funds therefore can now take advantage of additional flexibility under the communications rules as amended or continue to rely on rule 482 and other rules currently applicable to investment company communications.

In addition to comments on the proposed amendments to the communications rules, two commenters urged us to adopt rules that would extend the safe harbors for liability in private actions for certain forward looking statements under section 27A of the Securities Act and section 21E of the Exchange Act to affected funds.[179] Those commenters did not specify what the conditions or requirements of such a rule might be, and the public has not had the opportunity to comment on whether or how to extend safe harbors for forward-looking statements to affected funds. For these reasons, we believe commenters' request requires more extensive consideration beyond the scope of this rulemaking.

2. Broker-Dealer Research Reports

We are adopting the amendments to Securities Act rule 138 as proposed. Rule 138 permits a broker-dealer participating in the registered offering of an eligible issuer's common stock and similar securities to publish or distribute research reports about that issuer's fixed income securities, and vice versa, if it publishes or distributes that research in the regular course of its business.

Although rule 138 does not currently exclude affected funds from coverage, it does include references to Form S-3 but not Form N-2. We therefore proposed to amend the rule's references to shelf registration statements filed on Form S-3 to include a parallel reference to a registration statement filed on Form N-2 under the proposed short-form registration instruction. Rule 138 also currently provides that an issuer covered in a research report published in reliance on the rule must be required to file reports, and must have filed all periodic reports required during the preceding 12 months (or such shorter time that the issuer was required to file such reports), on Forms 10-K and 10-Q.[180] Because registered CEFs do not file the periodic reports currently specified in rule 138, we proposed to include parallel references to the reports that registered CEFs are required to file, i.e., reports on Forms N-CSR, N-Q, N-CEN, and N-PORT.[181] We did not receive any comments on these amendments and are adopting them as proposed.

We are not adopting changes to 17 CFR 230.139 (rule 139).[182] That rule provides a safe harbor for a broker-dealer's publication or distribution of research reports where the broker-dealer is participating in the registered offering of the issuer's securities and, unlike rule 138, permits the research report to cover any class of the issuer's securities.

As we stated in the Proposing Release, in 2018 the Commission adopted new 17 CFR 230.139b (Securities Act rule 139b) to implement the Fair Access to Investment Research Act of 2017 (the “FAIR Act”).[183] The FAIR Act directed that the Commission extend rule 139 to cover broker-dealers' publication or distribution of “covered investment fund research reports.” These include research reports about affected funds.[184]

Rule 139b includes specific provisions mandated by Congress for covered investment fund research reports. For example, rule 139b excludes from the rule's safe harbor research reports published or distributed by the covered investment fund itself, any affiliate of the covered investment fund, or any broker-dealer that is an investment adviser (or an affiliated person of an investment adviser) for the covered investment fund.[185] The Commission did not propose changes to rule 139 because it believed that rule 139b satisfies the directives of the BDC Act and Registered CEF Act by extending rule 139's safe harbor to research reports on BDCs and registered CEFs and is consistent with Congress's core objective regarding research reports covering these funds.[186] The Commission observed that, if it were to amend rule 139 to cover research reports on BDCs, or on affected funds generally, exactly the same conduct would be subject to different standards based on the rule a broker-dealer chose to use.[187] The Commission believed that it would be more appropriate to provide a consistent approach for affected fund research reports under rule 139b.[188]

One commenter suggested that we amend rule 139 and repeal rule 139b, in order to provide the same requirements for broker-dealer research reports on Start Printed Page 33308affected funds and operating companies.[189] The commenter raised concerns regarding differences between these two rules' requirements, such as rule 139b's “affiliate exclusion.” That provision makes rule 139b's safe harbor inapplicable to research reports by a broker-dealer that is an investment adviser (or an affiliated person of an investment adviser) to the covered investment fund.

We acknowledged the differences between rule 139b and rule 139 in the Proposing Release. Indeed, the different requirements in rule 139b—which were mandated by Congress in the FAIR Act—are why we did not propose amendments to rule 139. We continue to believe that rule 139b already satisfies the directives of the BDC Act and Registered CEF Act by extending rule 139's safe harbor to research reports on BDCs and registered CEFs and is consistent with Congress's core objective regarding research reports covering these funds. If we were to amend rule 139 and rescind rule 139b as urged by this commenter, this would not give effect to Congress's more specific directives in the FAIR Act. Moreover, rule 139b, as directed by the FAIR Act, provides a consistent framework for research reports on “covered investment funds,” which are not limited to the affected funds covered in this rulemaking. Maintaining rule 139b therefore provides a consistent approach for all “covered investment fund research reports.”

G. Other Rule Amendments

1. Rule 418 Supplemental Information

As proposed, we are adopting amendments to rule 418 to exempt affected funds that are eligible to file a short-form registration statement on Form N-2 from the requirement to furnish certain supplemental information to the Commission or staff on request under paragraph (a)(3) of the rule. As discussed in the Proposing Release, operating companies that are eligible to use Form S-3 are already exempt from having to furnish certain information under rule 418(a)(3).[190] Commenters did not address the amendments to rule 418, which we proposed to implement the BDC Act and to provide parity for registered CEFs consistent with the Registered CEF Act.[191] Consistent with the proposal, affected funds that are eligible to file a short-form registration statement on Form N-2 will not be required to furnish, on request, recent engineering, management, or similar reports or memoranda relating to broad aspects of the business, operations, or products of the registrant under amended rule 418(a)(3).[192]

2. Amendments to Incorporation by Reference Into Proxy Statements

We are adopting amendments to Schedule 14A under the Exchange Act as proposed, consistent with the BDC Act and the Registered CEF Act.[193] We did not receive comments on the proposed amendments to Schedule 14A. The amendments will allow affected funds that meet the requirements of the short-form registration instruction in Form N-2, as further described in Note E to Schedule 14A, to incorporate certain information by reference to previously-filed documents for proxy statements containing specific proposals under Item 13 of Schedule 14A.[194] The amendments allow eligible funds to incorporate by reference certain required information for relevant proxy proposals to the same extent that operating companies meeting the requirements of Form S-3 (as defined in Note E to Schedule 14A) may use incorporation by reference under the same circumstances.[195]

3. Rule 103 of Regulation FD

We are adopting amendments to rule 103(a) of Regulation FD, as proposed, to provide that an affected fund's failure to make a public disclosure required solely by rule 100 of Regulation FD will not affect the fund's eligibility under the short-form registration instruction of Form N-2.[196] We did not receive comments on the proposed amendments to rule 103(a). The final amendments to rule 103(a) will enhance parity between affected funds and operating companies, consistent with the BDC Act and the Registered CEF Act, as rule 103(a) already provides that an operating company's failure to make a public disclosure required solely by rule 100 of Regulation FD will not affect its eligibility to use Form S-3.[197]

H. New Registration Fee Payment Method for Interval Funds and Issuers of Certain Exchange-Traded Products

We are adopting a modernized approach to registration fee payment that will require interval funds to pay securities registration fees using the same method that mutual funds and ETFs use today.[198] Specifically, for interval funds, the final rule will provide that such funds register an indefinite amount of securities upon their registration statements' effectiveness.[199] Like mutual funds and ETFs, interval funds will be required to Start Printed Page 33309pay registration fees based on their net issuance of shares, no later than 90 days after the funds' fiscal year ends.[200] These issuers will be required to file information about the computation of this registration fee and other information on Form 24F-2 under the Investment Company Act when paying the fee.[201] In response to comments that we received, we also are extending similar treatment to certain ETPs that are not registered under the Investment Company Act.

We proposed to amend rules 23c-3 and 24f-2 so that interval funds would pay registration fees on this same annual net basis.[202] The commenters who addressed this aspect of the proposal supported it.[203] Two commenters suggested expanding the scope of this aspect of our proposal to include additional types of issuers.[204] One commenter recommended extending the scope of the provision to “all other funds” to confer the same benefits to those additional funds, such as eliminating the need to predict the number of shares the fund expects to sell.[205] Another commenter suggested extending the scope to “tender offer funds”—those that make repurchase offers but that are not, like interval funds, required to periodically repurchase shares or to have a fundamental policy regarding its repurchase offers that can be changed only by a shareholder vote.[206] We are adopting this provision as proposed. Of the categories of investment companies contemplated by commenters, only interval funds routinely repurchase shares at NAV and are required to periodically offer to repurchase their shares, making these funds more like mutual funds and ETFs, which are required to use this method.

In response to a request for comment in the Proposing Release, a number of commenters also recommended that certain ETPs that are not registered under the Investment Company Act be permitted to register offerings of an indefinite number of securities and pay registration fees in a manner equivalent to that under rule 24f-2.[207] These commenters stated that these ETPs operate in a manner substantially similar to that of ETFs and would similarly benefit from paying registration fees on an annual net basis and from registering offerings of an indefinite number of securities.[208] Some of these commenters also noted that the attributes cited in the Proposing Release for extending the ability to pay registration fees on an annual net basis to interval funds (routine repurchases of shares at NAV and avoiding the possibility that an interval fund would inadvertently sell more shares than it had registered) would also apply to these ETPs.[209]

After considering these comments, we have determined to adopt amendments to enable certain ETPs that are not registered under the Investment Company Act to elect to register an offering of an indeterminate number of securities and to pay registration fees for such an offering in a manner equivalent to that for mutual funds and ETFs (i.e., in arrears on an annual net basis). In view of the concerns raised by commenters as well as the similarities between these ETPs and ETFs, we agree that it is appropriate to extend the availability of this treatment to these ETPs under the Securities Act. Accordingly, issuers that offer exchange-traded vehicle securities, as the term will now be defined in amended rule 405,[210] will be eligible under new Securities Act rule 456(d) to elect to register an offering of an indeterminate amount of exchange-traded vehicle securities and pay registration fees for such an offering on an annual net basis no later than 90 days after the end of the fiscal year when making this election. We are also adopting Securities Act rule 457(u), which sets forth the calculation method for paying registration fees in this manner and is consistent with the fee calculation provisions of Form 24F-2.[211] Finally, we are adopting rule 424(i) pursuant to which issuers that elect to register an offering of an indeterminate amount of securities pursuant to rule 456(d) will be required to file a prospectus supplement when paying registration fees on an annual net basis.[212]

I. Disclosure and Reporting Parity Proposals

We are adopting amendments to our rules and forms, substantially as proposed, intended to tailor the disclosure and regulatory framework for affected funds in light of our amendments to the offering rules. Many of these amendments are not required by the BDC Act or the Registered CEF Act, but we believe are consistent with the respective Acts' requirements to increase regulatory parity of affected funds with otherwise similarly-situated issuers.[213] As discussed in detail below, these amendments include structured data requirements; new annual reporting requirements; amendments to provide all affected funds additional flexibility to incorporate information by reference; and enhancements to the disclosures that registered CEFs make to investors when the funds are not updating their registration statements.

1. Structured Data Requirements

We are adopting, substantially as proposed, certain new structured data reporting requirements for registered CEFs and BDCs. In particular, and as discussed in detail below, we are requiring:Start Printed Page 33310

  • BDCs, like operating companies, to submit financial statement information using Inline XBRL format;
  • registered CEFs and BDCs to include structured cover page information in their registration statements on Form N-2 using Inline XBRL format;
  • certain information required in an affected fund's prospectus to be tagged using Inline XBRL format; and
  • filings on Form 24F-2 to be submitted in eXtensible Markup Language (“XML”) format.

a. Inline XBRL Requirements for Financial Statements and Notes to Financial Statements

We are adopting, as proposed, an amendment to 17 CFR 229.601 (Item 601 of Regulation S-K) to subject BDCs to the Inline XBRL financial statement tagging requirements that apply to operating companies, by removing the exclusion for BDCs from the Inline XBRL financial statement tagging requirements.[214] We continue to believe that reporting in a structured data format makes financial information easier for investors to analyze and helps automate regulatory filings and business information processing.[215] We also believe that BDC investors and other market participants would benefit from the availability of relevant information in a structured data format.[216] These requirements will reduce the current disparity between the accessibility of financial information BDCs provide to the market and the accessibility of substantially similar financial information that operating companies provide to the market.[217]

The commenters who addressed this proposed requirement supported it.[218] Some of these commenters stated that structured financial statement data would be more useful to investors than information in only a HyperText Markup Language (“HTML”) or plain text format.[219] One of these commenters stated that more structured financial statement reporting would improve the clarity and transparency of reported information by using consistent, agreed-upon definitions, and would yield information that is less expensive to process and more timely than unstructured data.[220] Another commenter stated that eliminating the delay for data users to obtain information once it is public makes capital markets more efficient.[221]

Two commenters supported the use of the Inline XBRL format specifically.[222] One of these commenters noted that, because Inline XBRL is both machine-readable and human-readable, it will help investors in BDCs quickly access structured data just as investors in operating companies can.[223] This commenter also highlighted potential benefits of the format for issuers, stating that data in Inline XBRL format is easier to review than, for example, the same data in separate XBRL and HTML formats.[224] Some commenters also stated that the currently available XBRL taxonomies will be sufficient for BDCs.[225] After considering public comments received, and because we continue to believe that investors will benefit from the availability of relevant information in a structured data format, we are adopting this requirement as proposed.[226]

b. New Check Boxes and Structured Data Format for Form N-2 Cover Page Information

We are adopting, as proposed, a requirement that all affected funds tag all of the data points that appear on the cover page of Form N-2, except the Calculation of Registration Fee table, using Inline XBRL format.[227] These cover page data points will include, for example, the company name, the Act or Acts to which the registration statement relates, and check boxes relating to the effectiveness of the registration statement. We currently require operating companies to tag all of the data points on the cover page of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F using Inline XBRL format.[228] The Commission generally proposed to extend this requirement to mandatory tagging of the data points on the cover page of Form N-2 because it believed it would allow investors, other market participants, and other data users to automate their use of this information.[229]

The commenters who addressed the proposed requirement supported it.[230] As above, two commenters supported the proposed Inline XBRL format, stating that it would provide benefits for investors, regulators, and issuers.[231] One commenter specifically supported requiring the Inline XBRL format over allowing reporting entities to choose from more than one data standard or developing a custom schema for the required information.[232] After Start Printed Page 33311considering public comments received, and because we continue to believe that it would allow investors, other market participants, and other data users to automate their use of this information, we are adopting this requirement as proposed.

The Commission did not propose to require affected funds to tag the table on the form's cover page that includes information about calculation of the fund's registration fee under the Securities Act.[233] One commenter recommended that the Commission require tagging of such registration fee information, stating that these are valuable data elements and that extending the requirement to fee information would not increase the burden of tagging on issuers.[234] The Commission recently proposed such amendments to Form N-2 as part of a larger proposal to modernize the filing fee disclosure and payment methods for most of the Commission's fee-bearing forms, statements, and related rules.[235] As a result, we believe that the filing fee disclosure and payment modernization rulemaking is a more appropriate vehicle for considering whether the fee calculation information on Form N-2 should be tagged.

In addition, we are amending Form N-2 to add new check boxes to its cover page, as proposed.[236] We proposed several new check boxes to allow investors, Commission staff, and others to more readily identify types of issuers and securities.[237] We continue to believe that this check box information will allow investors, Commission staff, and others to more readily identify types of issuers and securities, and so are adopting this provision as proposed.[238] These check boxes will be among the data points required to be tagged using Inline XBRL format.[239]

c. Tagging of Prospectus Disclosure Items

We are adopting, as proposed, a requirement that all affected funds tag certain information that is required to be included in an affected fund's prospectus using Inline XBRL format. All affected funds will be required to submit certain information in registration statements or post-effective amendments filed on Form N-2 and certain forms of prospectuses filed pursuant to rule 424 under the Securities Act to the Commission using Inline XBRL.[240] A seasoned fund filing a short-form registration statement on Form N-2 also will be required to tag information appearing in Exchange Act reports—such as those on Form N-CSR, 10-K, 10-Q, or 8-K—if that information is required to be tagged in the fund's prospectus.[241]

We will require affected funds to tag the following prospectus disclosure items using Inline XBRL format: Fee Table; Senior Securities Table; Investment Objectives and Policies; Risk Factors; Share Price Data; and Capital Stock, Long-Term Debt, and Other Securities.[242] We continue to believe that these items are of greatest utility for investors and other data users that seek structured data to analyze and compare funds, as they provide important information about a fund's key features, costs, and risks.[243] We believe tagging the Fee Table, which provides detailed information about the fund's costs, could facilitate analysis of fund costs and allow investors and other data users to compare the costs of a particular affected fund to the costs of other funds or other investment products, such as mutual funds. The Senior Securities Table requires registrants to include information about each class of senior securities, including bank loans. Tagging this information will facilitate analyses of outstanding senior securities that may bear on the likelihood, frequency, and size of distributions from the fund to its investors. Tagging Investment Objectives and Policies, which provides information about the fund's principal portfolio emphasis, will help an investor determine the degree to which a fund's objectives and policies align with the investor's preferences. Risk Factors describes risks associated with an investment in the fund. Tagging Risk Factors will facilitate the aggregation, analysis, and comparison by investors and other data users of information about a fund's risks alongside the fund's features and benefits. Tagging Share Price Information is important because the presence of a premium or discount may bear on the likelihood, frequency, and size of distributions from the fund to its investors, which we believe may be of particular importance to many affected fund investors. Tagging Capital Stock, Long-Term Debt, and Other Securities better informs common shareholders how their rights, expenses, and risks are affected when the fund issues other types or classes of securities. We also continue to believe that these items are best suited to being tagged in a structured format.

The commenters who addressed the proposed requirement supported it.[244] These commenters stated that the tagged data would be useful, including both numeric and narrative information.[245] In addition, one commenter asserted that the Commission should require tagging all financial data that is required to be reported.[246] We believe that this rule is appropriately focused on the key items that are most suitable for tagging and of greatest utility for investors.

Because we continue to believe that structuring these data elements will allow investors, other market participants, and other data users to automate their use of this information, Start Printed Page 33312we are adopting this requirement as proposed.[247] As with other new Commission XBRL taxonomies, staff will post for public review and feedback a draft Inline XBRL taxonomy for affected funds' tagged prospectus disclosures.[248] When available, affected funds will be required to use the most recent version of the Inline XBRL taxonomy for tagged prospectus disclosures, as specified by the EDGAR Filer Manual.[249]

As the Commission proposed, and as required of mutual funds and ETFs under the recently adopted Inline XBRL regime,[250] we will require affected funds to submit “Interactive Data Files” (i.e., machine-readable computer code that presents information in XBRL format) [251] as follows:

  • For any registration statements and post-effective amendments, Interactive Data Files must be filed either concurrently with the filing or in a subsequent amendment that is filed on or before the date that the registration statement or post-effective amendment that contains the related information becomes effective; [252]
  • for any form of prospectus filed pursuant to rule 424, Interactive Data Files must be submitted concurrently with the filing; [253] and
  • for any Exchange Act reports that a seasoned fund filing a short-form registration statement on Form N-2 will have to tag, as discussed above, Interactive Data files must be submitted concurrently with the filing.[254]

We proposed this approach to facilitate timely availability and promote the comparability and utility of important information in a structured data format for investors, other market participants, and other data users, which we believed would yield substantial benefits.[255] We did not receive comments on this aspect of the proposal. We continue to believe that this approach will yield the substantial benefits discussed above and therefore are adopting it as proposed.

d. Structured Data Format for Form 24F-2

We will require submission of filings on Form 24F-2 in a structured XML format.[256] We proposed this use of a structured data format, believing that it would make it easier for issuers to accurately prepare and submit the information required by Form 24F-2 and would make the submitted information more useful to Commission staff.[257] The commenters who addressed the proposed requirement to structure Form 24F-2 supported it,[258] with one commenter observing that the structured registration fee information could be useful in validating the submission.[259] Commenters were mixed on the proposed custom XML format, with one commenter supporting the proposed XML format,[260] and another recommending that the Commission use an XBRL format instead.[261]

Because Form 24F-2 is primarily used by Commission staff to validate registration fees paid by issuers and not for financial reporting purposes, we continue to believe that a custom XML schema will be an appropriate format for the required information. For example, while XBRL allows issuers to capture the rich complexity of financial information presented in accordance with GAAP, we believe that XML is more appropriate for the relatively simple characteristics of the fund's fee information in reports on Form 24F-2.[262] In addition we continue to believe that the XML format will improve the quality of information disclosed by providing a built-in validation framework of the data in the reports.[263] We therefore will require reports on Form 24F-2 to be filed in a structured XML format, as proposed.

2. Periodic Reporting Requirements

We are also adopting new annual report requirements, as proposed. As we discussed in the Proposing Release, we expect several of the reforms we are adopting in this release, such as those relating to automatically effective shelf registration, forward incorporation by reference, and final prospectus delivery, will elevate the importance of periodic reporting relative to prospectus disclosure for affected funds.

A seasoned fund filing a short-form registration statement on Form N-2 will be required to forward incorporate all periodic Exchange Act reports into its registration statement.[264] This should result in periodic reports becoming a more salient, convenient, and comprehensive source of updated information about a particular seasoned fund, relative to that fund's registration statement. As a result, these funds' annual reports may take on greater prominence, with investors looking to the annual reports for key Start Printed Page 33313information.[265] Registered CEFs' shareholder reports may also take on greater prominence for investors because, under the final rule, affected funds will not be required to deliver final prospectuses but will still be required to deliver shareholder reports at least semi-annually.[266]

Accordingly, as proposed, we are requiring seasoned funds that register using the proposed short-form registration instruction to include key information in their annual reports regarding fees and expenses, premiums and discounts, and outstanding senior securities that the funds currently disclose in their prospectuses.[267] Because the annual report will be incorporated by reference into the fund's prospectus, requiring disclosure in both the prospectus and annual report should not require duplicative disclosure. Moreover, specifying identical disclosure requirements in both places may facilitate forward incorporation by reference, by making clear that the same required disclosure will satisfy both requirements. We continue to believe that investors should have no less current information than they do today about these items when the fund is offering its shares.[268] Finally, we are requiring, as proposed, registered CEFs to provide management's discussion of fund performance (or “MDFP”) in their annual reports to shareholders, BDCs to provide financial highlights in their registration statements and annual reports, and affected funds filing a short-form registration statement on Form N-2 to disclose material unresolved staff comments.[269] These provisions are intended to modernize and harmonize our periodic report disclosure requirements for affected funds with those applicable to operating companies and mutual funds and ETFs.[270]

a. Fee and Expense Table, Share Price Data, and Senior Securities Table

We are adopting a requirement, as proposed, that funds filing a short-form registration statement on Form N-2 include key information in their annual reports that they disclose in their prospectuses in light of the importance of this information and the increased prominence of shareholder reports under our final rule. Specifically, we will require that these funds include the following information in their annual reports: [271]

  • Fee and Expense Table: Form N-2 requires registrants to include information about the costs and expenses that the investor will bear directly or indirectly, using specified captions and a specified tabular format.[272] This table is designed to help investors understand the costs of investing in an affected fund and to compare those costs with the costs of other affected funds.[273] The Commission has previously noted the importance of costs to an investment decision and, in the case of registered open-end funds, has specified the location of the fee table to enhance the prominence of the cost information.[274]
  • Share Price Data: Form N-2 requires registrants to include information about the share price of the registrant's stock as well as information about any premium or discount that the share price reflects, compared to the registrant's NAV.[275] The presence of a premium or discount may bear on the likelihood, frequency, and size of distributions from the fund to its investors, which we believe may be of particular importance to many affected fund investors.
  • Senior Securities Table: Form N-2 requires registrants to include information about each of its classes of senior securities, including bank loans.[276] As with a premium or discount, any outstanding senior securities may bear on the likelihood, frequency, and size of distributions from the fund to its investors. A registrant must disclose information about its senior securities for the most recent ten years, the last five years of which must be audited.[277]

The commenters that addressed these proposed requirements related to the Fee and Expense Table, Share Price Data, and Senior Securities Table supported them.[278] Because we continue to believe in the importance of this information and the increased prominence of shareholder reports under our final rule,[279] we are adopting this aspect of the proposal as proposed.[280]

With respect to the Senior Securities Table, two commenters requested that we revise the instruction to Form N-2 Start Printed Page 33314as it relates to affected funds to reduce the audit requirement from the last five-years (in the registration statement) to the same periods as contained in the audited balance sheet presented in the annual report.[281] However, such a change would alter the periods presented for the Senior Securities Table, which match the periods presented in the Financial Highlights.[282] Given the importance of asset coverage and the comparability of information contained in both the Financial Highlights and the Senior Securities Table, we do not believe such a change is appropriate. Additionally, because the annual report will be incorporated by reference into the fund's prospectus, filing the audited senior securities table in the annual report will not result in duplicative disclosure. For this reason, we have determined not to amend the requirements in the manner suggested by the commenters.

b. Management's Discussion of Fund Performance

We are also adopting, as proposed, an amendment to Form N-2 that will extend the MDFP disclosure requirements to all registered CEFs.[283] Currently, mutual funds and ETFs are required to include MDFP in their annual reports to shareholders.[284] MDFP disclosure aids investors in assessing a fund's performance over the prior year and complements other backward looking information required in the annual report, such as financial statements.[285] This required disclosure is grounded conceptually in the disclosure requirement for operating companies (as well as BDCs) to include a narrative discussion of the financial statements of the company—“management discussion and analysis” or “MD&A”—and to provide an opportunity to look at a company “through the eyes of management.” [286]

We proposed to amend Form N-2 to extend the MDFP disclosure requirements to all registered CEFs.[287] Specifically, we proposed to require that registered CEFs:

  • Discuss the factors that materially affected their performance during the most recently completed fiscal year, including the relevant market conditions and the investment strategies and techniques used by the fund;
  • Provide a line graph comparing the initial and subsequent account values at the end of each of the most recently completed ten fiscal years of the fund and a table of the fund's total returns for the 1-, 5-, and 10-year periods as of the last day of the fund's most recent fiscal year; and
  • Discuss the effect of any policy or practice of maintaining a specified level of distributions to shareholders on the fund's investment strategies and per share NAV during the last fiscal year, as well as the extent to which the registrant's distribution policy resulted in distributions of capital.

Commenters that addressed this aspect of the proposal supported it.[288] Because we continue to believe that investors in these funds—like investors in mutual funds, ETFs, BDCs, and operating companies—would benefit from annual report disclosure that aids them in assessing the fund's performance over the prior year and that complements other information in the report,[289] we are adopting this requirement as proposed.[290]

c. Financial Highlights

We are amending Form N-2, as proposed, to require that a BDC, like other affected funds, include financial highlights disclosure summarizing its financial statements in its registration statement and annual report.[291] Today, BDCs include their full financial statements in their prospectus, and we currently permit BDCs to omit financial highlights disclosure summarizing these financial statements.[292] We understand, however, that it is generally market practice for BDCs to include financial highlights disclosure. This information is arranged to allow investors to trace the operating performance of a fund on a per share basis from the fund's beginning NAV to its ending NAV so that investors may understand the sources of changes.[293] It summarizes the financial statements.[294] Commenters did not address this aspect of the proposal. Because we continue to believe that investors will benefit from required disclosure summarizing a BDC's financial statements,[295] we are adopting this change as proposed.[296]

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d. Unresolved Staff Comments

We are also adopting, as proposed, a requirement that affected funds filing a short-form registration statement disclose outstanding staff comments that remain unresolved for a substantial period of time and that the fund believes are material.[297] As part of the Commission's 2005 securities offering reforms for operating companies, the Commission adopted a similar provision for operating companies, recognizing that the new rules could eliminate some incentives issuers may have to timely resolve any staff comments on their Exchange Act reports.[298] The Commission observed, in connection with this proposed requirement, that this rulemaking similarly may eliminate some incentives for certain affected funds to timely resolve staff comments.

Two commenters recommended that the Commission not adopt this proposed requirement.[299] One commenter stated that the proposed requirement would be inconsistent with Commission efforts to simplify disclosure and focus on key information important to investors.[300] We believe, however, that, because the requirement only relates to comments that the issuer believes are material and because they will relate to information about which the issuer and the Commission staff disagree, the disclosure of the comments is likely to be information that is important to investors. This commenter also stated that the requirement would be at odds with recent statements about the non-binding nature of staff guidance. However, the provision will not make the substance of statements by staff in their comments binding upon the public or the Commission. Rather, the Commission, by rule, will require affected funds to inform investors about their disagreements with the staff in connection with the staff's review of disclosures.

Two commenters expressed concern that differing views about whether a particular comment is “material” or “unresolved” could result in inconsistent disclosure among different funds in similar circumstances.[301] We recognize that analysis of whether a particular written comment must be disclosed may involve some subjective judgment regarding specific facts and circumstances. Many disclosure requirements inherently involve some subjective judgment and can result in some variance in the disclosure provided by different funds.

These commenters also suggested some alternatives to the proposed requirement. For example, one commenter suggested that the Commission, rather than require disclosure of material unresolved staff comments, issue a stop order to prevent an offering from going forward if necessary.[302] We believe that it is more appropriate to preserve an intermediate approach for the Commission, in appropriate circumstances, to allow an offering to proceed while informing investors and others about material disagreements between the issuer and the Commission's staff, so that investors can make an informed judgment about the disagreement. Another commenter recommended, as an alternative, that the Commission publish its staff's comments and issuer responses.[303] We believe, however, that investors and other interested persons are more likely to see and read disclosure of material, unresolved staff comments if they appear in a fund's annual report than comments and responses published separately.[304]

In addition, this requirement parallels the current requirement for operating companies that use the offering rules.[305] These commenters, however, provide no basis for distinguishing affected funds from those operating companies that are already subject to the requirement. After considering comments received, and because we continue to believe that these disclosure requirements will provide an incentive for affected funds to timely resolve staff comments and that investors may value information about areas of disagreement that the issuer believes are material, we are adopting the requirement as proposed.[306]

3. Current Reporting Requirements for Affected Funds

As discussed in the Proposing Release, operating companies and BDCs are required to promptly report certain events on Form 8-K, while registered CEFs generally are not required to report on Form 8-K. The Commission proposed to require registered CEFs to report information on Form 8-K to enhance parity with operating companies and BDCs, to improve information for investors and the market, and to recognize the role of Form 8-K reporting in the 2005 offering reform amendments.[307] It also proposed to amend Form 8-K to: (1) Add two new reporting items for affected funds on material changes to investment objectives or policies and material write-downs of significant investments, and (2) adapt the existing reporting requirements and instructions to affected funds. As discussed in more detail below, in response to comments, we are not adopting the proposed Form 8-K amendments.[308] However, we will continue to consider current reporting more generally as part of our ongoing review of the effectiveness of investment company disclosure.

a. Form 8-K Reporting for Registered CEFs

The Commission proposed to require registered CEFs that are reporting companies under section 13(a) or section 15(d) of the Exchange Act to report current information on Form 8-K. Commenters generally opposed a Form 8-K reporting requirement for registered CEFs.[309] Commenters suggested that registered CEFs should not be subject to Form 8-K reporting requirements because the commenters believe that: (1) Existing registered CEF Start Printed Page 33316disclosure is sufficient; [310] (2) Form 8-K reporting would be costly for registered CEFs; [311] (3) parity with operating companies and BDCs is unnecessary in the context of Form 8-K reporting; [312] and (4) investors, analysts, and regulators have not previously indicated that registered CEF disclosure is inadequate.[313]

With respect to existing disclosure practices, commenters stated that registered CEFs already provide material updates through other required or voluntary mechanisms (e.g., prospectus supplements, press releases, shareholder reports, voluntary Form 8-K filings, and website disclosure) that result in adequate and timely disclosure of information to investors.[314] One commenter suggested that registered CEFs would be unlikely to provide meaningful new information under Form 8-K beyond what they already disclose under other regulatory requirements.[315] Two commenters expressed concern that Form 8-K reporting may not timely inform investors about important fund events.[316] One of these commenters suggested that fund investors are more likely to receive timely information through a registered CEF's typical practice of issuing a press release about an important event, posting the press release to its website, and including information about the event in its next shareholder report.[317]

Although they opposed a new Form 8-K reporting requirement, a few commenters suggested alternative approaches if we were to require registered CEFs to report on Form 8-K. One commenter suggested that, if the Commission requires registered CEFs to report on Form 8-K, we should require them to report only a subset of Form 8-K items.[318] Another commenter suggested that, rather than require registered CEFs to report on Form 8-K, we could require listed registered CEFs to file press releases containing material information on Form 8-K, similar to how continuously-offered registered CEFs file prospectus supplements on EDGAR.[319] Additionally, one commenter suggested that we require registered CEFs to more directly notify investors about material fund changes and stated that Form 8-K filings would not provide appropriate notice to a fund's investors.[320]

As we recognized in the Proposing Release and as noted by commenters, there are differences between the types of events that are important to registered CEFs and the types of events that are important to operating companies.[321] Moreover, for those Form 8-K events that would be relevant to registered CEFs, we recognize that these funds currently may disclose substantially similar information through other mechanisms, such as prospectus supplements, post-effective amendments, and press releases. We also are sensitive to commenters' concerns about the burdens to registered CEFs associated with a new Form 8-K reporting requirement, particularly for those registered CEFs that will not qualify as WKSIs or be eligible to file short-form registration statements under the amendments we are adopting.

As a result of these considerations, we are persuaded that a new Form 8-K reporting requirement for registered CEFs may not substantially improve the flow of important current information to investors and the market and, as a result, would not justify the additional burdens associated with Form 8-K reporting. Therefore, we are not adopting the proposed Form 8-K reporting requirements for registered CEFs.[322] However, we will continue to consider whether more current reporting requirements that are tailored to registered CEFs, or to registered investment companies more generally, may be appropriate in connection with our continuing review of investment company disclosure effectiveness.[323]

Although registered CEFs generally will not be required to file reports on Form 8-K, a registered CEF that is eligible to file a short-form registration statement may voluntarily file information on Form 8-K to forward incorporate that information into its registration statement or for other purposes (e.g., to publicly disseminate information under exchange rules, as applicable).[324] These voluntary Form 8-K filings will not affect a registered CEF's ability to qualify as a seasoned fund. This is because the requirements to be current and timely with respect to the fund's Exchange Act and Investment Company Act reports only apply to materials a fund is required to file.[325]

Start Printed Page 33317

b. Other Proposed Amendments to Form 8-K

We are similarly not adopting the other proposed amendments to Form 8-K, including the two proposed reporting items regarding material changes to investment objectives or policies and material write-downs.[326] Although the two proposed reporting items also would have applied to BDCs, we are not adopting these current reporting requirements for any affected funds. Commenters generally opposed these proposed reporting items and argued that existing disclosure is adequate.[327] We will continue to consider the adequacy of affected fund disclosure, including the availability and timeliness of information about material changes in investment objectives or policies and material write-downs of significant investments, as part of our ongoing review of the effectiveness of investment company disclosure.[328] Rather than establish new current reporting requirements for affected funds on a piecemeal basis in this release, we believe it is more appropriate to consider current reporting in connection with a broader, systematic review of investment company disclosure.

4. Online Availability of Information Incorporated by Reference

We are adopting, as proposed, amendments to Form N-2's General Instruction for Incorporation by Reference.[329] All registered CEFs and BDCs currently can backward incorporate their financial information from previously-filed Exchange Act reports into the prospectus or SAI. However, Form N-2 currently requires that a fund provide to new purchasers a copy of all previously-filed materials that the fund incorporated by reference into the prospectus and/or SAI.[330] Under the amendments, and as proposed, we are removing the requirement that a fund deliver to new investors information that it has incorporated by reference into the prospectus or SAI.[331] These amendments will allow the fund to make its prospectus, SAI, and the incorporated materials readily available and accessible on a website identified in the fund's prospectus and SAI.[332] Affected funds will also be required to provide incorporated materials upon request free of charge. We believe this approach will improve the online accessibility of the prospectus and SAI and any documents that are incorporated by reference for investors that wish to review such information online, and will facilitate the efficient use of incorporation by reference by affected funds.[333] The only commenter who addressed this approach supported it,[334] and we are adopting it as proposed.

5. Amendments to Certain Registered CEFs' Annual Report Disclosure

We are adopting, largely as proposed, amendments to rule 8b-16(b) that are designed to allow investors in registered CEFs that rely on the rule to more easily identify and understand key information about their investments.[335] Although rule 8b-16(a) generally requires registered investment companies to update their registration statements annually, rule 8b-16(b) currently allows registered CEFs to forgo an annual update provided that they disclose in their annual reports certain key changes that have occurred during the prior year.[336] Disclosures that describe a specific change to a fund strategy or risk may not have sufficient context to allow investors to understand the effect of such change, potentially leaving shareholders to have to look at a series of documents—from the fund's prospectus, which could be several years old, plus each subsequent annual report—to understand certain key information about the fund, such as its current investment strategy or principal risk factors.[337] Accordingly, we proposed to require funds that rely on rule 8b-16(b) to describe any changes in enough detail to allow investors to understand each change and how it may affect the fund.[338] For example, as stated in the Proposing Release, to the extent a fund's principal investment objectives, investment policies or principal risks have changed, the fund should describe its objectives, policies or risks before and after the change.[339]

The one commenter to address this aspect of the proposal stated that a closed-end fund's annual report should include a full description of the fund's current objectives, strategies and risks, as many closed-end funds do not maintain a current registration statement, which would otherwise include this information.[340] One Start Printed Page 33318commenter described difficulties faced by investors in determining an affected fund's current investment objectives and policies, with another requesting a single location where such key information could be found.[341]

As proposed, we are requiring funds that rely on rule 8b-16(b) to describe certain key changes in enough detail to allow investors to understand each change and how it may affect the fund.[342] We believe that in giving context for a change to one or more of the required disclosures, it is particularly effective for a fund to describe current information regarding related disclosures, as this approach may facilitate a more complete understanding of how a change to one aspect of the fund impacts the fund more broadly. Such disclosures must be prefaced with a legend clarifying that the disclosures provide only a summary of certain changes that have occurred in the past year, which may not reflect all of the changes that have occurred since the investor purchased the fund.[343]

In response to comments and in a change from the proposal, we also are requiring any affected fund that relies on rule 8b-16(b) to describe the fund's current investment objectives, investment policies, and principal risks in its annual report.[344] These key disclosures must be provided, even if there were no changes in the past year. This will ensure that investors can access in a single location current information about key aspects of the fund in which they invest. We believe that funds could increase the effectiveness of this disclosure by presenting it concisely, in accordance with “plain English” principles for organization, wording, and design. We similarly encourage funds to tailor their disclosures to how the fund operates rather than rely on generic, standard disclosures about the fund's investment policies and risks. Finally, we encourage funds to describe principal risks in order of importance, with most significant risks appearing first (i.e., not listing risks in alphabetical order).

J. Effective and Compliance Dates

Effective Dates. The final rule will become effective on August 1, 2020. While we proposed that the rule would become effective 60 days from publication in the Federal Register, we are establishing a fixed date so that the amendments to certain rules and forms adopted pursuant to the Variable Contract Summary Prospectus Adopting Release will be effective prior to the amendments to the same rules and forms adopted herein.[345] The August 1, 2020 effective date will apply to all aspects of the final rule, except for the following:

  • Rules 23c-3, 24f-2, and Form 24F-2. The amendments to rules 23c-3, 24f-2, and Form 24F-2 [346] will become effective August 1, 2021 (one year after other aspects of the final rule take effect, as proposed). One commenter suggested making the amendments to rules 23c-3 and 24f-2 immediately effective for new interval funds so they can pay registration fees based on the net issuance of shares sold during their initial fiscal year, and allow existing funds to use the new payment method as soon as possible thereafter.[347] While we agree that interval funds should be able to calculate fees on Form 24F-2 as soon as possible, as proposed, the amendments to rules 23c-3 and 24f-2 will become effective one year after the final rule's effective date to provide sufficient time to modify the Commission's systems to accept such filings from interval funds.[348]
  • Rules 456 and 457 and Forms S-1, S-3, F-1 and F-3: The amendments to rules 456 and 457 and Forms S-1, S-3, F-1 and F-3 under the Securities Act will become effective August 1, 2021.

Compliance Dates. We are adopting compliance dates for certain new requirements to provide a transition period after the effective date of the final rule.

  • MDFP. As proposed, an annual report filed by a registered CEF one year or more after the effective date of the final rule will be required to include the MDFP disclosures.[349] We received no comments on this proposed compliance period. Affected funds must comply with this requirement by August 1, 2021.
  • Structured Data Requirements (Financial Statement, Cover Page, and Prospectus Information). We proposed that all affected funds subject to the Inline XBRL structured data reporting requirements for financial statement, registration statement cover page, and prospectus information that are eligible to file a short-form registration statement would be required to comply with those provisions 18 months after the effective date, and all other affected funds to comply 24 months after the effective date. The one commenter who addressed this aspect of the release recommended that any new Inline XBRL requirements have a compliance date later than that required for open-end funds.[350] We are extending the compliance period by an additional six months to align more closely with the Inline XBRL compliance periods for other fund registrants.[351] Accordingly, affected funds that are eligible to file a short-form registration statement will be required to comply with those provisions 24 months after the effective date, or August 1, 2022. All other affected funds subject to these requirements must comply 30 months after the effective date, or February 1, 2023. Affected funds will be permitted to file in Inline XBRL prior to the compliance date once EDGAR has been modified to accept submissions in Inline XBRL for all forms subject to the amendments, which is anticipated to be March 2021. Notice of EDGAR system readiness to accept filings in Inline XBRL will be provided in a manner similar to notices of taxonomy updates and EDGAR Filer Manual updates.
  • Structured Data Requirements (Form 24F-2). As proposed, all filers on Form 24F-2 (including existing Form 24F-2 filers, such as open-end funds and unit investment trusts, as well as interval funds) will be required to file reports on the form in an XML structured data format 18 months after the effective date, or February 1, Start Printed Page 333192022.[352] The one commenter who addressed the proposed 18-month transition period supported it.[353]

III. Economic Analysis

We are adopting amendments to our rules designed to carry out the requirements of section 803 of the BDC Act and section 509 of the Registered CEF Act and tailor the disclosure and regulatory framework for affected funds in light of the amendments to the offering rules applicable to them. Currently, affected funds face regulatory impediments to capital formation as they are not able to use the flexible and less costly offering process that operating companies use when conducting registered securities offerings. This may hinder affected funds' ability to raise capital, take advantage of favorable market conditions as operating companies do, and enjoy lower cost of capital and lower offering costs. Additionally, because of existing rules, affected funds generally are unable to communicate about an offering before a registration statement is filed, and their post-filing communications are subject to prospectus liability under section 12 of the Securities Act (or must be accompanied or preceded by the statutory prospectus). The final rule will provide incremental flexibility to funds in their communications, which may increase the flow of information to investors. As discussed in detail above, the final rule will affect numerous distinct aspects of how our securities offering and communications rules apply to affected funds.[354]

A. Introduction and Baseline

We are sensitive to the economic effects that may result from the final rule, including the benefits, costs, and the effects on efficiency, competition, and capital formation. Section 3(f) of the Exchange Act, section 2(b) of the Securities Act, and section 2(c) of the Investment Company Act state that when engaging in rulemaking that requires us to consider or determine whether an action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, we must consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. Additionally, section 23(a)(2) of the Exchange Act requires us, when making rules or regulations under the Exchange Act, to consider, among other matters, the impact that any such rule or regulation would have on competition and states that the Commission shall not adopt any such rule or regulation which would impose a burden on competition that is not necessary or appropriate in furtherance of the Exchange Act.

We have considered the potential costs and benefits that would result from the final rule, as well as the potential effects on efficiency, competition, and capital formation. Many of the potential economic effects of the final rule would stem from the statutory mandates, while others would stem from the discretion we are exercising. We discuss the potential economic effects of the amendments to implement the statutory mandates in sections III.B and III.C. We considered certain alternatives to our approach to implementing the statutory mandates, as discussed in section III.D. We are also adopting certain other amendments to tailor affected funds' disclosure and regulatory framework. We discuss the potential economic effects of these discretionary amendments, as well as reasonable alternatives to these provisions, in section III.E. Where possible, we have attempted to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from the final rule. In some cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide a reasonable and reliable estimate.

The baseline we use to analyze the potential effects of the final rule is the current set of legal requirements and market practices. The final rule likely will have a significant impact on the security offering requirements and disclosure practices of affected funds. The overall magnitude of the benefits and the costs associated with the final rule will depend on many factors, including the number of affected funds that rely on the final rule. We recognize that some affected funds would not satisfy the conditions in certain of the amendments (e.g., those limited to WKSIs or funds that file a short-form registration statement on Form N-2), and other affected funds may satisfy the conditions but choose not to rely on the final rule. The discussion below describes our understanding of the markets and issuers that will be affected by the final rule.

1. Number of Affected Funds

The final rule will affect BDCs and registered CEFs. As of June 30, 2019, there were 791 affected funds, including 105 BDCs and 686 registered CEFs. To estimate the number of BDCs, we use data from Form 10-K and Form 10-Q filings as of June 30, 2019, the latest data available.[355] We identify 51 listed BDCs and 54 unlisted BDCs. The average net assets of the listed BDCs is approximately $820 million, and the average of their total assets is $1.5 billion. Based on trading data as of June 30, 2019, 44 of the listed BDCs have public float greater than $75 million (i.e., one of the transaction requirement thresholds for primary offerings under the short-form registration instruction) and 15 of those BDCs have public float greater than $700 million (i.e., the WKSI public float threshold).[356]

We use data from Morningstar and SEC filings to estimate the number of registered CEFs.[357] We identify 497 registered CEFs that were listed on an exchange as of June 30, 2019, including 1 interval fund. There were 189 unlisted registered CEFs as of June 30, 2019, including 60 interval funds. The average net assets of the listed registered CEFs is approximately $551 million, while the average net assets of the unlisted registered CEFs is approximately $382 million.[358] Based on trading data as of June 30, 2019, 455 of the listed registered CEFs have public float greater than $75 million, and 85 of those funds have public float greater than $700 million.[359] Information about the types Start Printed Page 33320of offerings conducted by different categories of affected funds for the period of July 1, 2014—June 30, 2019 is reflected in the below table.[360]

Table 3

Types of offeringsOffering statisticsListed BDCsUnlisted BDCsListed registered CEFsUnlisted registered CEFs
Registered offeringsNumber of offerings1132426137
Total amount raised$12.2 bil$1.7 bil$5.2 bil$20.3 bil
Average (median) offering amount$107.9 mil ($60.0 mil)$7.8 mil ($7.2 mil)$201.3 mil ($103.8 mil)$176.3 mil ($31.0 mil)
Regulation D offeringsNumber of offerings21671165
Total amount raised$12.3 bil$9.1 bil$15.1 mil$7.5 bil
Average (median) offering amount$584.7 mil ($100 mil)$135.0 mil ($50.0 mil)$15.1 mil ($15.1 mil)$45.6 mil ($6.1 mil)

As of September 2019, there were 7,995 mutual funds, 2,076 ETFs, and 4,758 UITs. Thus, together with the 791 affected funds, there is a total of 15,620 funds, affected and non-affected. This means that affected funds represent about 5.1% of the total number of funds. As of September 2019, mutual funds had approximately $20,156 billion in assets, ETFs had approximately $4,024 billion in assets, UITs had approximately $76 billion in assets, and affected funds had approximately $459 billion in assets. Thus, affected funds represent about 1.8% of total investment company assets.

We use data from Morningstar and SEC filings to estimate the number of affected ETPs. We identify 68 such ETPs as of December 31, 2019.

2. Current Securities Offering Requirements for Affected Funds

The securities offering process for affected funds at present differs from that for operating companies. Affected funds register their securities offerings on Form N-2, while operating companies use other forms (e.g., Form S-1 or Form S-3). As discussed in more detail above in sections II.B, II.C, and II.F, registered investment companies and BDCs are excluded from certain offering and communications rules available to operating companies.

Affected funds currently are expressly excluded from the WKSI definition. As a result, even if they would otherwise meet the WKSI definition, they are unable to, for example, file an automatic shelf registration statement or communicate about an offering before filing a registration statement.[361]

Affected funds currently can conduct shelf offerings under rule 415(a)(1)(x) if they meet the applicable eligibility criteria for Form S-3, even though affected funds register their securities offerings on Form N-2. Affected funds conducting shelf offerings, however, currently experience certain burdens not faced by operating companies.[362] For example, affected funds conducting shelf offerings currently must file post-effective amendments to make certain updates to their registration statements, while operating companies conducting shelf offerings may update their registration statements through forward incorporation by reference. As a result, affected funds can incur additional expense or delay for shelf offerings, which can affect the timing of their capital-raising. Similarly, different rules apply to affected fund communications as opposed to operating company communications.[363] These differences can impose additional costs or constraints on affected funds or others because, for example, underwriters may be more familiar with the operating company rules. Further, affected funds currently are required to deliver a final prospectus to investors.[364] Final prospectuses can be lengthy, particularly for BDCs because they generally do not take advantage of backward incorporation by reference currently permitted for certain financial and related information. For example, the median page length of prospectuses filed by listed BDCs is approximately 234 pages.[365]

3. Current Disclosure Obligations of Affected Funds

Affected funds differ in their periodic and current reporting obligations. Like operating companies, BDCs file annual reports with audited financials on Form 10-K, quarterly reports with unaudited financials on Form 10-Q, and current reports on Form 8-K. Registered CEFs file annual reports to shareholders with audited financials and semi-annual reports to shareholders with unaudited financials on Form N-CSR. Listed registered CEFs are also subject to exchange rules that require listed issuers to provide the market current information in response to certain events (e.g., dividends announcements through a press release or report on Form 8-K).[366]

B. Potential Benefits Resulting From the Proposed Implementation of the Statutory Mandates

As discussed, the amendments to implement the statutory mandates are designed to provide securities offering parity between affected funds and operating companies and streamline the registration process for BDCs and registered CEFs, consistent with the BDC Act and the Registered CEF Act. We believe that the final rule will achieve this goal and consequently result in significant benefits in a number of areas, including by improving access to the public capital markets and possibly lowering the cost of capital by, among other things, modifying our rules related to affected funds' ability to qualify as WKSIs, to use the full shelf registration process, and to engage in Start Printed Page 33321certain communications during a registered offering.[367] Additionally, as discussed below, we believe that the final rule will provide benefits to investors as well, including by increasing the flow of valuable information that could be available to investors to inform their investment decisions. Finally, we believe that the final rule will provide cost-saving options to affected fund issuers and underwriters.

1. Improved Access to Capital and Lower Cost of Capital

We anticipate that the final rule will facilitate capital formation and possibly lower the cost of capital by improving access to the public capital markets for affected funds. The rule is designed to reduce regulatory impediments to capital formation and provide more flexibility to these funds to conduct registered securities offerings. The amount of flexibility accorded by the final rule will depend on the characteristics of the affected fund, consistent with our rules' treatment of similarly-situated operating companies. For example, and as explained below, certain affected funds like large listed BDCs and large listed registered CEFs are expected to benefit more from the final rule than unlisted BDCs and unlisted registered CEFs, including unlisted interval funds. The final rule will provide the most flexibility under the communications rules and the automatic shelf registration system to eligible WKSIs. Other affected funds, such as seasoned affected funds, also will benefit, albeit to a lesser degree, from the other revisions to the offering process and our communications rules.

a. Benefits From WKSI Status

The largest increase in capital formation and reduction in cost of capital that the final rule could generate will come from allowing affected funds to obtain WKSI status. Affected funds that qualify as WKSIs will enjoy additional flexibility compared to affected funds that are non-WKSIs.[368] There are 100 affected funds (15 listed BDCs and 85 listed registered CEFs) that meet the $700 million dollar public float criterion as of June 30, 2019.[369] A shelf registration statement and any subsequent amendments filed by a WKSI are automatically effective upon filing. This flexibility will allow affected funds that qualify as WKSIs to promptly tap favorable conditions in the public market, to structure terms of securities on a real-time basis to accommodate investor demand, and to determine or change the plan of distribution in response to changing market conditions. For example, because affected funds typically trade at a discount to their NAV,[370] affected funds that are WKSIs will be able to act more quickly to raise capital when their shares are trading at a premium,[371] thus increasing the amount of capital raised and enhancing capital formation.

Additionally, WKSIs are not required to pay any registration fees at the time of filing a registration statement. They are only required to pay the registration filing fee at the time securities are taken down and sold off the shelf registration statement. This will provide additional flexibility to qualifying affected funds in that they need only incur such filing fees if and when they decide to proceed with an offering. The final rule may also lower the cost of capital because it will provide significant flexibility to affected funds that are WKSIs and their underwriters in marketing securities. The final communications rules will allow these funds to communicate at any time regarding an offering.

Requiring an affected fund to have at least $700 million in public float to qualify as a WKSI will avoid providing affected funds with an advantage in the competition for capital over certain operating companies. For example, a lower public float threshold for affected funds would provide them with a competitive advantage over operating companies that may have similar characteristics to affected funds, such as listed REITs, but have public float below $700 million. In a similar vein, the use of alternative eligibility criteria for affected funds to qualify as WKSIs would put them at competitive advantage compared to similar operating companies without public float, such as unlisted REITs. Moreover, reducing the $700 million threshold or providing alternative eligibility criteria for affected funds to qualify as WKSIs would likely lead to potential higher incidences of disclosure and fund practices that may not comply with applicable law due to reduced staff review.[372]

Given the important benefits that WKSI status provides, and the fact that currently only few affected funds would qualify as WKSIs, it is possible that advisers to some affected funds may try, through various means, including raising additional capital and mergers and acquisitions, to increase their funds' public float to the WKSI threshold. Thus, the possible effects of the rule may include increased fund size and consolidation of affected funds. Such developments may increase efficiency by allowing the larger resulting funds to benefit from improved access and lower cost of capital. We also recognize that consolidation may be driven by other factors as well, in combination with the effects of the rule, and typically would be subject to certain approvals by a fund's board of directors or shareholders.[373] Potential consolidation and increases in fund size could also reduce costs to investors by, for example, allowing an affected fund to realize greater efficiencies and reduce its total operating expenses over time. However, consolidation also could inhibit competition and negatively affect the number of investment opportunities available to investors if it leads to a reduction of the number of strategies funds employ. It is possible that new funds will enter the market thereby increasing competition and investment opportunities. Potential consolidation of affected funds could make it more difficult for new or smaller funds to compete since funds with larger amounts of assets may have better access to certain investment opportunities or may be able to offer lower costs to investors. Smaller funds, however, may have better access to investment opportunities in smaller companies because these investments may be too small to be economically viable for larger funds. At present, we are not able to estimate the effects of these competitive dynamics.

b. Benefits From Shelf Registration

Other provisions of the final rule could also enhance capital formation and lower the cost of offerings for affected funds that qualify as seasoned funds and file a short-form registration statement on Form N-2.[374] For example, Start Printed Page 33322the final rule generally allows these funds to more efficiently use the shelf registration process if, like operating companies, they meet the eligibility requirements of Form S-3.[375] As of June 30, 2019, there were 499 affected funds that met the $75 million dollar public float criterion for primary offerings under Form S-3 (which criterion is incorporated into the short-form registration instruction of Form N-2).[376] Affected funds that qualify will bear fewer costs associated with updating the information in their registration statements because information in the fund's Exchange Act reports will be incorporated by reference into the fund's registration statement. For example, for PRA purposes, we estimate that eligible affected funds will file approximately 128 fewer post-effective amendments annually as a result of the amendments, resulting in an annual aggregate cost reduction of approximately $5,726,592 for these funds.[377] Additionally, we understand that currently BDCs often file prospectus supplements close-in-time to filing their current and periodic Exchange Act reports to make sure the BDC's prospectus disclosure provides the same information as that disclosed in its Exchange Act reports. Under the final rule, eligible BDCs will no longer file these prospectus supplements since their Exchange Act reports will be incorporated by reference into their registration statements. As a result, an eligible BDC may, on average, file approximately 14 fewer prospectus supplements on an annual basis under the rule.[378] We anticipate that eligible registered CEFs also will be able to make fewer prospectus supplement filings under the final rule, although they likely will not experience as large of a reduction in filings since, among other things, they file periodic reports on a semi-annual basis (rather than quarterly) and generally are not required to report on Form 8-K. While we believe that affected funds will likely file fewer prospectus supplements under the final amendments, we are unable to estimate any reduction in the number of prospectus supplements that affected funds will file under the final rule, and any associated cost savings for affected funds, due to certain counterbalancing factors. For example, if the final rule causes affected funds to increase their capital-raising activities, they may need to update their prospectuses more often and may file more prospectus supplements as a result. However, if affected funds begin to use their Exchange Act reports to update their prospectuses, as permitted under the final amendments, they may file fewer prospectus supplements.[379] On average, we believe that affected funds will likely file fewer prospectus supplements under the final amendments since they will be able to update their prospectus more efficiently by forward incorporating their Exchange Act reports, although an affected fund that greatly increases its capital-raising activities may not experience the same reduction in filing burdens.

In general, we believe affected funds that qualify for the short-form registration instruction will experience cost savings associated with making fewer filings and will be able to use a more efficient process to update their prospectus disclosure. This will decrease the costs of eligible funds' registered offerings and will also allow them to act more quickly to take advantage of favorable market conditions (e.g., when trading at a premium). Certain seasoned funds registering shelf offerings also will be able to omit certain information from their prospectuses and use the same process as operating companies to provide omitted information by filing a prospectus supplement, which will generally make the shelf registration process less costly for these funds as compared to the baseline.

The final rule also may provide incremental cost savings to affected funds that are eligible to file a short-form registration statement in certain other respects. For example, the final rule will reduce the costs of these funds seeking shareholder approval for proposals to authorize, issue, modify, or exchange securities by allowing them to incorporate by reference certain materials rather than delivering these materials to security holders with the proxy statement.[380] We do not anticipate that these cost savings will be substantial, however, as we understand that affected funds do not often make these types of proposals to security holders. Affected funds that are eligible to file a short-form registration statement also could experience modest cost savings from the amendment to rule 418 since they will no longer be required by that rule to furnish certain information to the Commission or its staff promptly on request.[381]

c. Other Benefits for Affected Funds

The final rule will generate other benefits for affected funds generally, regardless of whether they are WKSIs or seasoned funds. For example, the amendment to require affected funds to follow the same process that operating companies follow to file prospectuses under rule 424 will require that affected funds file prospectus supplements when changes from or additions to a previously filed prospectus are substantive, whereas currently they are required to file every prospectus that varies from any previously filed prospectus under rule 497.[382] Rule 424 also is designed to work together with rule 415(a)(1)(x), and provides additional time for an issuer to file a prospectus. This change could modestly reduce filing burdens and should facilitate eligible funds using the shelf registration process efficiently and in parity with operating companies. Also, the final rule allows an affected fund to satisfy its obligation to deliver a final prospectus by filing it with the Commission and complying with certain other requirements, thus decreasing the cost of the offering.[383] For example, the final rule will permit affected funds to save on printing and mailing costs for delivering the final prospectus in paper.[384]

Start Printed Page 33323

In general, commenters stated that the rule will generate benefits for affected funds. Several commenters stated that the proposed rule would lead to a more efficient capital-raising process.[385] One commenter suggested that the proposed rule could also help encourage product development that would expand the universe of registered CEFs, but did not elaborate on the specific aspects of the rulemaking that would encourage product development.[386]

d. Benefits for Other Parties

The lower costs of registered offerings resulting from the final rule should benefit investors in affected funds because funds bear offering expenses. Lowering offering expenses may, all else equal, reduce the size of the discount or increase the size of the premium at which shares of the affected funds trade. Two commenters expressed similar views, arguing that the proposed rule would provide cost savings to funds' shareholders.[387]

In addition, the final rule could reduce the cost to underwriters of participating in registered offerings of affected funds, and these potential cost savings could be passed on to the affected funds. Based on the sheer volume and number of transactions,[388] underwriters may have more expertise and established procedures for operating companies' registered offerings, which are subject to the rules we are extending to affected funds. In contrast, underwriters probably have less, or more concentrated, expertise regarding the current requirements for offerings by affected funds. Standardization in the registered offering space, by making the offerings of affected funds more similar to those of operating companies, could make it easier for underwriters to execute such offerings and may decrease their compliance costs. If underwriters pass some of the cost savings on to affected funds and their investors, this could result in cheaper registered offerings for affected funds, thus encouraging them to raise more capital, which would lead to enhanced capital formation. Lastly, standardization may encourage a broader set of underwriters to participate in this market, potentially decreasing costs for affected funds and investors in these funds. One commenter agreed that the proposed rule would make it easier for underwriters to execute offerings by affected funds, which could lead to decreased costs.[389]

The final rule could level the securities offering playing field between affected funds and operating companies and streamline the registration process for affected funds, consequently making them potentially more competitive in the market for capital raising. The final rule may also make certain affected funds more competitive compared to affected funds that either cannot or choose not to rely on these amendments. Thus, the final rule will likely enhance competition in the public capital markets. The increased competition for capital in turn could lead to potentially better allocation of capital. The final rule may also benefit companies in which affected funds invest. Small and mid-size companies, because of their size, type of assets, risk profile, and the general lack of information about their activities and financial condition, typically find it more difficult to raise funds from traditional sources of capital such as bank loans and registered offerings.[390] This difficulty in sourcing more traditional financing constrains their ability to invest in profitable projects and grow. To the extent that the final rule improves capital-raising opportunities for affected funds that invest in these companies, this may result in investments in a greater number of small to mid-size U.S. companies, thus alleviating financial constraints of such companies and contributing to economic growth generally.[391] Commenters generally agreed that the proposed rule would facilitate capital formation, especially for small to mid-size businesses.[392] One commenter stated that the proposed rule could potentially stimulate economic growth.[393]

2. Facilitated Communication With Investors

The final rule will provide incremental flexibility to funds in their communications, which may increase the flow of information to investors.[394] Currently, affected funds generally are unable to communicate about an offering before a registration statement is filed, and their post-filing communications are subject to prospectus liability under section 12 of the Securities Act (or must be accompanied or preceded by the statutory prospectus).[395]

This standardization in the communications processes of affected funds, by making them similar to those of operating companies, will make it easier for underwriters to execute offerings by affected funds and thus may decrease their compliance costs, which in turn may lead to lower offering costs and potentially enhance capital formation. Additionally, under the final rule, affected funds that qualify as WKSIs can engage in the widest range of communications, including free writing prospectus communications about an offering with any party before a registration statement is filed. More generally, affected funds will be able to engage in certain other pre-filing communications, use free writing prospectuses after a registration statement is filed, and use certain communications that are not subject to prospectus liability. The changes in the communications rules for affected funds may increase the amount of valuable information that could be provided to investors before they make investment decisions, particularly with respect to WKSIs. We believe that more information could be provided on a timelier basis because the amendments will eliminate regulatory barriers to the dissemination of that information, and the markets may provide incentives for issuers, underwriters, and broker-dealers to produce additional Start Printed Page 33324information. We also believe that the increased flexibility of affected funds in their communications with investors under the free writing prospectus rules will maintain appropriate investor protection, consistent with the protections that apply to affected funds' communications under rule 482. For example, the rules that allow affected funds to use free writing prospectuses are designed to assure that written issuer-provided or issuer-used information is publicly available. Additionally, the free writing prospectus will be a section 10(b) prospectus under the Securities Act and, as such, will be subject to liability under section 12(a)(2) as well as the anti-fraud provisions of the Federal securities laws.

Increased information flow can help promote efficient capital markets because the market may be able to value securities more accurately. For example, the final rule will permit broker-dealers to disseminate research about an affected fund if certain conditions are met. While broker-dealers currently may disseminate such research under rule 482, the amendments to rule 138 will likely reduce certain costs to broker-dealers associated with rule 482 (e.g., filing costs and concerns associated with prospectus liability). This could allow more valuable information about affected funds to reach potential investors. Another benefit of increasing the information flow is that investors may become better informed in making portfolio allocation decisions in accordance with their particular risk-return profiles. In addition, the final rule may benefit broker-dealers who provide research reports on affected funds by reducing their potential liability exposure associated with such reports, relative to the baseline, which may encourage them to provide additional research and enhance information flow. Commenters generally agreed that the proposed rule would provide more flexibility for affected funds to communicate and would increase information flow.[396]

C. Potential Costs Resulting From the Proposed Implementation of the Statutory Mandates

1. Compliance Costs

The amendments we are adopting to implement the statutory mandates could increase affected funds' compliance costs in certain respects.[397] We also are cognizant of the fact that such an increase could be passed on to funds' investors. A potential cost of the final rule is that affected funds could incur increased filing or recordkeeping costs associated with issuer free writing prospectuses,[398] although affected funds currently face many of the same filing and recordkeeping costs under rule 482. For example, the ability of affected funds that qualify as WKSIs to use free writing prospectuses may increase the level of these funds' current communications (including certain communications prior to filing a registration statement that are presently prohibited), thus increasing the funds' filing and recordkeeping costs.[399] We estimate that affected funds that are WKSIs would have additional annual filing and recordkeeping costs of $200 per affected fund for free writing prospectuses used before the fund files a registration statement.[400] To the extent affected funds use free writing prospectuses for communications that currently occur under rule 482, the costs associated with free writing prospectuses could increase, and the costs associated with rule 482 advertisements could decrease. We are unable to predict, however, whether affected funds will be more likely to use free writing prospectuses than rule 482 communications or to engage in more communications with investors in practice as a result of the amendments.

Affected funds could also incur costs associated with adjusting their internal procedures for filing prospectus supplements.[401] Such costs could stem from the need to augment funds' information technology systems or train funds' employees, although, as recognized above, affected funds likely will be able to file fewer prospectus supplements under the final rule.

Parties that will be required to provide notices under rule 173,[402] including underwriters and dealers in certain circumstances, may incur additional costs due to the requirement to notify affected fund investors that they have purchased shares in a registered offering. In addition, these same parties may incur costs to establish procedures for receiving and complying with requests for final prospectuses. We believe that providing the notice to investors will not impose a significant incremental cost because the notice can consist of a pre-printed message that is automatically delivered with or as part of the confirmation required by 17 CFR 240.10b-10 (Exchange Act rule 10b-10). Accordingly, we estimate that the cost of complying with rule 173 will be approximately $0.05 per notice.[403] We estimate the annual cost of providing the notification will be approximately $831,729.[404] For the parties that are required to provide such notices, these additional costs of complying with rule 173 will be mitigated to a certain degree by the elimination of the requirement to supply a final prospectus to each investor.

2. Other Costs

Under the final rule, affected funds that qualify as WKSIs will be able to file shelf registration statements and post-effective amendments that become automatically effective. To the extent that investors previously benefited from the Commission staff's review of these filings before they become effective, allowing these filings of affected funds that are WKSIs to become automatically effective may eliminate such reviews and, as a result, possibly increase the costs to investors. Allowing affected funds that file short-form registration statements on Form N-2 to forward incorporate by reference could have a similar potential impact on investors. However, issuers will still face liability under the Federal securities laws for registration statement disclosures (e.g., sections 12 and 17 of the Securities Act and section 10(b) of the Exchange Act Start Printed Page 33325and 17 CFR 240.10b-10 (rule 10b-5 under the Exchange Act)), which may ameliorate the potential costs associated with reduced staff review.[405]

More generally, allowing forward incorporation by reference under the short-form registration instruction could increase the analytical burden and search costs for potential investors. Currently, affected funds provide required information in the prospectus that is delivered to investors, and forward incorporation by reference is not allowed. Under the amendments, instead of having all the information available in one location, investors may need to separately access on a website or request the incorporated materials. As a result, costs to investors for assembling and assimilating necessary information could increase, with a potentially stronger effect for retail investors (e.g., because they generally may not have the technical capabilities or monetary resources to efficiently search through several information sources). We do not have data to assess if, and to what extent, this revision will burden investors.

However, an affected fund making a shelf offering under rule 415(a)(1)(x) is required to file a new registration statement every three years, which provides investors with a periodic update of consolidated information.[406] The final rule will require that affected funds provide in their annual reports certain information currently disclosed in their prospectuses to make the information more readily available in one document for investors.[407] Further, Securities Act Forms S-3 and F-3 have long permitted incorporation by reference from the issuer's Exchange Act reports, and investors have not indicated they are unduly burdened when investing in offerings registered on these Forms.[408] Studies have shown, however, that the majority of investors in operating companies are institutional investors, whereas the majority of investors in the securities of affected funds are retail investors, who may face relatively higher costs associated with searching for information distributed across multiple documents.[409] In addition, the requirement to backward and forward incorporate by reference certain information into a short-form registration statement could increase an affected fund's liability with respect to information that has not previously been incorporated into its registration statement because this information will now be part of the registration statement. This could increase costs for relevant funds, including potential legal costs (e.g., those associated with additional review of materials that would be incorporated by reference into the fund's registration statement, or counsel and other costs in connection with potential legal actions). These potential cost increases could be passed on to investors of affected funds.

The final rule will allow an affected fund to not deliver final prospectuses directly to investors if the fund files the final prospectus with the Commission and certain other conditions are satisfied. We acknowledge, however, that while this procedure has become commonplace in many aspects of our capital markets, there may be some investors who would prefer to receive the prospectus directly. While an investor could request a copy of the final prospectus under rule 173, there will be burdens on an investor to make such a request (e.g., loss of time while making the request and a delay in receiving the prospectus). Thus, investors without home internet access, depending on their ability and preference to access fund information electronically, might experience a reduction in their ability to access a fund's final prospectus. To the extent that a reduction in this information by such investors decreases how informed they are about affected funds, it could potentially decrease their ability to efficiently allocate capital across affected funds and other investments. However, an investor's purchase commitment and the resulting contract of sale of securities to the investor in the offering generally occur before the final prospectus is required to be delivered under the Securities Act, and this is commonplace in other parts of our capital markets. Moreover, for sales occurring in the secondary market, as a result of our existing rules, investors in securities of reporting issuers generally are not delivered a final prospectus.[410]

D. Alternatives to Adopted Approach To Implementing Statutory Mandates

We considered certain alternative approaches to implementing the directives in the BDC Act and Registered CEF Act to allow affected funds to use the securities offering rules that are available to operating companies. Although the BDC Act identifies certain required amendments to our rules and forms, we could have, for example, made additional modifications to the relevant provisions for affected funds or further revised the current registration and offering framework affected funds use.

For example, as discussed above, we considered modifying the public float standards in the WKSI definition or the short-form registration instruction by changing the required level of public float or providing alternative eligibility criteria, such as the aggregate NAV of a certain size for funds whose shares are not traded on an exchange.[411] Several commenters supported changing the public float standards in the WKSI definition for affected funds.[412] These alternatives could have allowed more affected funds to qualify as WKSIs or to file short-form registration statements, with the associated benefits (e.g., lower costs of registered offerings) and costs (e.g., potential higher incidence of disclosure and fund practices that may not comply with applicable law due to reduced staff review) discussed above. For example, most interval funds do not list their securities on an exchange and do not have “public float,” and these alternatives therefore could have permitted these interval funds, as well as other unlisted affected funds, to qualify as WKSIs or file short-form registration statements. However, modifying the eligibility criteria in the WKSI definition or the short-form registration instruction could give affected funds that do not have the requisite public float under the current WKSI definition or Form S-3 eligibility requirements an advantage over certain operating companies that do not have public float or do not meet the $700 million public float requirement.

In addition, certain of the benefits that flow from WKSI status or the ability to use a short-form registration statement may be less relevant to unlisted affected funds that engage in continuous Start Printed Page 33326offerings.[413] Further, interval funds already have a tailored registration process that provides similar efficiencies. For example, certain of an interval fund's post-effective amendments are immediately effective upon filing (e.g., filings solely to update the fund's financial statements or to make non-material changes), while other post-effective amendments (e.g., filings to make material changes) are automatically effective 60 days after filing unless the fund designates a later date for effectiveness. In addition, we are extending this process to allow other continuously-offered unlisted affected funds to file immediately-effective post-effective amendments under the same circumstances as interval funds. Specifically, we are amending rule 486 to allow certain unlisted continuously-offered affected funds to maintain effective registration statements in a more efficient and cost-effective manner. We believe that amended rule 486 will provide these funds with benefits that are similar to the benefits we are providing to affected funds that qualify to file short-form registration statements or as WKSIs. Interval funds and other continuously-offered unlisted affected funds, however, will not experience the same efficiencies as affected funds that qualify to file short-form registration statements or as WKSIs when they make material changes to their registration statements. This is because these filings by interval funds and other continuously-offered unlisted affected will be subject to staff review and will not be immediately effective upon filing.

Under the BDC Act and the Registered CEF Act, we could have extended the final rule only to BDCs, listed registered CEFs, and interval funds. Under this approach, unlisted registered CEFs would not have been able to take advantage of certain benefits of the amendments that would otherwise be available to unlisted BDCs, such as the cost savings associated with the final prospectus delivery reforms.[414] This alternative also could have saved unlisted registered CEFs certain compliance costs stemming from the proposed rulemaking, such as the requirement to tag certain prospectus information using Inline XBRL. However, excluding unlisted registered CEFs from the final rule could create unnecessary competitive disparities between unlisted registered CEFs and unlisted BDCs and would not provide investors in unlisted registered CEFs with the benefits of the new investor protections we are adopting.

E. Discussion of Discretionary Choices

We discuss below the discretionary amendments that we are adopting, in light of the changes to implement the BDC Act and Registered CEF Act and the associated benefits and costs of those choices. We have tried to quantify the impact of each of the amendments, but in many cases, reliable, empirical evidence about the effects is not readily available to the Commission.

With respect to the proposed discretionary amendments, one commenter stated that the proposal would impose regulatory and compliance costs on unlisted affected funds, while at the same time providing unlisted interval funds with only small benefits and providing no benefits to other unlisted affected funds (e.g., tender offer funds).[415] We believe interval funds and other continuously-offered unlisted affected funds will directly benefit from two of our discretionary amendments.[416] While the final rule also imposes certain costs on these funds, we believe those costs are warranted, as discussed in detail below. Moreover, we are not at this time adopting the proposed new reporting requirements on Form 8-K that would have imposed costs on unlisted affected funds.[417]

1. New Registration Fee Payment Method for Interval Funds and Issuers of Certain Exchange-Traded Products

We are adopting a modernized approach to registration fee payment for interval funds that will require them to pay securities registration fees using the same method that mutual funds and ETFs use today. In response to comments, we also are allowing certain ETPs that are not registered under the Investment Company Act to use a similar method to pay registration fees.

With respect to interval funds, the final rule requires these funds to pay their registration fees on a net basis once a year, rather than having to pay registration fees when the fund files its registration statement.[418] We believe this approach will make the registration fee payment process for interval funds more efficient. For example, it will avoid the possibility that an interval fund will inadvertently sell more shares than it has registered and will not require the issuer to periodically register new shares.

We believe the final rule could also benefit interval funds by reducing their initial registration fees. In the table below, we have attempted to quantify the potential initial cost-savings for interval funds under the modernized approach to registration fee payment over a 3-year period.419

Table 4

Current average registration fee (paid upon filing) 1Estimated average registration fee that will be paid under the amendments (paid at the end of the fiscal year) 2
Year 1$31,501$8,376
Year 27,015
Year 322,445
Notes:
1. The current average registration fee paid in year 1 is the average of the actual fees reported by the interval funds in the Calculation of Registration Fee table in Form N-2 in the year of registration with the Commission. For purposes of this analysis, we assume that interval funds did not register additional securities in years 2 or 3. If they did, the average registration fees under the current framework would be higher than $31,501.Start Printed Page 33327
2. For each of the interval funds, the fees in years 1, 2, and 3 are estimated as [(dollar proceeds from shares issued + dollar cost of shares repurchased) / $1,000,000] × $129.80. The $129.80 is the fee rate (per million dollars) that funds pay to register shares for fiscal year 2020. Then we calculate the average fees per year.

Under the current regime, an interval fund would pay on average $31,501 at the time of filing, and then issue and repurchase securities over time. Under the regime we are adopting, the interval fund will pay its registration fees on a net basis once a year. Since the final rule allows interval funds to shift more of the fee payments to the future, it will decrease their cost of offering securities. An interval fund will, however, be required to annually file Form 24F-2.[420] We estimate the annual burden of filing Form 24F-2 for interval funds will be $140 per fund.[421]

We believe the final rule will provide similar benefits to certain ETPs that are not registered under the Investment Company Act by allowing these ETPs to elect to register an indeterminate number of securities and to pay registration fees in arrears on an annual net basis. Since now ETPs pay registration fees in advance whether or not they sell any securities and may not factor in redemptions in reducing the amount of the registration fees owed, this change will allow them to reduce their registration fees and shift their payment obligations into future periods. The amendments will also avoid the possibility that such an ETP will inadvertently sell more shares than it has registered and will not require the issuer to periodically register new shares. Moreover, the amendments will allow ETPs that are not registered under the Investment Company Act to use a similar registration fee payment method as ETFs that are registered under the Investment Company Act.

As an alternative, we considered allowing a wider range of affected funds, such as registered CEFs that are tender offer funds, to rely on rule 24f-2. This approach would have extended the benefits of rule 24f-2 to additional affected funds. However, as discussed above, interval funds have structural similarities to mutual funds and ETFs that other affected funds do not. In particular, interval funds routinely repurchase shares at NAV and are required to periodically offer to repurchase their shares, and therefore are more likely to realize the operational benefits of computing registration fees on a net annual basis than are funds that are not required to periodically offer to repurchase their shares at NAV.

2. Structured Data Requirements

The final rule includes new structured data reporting requirements for affected funds. Specifically, all affected funds will be required to tag in Inline XBRL format certain Form N-2 prospectus disclosure items. All affected funds also will be required to tag the information on the cover page of Form N-2 using Inline XBRL. Finally, BDCs will be required to tag financial statement information using Inline XBRL.

Under the final rule, affected funds will be required to tag the following Form N-2 prospectus disclosure items using Inline XBRL: Fee Table; Senior Securities Table; Investment Objectives and Policies; Risk Factors; Share Price Data; and Capital Stock, Long-Term Debt, and Other Securities.[422] These items provide important information about an affected fund's key features, costs, and risks and may be particularly useful to investors to inform their investment decisions. With respect to the requirement that BDCs tag financial statement information, unlike operating companies and registered investment companies, BDCs currently are not required to report any structured data.[423] This requirement will extend to BDCs a requirement that currently applies to operating companies.

Requiring BDCs to tag financial statement information using Inline XBRL, and all affected funds to tag in Inline XBRL format certain important prospectus disclosure items, will provide important benefits to investors seeking to access information about affected funds, both directly and through information intermediaries such as data aggregators and financial analysts. Providing a standardized, interactive, computer-based framework for reporting could further facilitate more efficient investor comparisons of important information across affected funds by making it easier to aggregate and analyze information through automated means, which could increase competition for investor capital. The Inline XBRL tagging requirements may also potentially increase the efficiency of capital formation to the extent that making disclosures available in a structured format reduces some of the information barriers facing prospective investors and makes it easier for affected funds to attract investors. One commenter expressed similar views.[424]

Smaller affected funds in particular may benefit more from enhanced exposure to investors. To the extent that reporting the disclosures in a structured format increases the availability, or reduces the cost of collecting and analyzing, key information about affected funds, smaller affected funds may benefit from improved coverage by information intermediaries. Further, requiring affected funds to tag certain prospectus disclosures using Inline XBRL would facilitate monitoring of these disclosures by investors and information intermediaries, potentially increasing transparency and mitigating the potential informational costs stemming from other aspects of the proposal such as automatic shelf registration statements for WKSIs and short-form registration statements for eligible funds, which may result in required disclosures being distributed across multiple regulatory filings and could thereby affect investor protection.[425]

The cover page tagging requirement includes new check boxes that will help identify whether a registration statement is, for example, an automatic shelf registration statement or a short-form registration statement.[426] We already require registrants to tag all of the information on the cover page of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F using Inline XBRL.[427] The requirement to tag the Form N-2 cover page in Inline XBRL is expected to benefit investors by enabling investors and information intermediaries to automate their use of the cover page information, including company name, the Act or Acts to which the registration statement relates, and check boxes relating to the effectiveness of the registration statement. This will enhance the ability of investors and information intermediaries to identify, count, sort, and analyze registrants and disclosures Start Printed Page 33328to the extent these data points otherwise would be formatted, for example, in HTML. The check boxes, which are required to be tagged in Inline XBRL format, will allow investors and information intermediaries to distinguish between different categories of registration statements in much the same way they are currently able to do for operating companies. The availability of information in Inline XBRL could enable investors and information intermediaries to capture and analyze cover page information more quickly and at a lower cost, as well as to search and analyze the information dynamically. It could also facilitate comparison of information across filers and reporting periods.

Affected funds will incur some costs to tag and review the required information in Inline XBRL. Some filers may perform the tagging in-house while others may retain outside service providers. We expect filers will incur costs for the fees of the outside service providers. Various XBRL preparation solutions have been developed and used by operating companies and open-end fund filers, and some evidence suggests that, for operating companies, XBRL tagging costs have decreased over time.[428] While this evidence is specific to XBRL tagging costs rather than Inline XBRL tagging costs, because Inline XBRL allows filers to embed XBRL data directly into an HTML document, we expect Inline XBRL costs to be even lower than XBRL costs since Inline XBRL eliminates the need to tag a copy of the information in a separate XBRL exhibit. Costs of Inline XBRL preparation may depend on the familiarity of the filer and/or its service provider with Inline XBRL. Filers that currently report information in Inline XBRL for other investment products they offer, such as open-end funds, filing affected fund information in Inline XBRL under the amendments will likely incur lower costs of compliance than filers adopting Inline XBRL for the first time. Those registrants affected by the requirement that have not had experience structuring disclosures in other contexts will likely incur initial costs to acquire the necessary expertise and/or software as well as ongoing costs of tagging required information in Inline XBRL, and any fixed costs of complying with the Inline XBRL requirement may have a relatively greater impact on smaller filers. On an ongoing basis, registrants are expected to expend time to tag and review the tagged information in Inline XBRL using their in-house staff. Some registrants may also incur an initial cost to license filing preparation software with Inline XBRL capabilities from a software vendor, and some may also incur an ongoing licensing cost. Other registrants may incur an initial cost to modify their existing filing preparation software to accommodate Inline XBRL preparation. Some registrants will incur the costs of filing agent services to rely on a filing agent to prepare their Inline XBRL filings. Initial costs involving investments in expertise and modifications to disclosure preparation solutions, or switching to a different software vendor or outside service provider, may result in a higher compliance cost during the first year of using Inline XBRL than in subsequent years.

The costs of compliance with the Inline XBRL requirements are likely to vary across registrants. On average we estimate that the compliance cost to BDCs of tagging financial statement information, certain prospectus disclosure items, and Form N-2 cover page information using Inline XBRL will be approximately $161,179 per BDC per year in the 3 years following the adoption of the rule.[429] We estimate that the compliance cost to registered CEFs of tagging in Inline XBRL format certain prospectus disclosure items and tagging Form N-2 cover page information will be approximately $8,855 per registered CEF per year in the 3 years following the adoption of the rule.[430] We note that some recent surveys based on operating companies suggest that these current PRA-based burden estimates may be overstated with respect to affected funds, and particularly smaller affected funds.[431]

One commenter cited a study by the European Securities and Markets Authority estimating the cost of preparing Inline XBRL in-house to be on average around 8,200 euros for the first filing and 2,400 euros for each subsequent filing.[432] In case of outsourcing, the study estimates the costs to be on average around 13,000 euros for the first filing and 4,600 euros for each subsequent filing. However, we do not believe that these figures the commenter cited are salient to the structured data requirements we are adopting. For example, although not cited by the commenter, the same study mentions that in the United States, because of the detailed tagging and extended taxonomy, the average costs for outsourcing the preparation of the financial statements in XBRL is higher, between 9,000 euros and 19,000 euros.[433]

As an alternative, we could have allowed but not required affected funds to present cover page, financial statement, and certain prospectus disclosure information in Inline XBRL. Compared to the final rule, a fully voluntary Inline XBRL program would Start Printed Page 33329lower costs for those filers that do not find Inline XBRL to be cost efficient. We also could have required Inline XBRL tagging only for a subset of affected funds—for example, affected funds that file short-form registration statements on Form N-2 or WKSIs. We also could have permitted more than one structured data format or left the precise format unspecified. However, a voluntary program or the use of multiple structured data formats would also reduce potential data quality benefits compared to mandatory Inline XBRL, as would a program that captures only a subset of affected funds. If the information were not submitted by all affected funds in a standardized, structured, machine-readable format, investors who seek to instantly analyze, aggregate, and compare the data would have to incur the costs of paying a third-party service provider to manually rekey the data, review the data for data quality problems during the duplication process, and disseminate the data to the investors.[434] Alternatively, investors unwilling to pay a third-party service provider would have to incur the time to do that process themselves. In either scenario, the data would not be usable in as timely a manner as if it were made machine-readable in a standardized format. In addition, under a voluntary program, data that is not submitted in Inline XBRL would not be validated, thus decreasing the overall data quality of the data submitted. Unlike the machine-readable Inline XBRL format, data submitted in unstructured formats (e.g., HTML, ASCII) is not machine-readable at the element level and thereby cannot be validated by EDGAR in any way. Thus, data submitted in the HTML format by affected funds that opted not to use Inline XBRL and XBRL data submitted by other affected funds could be different due to the level of pre-submission validation activities. Poor data quality reduces any data user's ability to meaningfully analyze, aggregate, and compare data. One commenter supported the use of Inline XBRL compared to unstructured formats, arguing that Inline XBRL data is significantly less expensive to process and more timely than unstructured data.[435]

As another alternative, we could have required the disclosures to be filed in a different structured format, such as the XBRL or XML format. Compared to the Inline XBRL requirement that we are adopting, using the XBRL format would entail duplicative entry, which can adversely affect the quality and usability of the structured data as well as the efficiency and cost of preparation and review of the structured data. Compared to the requirement to use Inline XBRL, the alternative of requiring affected funds to use XML could result in lower costs. However, compared to the amendments, XML would provide less flexibility in tagging complex information as well as less extensive data quality validation capabilities. Given the complexity of the information required to be tagged and its importance to investors, we believe the benefits of using Inline XBRL outweigh the higher costs compared to XML.[436] One commenter supported using Inline XBRL compared to XML, arguing that financial information is more efficiently reported in Inline XBRL.[437]

As another alternative, we could have expanded the scope of prospectus disclosure information required to be tagged in Inline XBRL under the final rule. Compared to the final rule, this alternative would improve the timeliness and usability of the required disclosure information, but would potentially impose additional costs on affected funds. To the extent that the other required prospectus disclosures of affected funds contain information that is more specific to individual funds without sufficient comparability or aggregation utility, the benefits of having those additional required disclosures in a structured format may be lower than the more limited subset of disclosures that we are requiring affected funds to file in Inline XBRL. As another alternative, we could have narrowed the scope of prospectus disclosure information required to be tagged in Inline XBRL under the rule. Compared to the final rule, this alternative could decrease the timeliness and usability of the information required to be disclosed, but could also potentially reduce costs for registrants. Overall, the prospectus disclosures that affected funds will be required to tag in Inline XBRL largely parallel the information that mutual funds and ETFs are required to disclose. We also believe these disclosures represent the information that will be most useful for investors that seek to use structured data to assist with investment decisions regarding affected funds.

We also are requiring issuers that file Form 24F-2 (including mutual funds and ETFs, as well as interval funds) to submit the form in a structured XML format.[438] We believe using a structured data format will make it easier for issuers to accurately prepare and submit the information Form 24F-2 requires and will make the submitted information more useful to Commission staff. Automated validation processes could help issuers compute registration fees accurately before submitting the filing, which could reduce administrative burdens associated with correcting inaccurate filings. A structured filing format could also facilitate pre-population of previously-filed information. We estimate the cost of tagging Form 24F-2 in a structured XML format to be $542 per fund.[439]

3. Periodic Reporting Requirements

We are adopting certain new annual report requirements for affected funds that file a short-form registration statement on Form N-2. These funds must include in their annual reports certain information that they currently disclose in their prospectus—a table of fees and expenses, share price information, and a table of senior securities—and a discussion of material unresolved staff comments.[440] In addition, all BDCs will be required to include financial highlights in their registration statements and annual reports.[441] We also are requiring all registered CEFs to provide management's discussion of fund performance in their annual reports.[442] Finally, registered CEFs that rely on rule 8b-16(b) under the Investment Company Act to avoid annually updating their registration statements will be required to describe in their annual reports the fund's current investment objectives and policies, and principal risks, and to provide more expansive disclosure about certain key changes that occurred during the relevant year in enough detail to allow investors to understand each change and how it may affect the fund.[443] We believe these requirements will promote Start Printed Page 33330investor protection by making important information more readily accessible to investors.

With respect to affected funds filing short-form registration statements on Form N-2, the annual report requirements will compile certain information that is already available in a fund's registration statement. This could be beneficial to some investors in these funds since information will be readily available in one document instead of investors needing to compile it from several sources. As previously discussed, given the ability of affected funds to use forward incorporation by reference under the short-form registration instruction, these funds' annual reports may become a more convenient and comprehensive source of information about a particular seasoned fund, relative to that fund's registration statement. At the same time, the annual report requirements may increase the compliance costs for seasoned funds because new information items will have to be added to the annual report. However, because the annual report will be incorporated by reference into the fund's prospectus, requiring disclosure in both the prospectus and annual report should not require duplicative disclosure. Moreover, specifying identical disclosure requirements in both places may facilitate forward incorporation by reference, by making clear that the same required disclosure will satisfy both requirements. Alternatively, we could have required affected funds to include in their annual reports more or less information from their registration statements. While requiring less information would reduce costs to affected funds by reducing the amount of required annual report disclosure, it could also make it more difficult for investors to find important fund information. Requiring affected funds to include more prospectus information in their annual reports could increase the length and complexity of annual reports and make them less useful to investors overall. This alternative would also increase affected funds' compliance costs.

The requirement to disclose material unresolved staff comments in the annual report is designed to mitigate the concern that other aspects of the amendments may reduce certain affected funds' incentives to resolve staff comments in a timely manner. We believe disclosure of material unresolved staff comments will likely provide important information to investors. This requirement may, however, impose certain compliance costs to the extent a seasoned fund does not timely resolve staff comments and hence will be required to provide such disclosure. We do not believe these disclosure costs will be significant because the information will be readily available to the affected fund. We recognize, however, there could be some costs to affected funds associated with compliance and legal review to the extent an affected fund wants to provide additional information in its annual report disclosure beyond that provided in the fund's written response to the staff's comment (which would typically already be publicly available on EDGAR). We also recognize, as some commenters suggested, that determining whether a particular comment is “material” or “unresolved” involves some subjective judgment, which may contribute to compliance and legal costs.[444]

With respect to the requirement that BDCs provide financial highlights information, we believe investors will benefit from disclosure summarizing a BDC's financial statements. We believe the costs associated with this requirement should be minimal since we understand that it is general market practice for BDCs to include this information in their registration statements.

We believe the requirement for registered CEFs to include MDFP disclosure in their annual shareholder reports will be beneficial to investors by helping them assess a fund's performance over the prior year and complementing other information in the report, which may make the annual report disclosure more understandable as a whole. This requirement will also promote parity between different types of funds, as open-end funds and BDCs are already required to provide similar disclosure in their annual reports. This requirement will likely increase compliance burdens for registered CEFs, to the extent they do not voluntarily provide MDFP disclosure already. We believe that a majority of registered CEFs already provide MDFP-like disclosure in their annual shareholder reports. We estimate the annual cost of providing MDFP disclosure to be $6,400 per registered CEF,[445] although this cost will likely be lower for affected funds that already provide MDFP-like disclosure.

We considered adopting additional MDFP requirements, such as requirements to: (1) Disclose the impact of particular investments (including large positions and/or significant investments) or investment types that contributed to or detracted from performance; (2) explain a fund's performance in relation to its index; (3) explain how the use of leverage affected fund performance; (4) explain the reason for and effect of any large cash or temporary defensive positions on fund performance; (5) explain the effect of any tax strategies, or the effects of taxes, on fund performance; (6) explain the effect of non-recurring or non-cash income on fund performance; (7) include general discussion of purchases and sales of fund shares and the effects of any share repurchases or tender offers on fund performance; and/or (8) disclose whether the fund has high portfolio turnover and the effect of portfolio turnover on fund performance. We also considered changing the average annual total return table to provide additional or more useful information to investors, such as requiring total return based on per-share NAV, in addition to total return based on current market price. Although one or more of these changes could result in additional, potentially helpful information for investors, we also considered the administrative costs that additional disclosure requirements would impose and have determined not to adopt them at this time.

Under the amendments to rule 8b-16, registered CEFs relying on paragraph (b) of the rule must describe in their annual reports the fund's current investment objectives and policies, and principal risks, and certain key changes that occurred during the relevant year in enough detail to allow investors to understand each change and how it may affect the fund. We estimate that approximately 521 registered CEFs relied on rule 8b-16 as of December 31, 2019 and will therefore provide the new disclosure.[446] These registered CEFs also will be required to preface disclosure of these key changes with a legend clarifying that the disclosures provide only a summary of certain changes that have occurred in the past year, and that the summary may not reflect all of the changes that have occurred. We believe these new disclosure requirements will allow investors in funds relying on rule 8b-16(b) to more easily identify and understand key information about their Start Printed Page 33331investments by providing such information in one place. Because these funds are already required to disclose in their annual reports the enumerated changes to specified Form N-2 disclosure items—and therefore already must have and maintain, among other things, updated information about the investment objectives, policies and principal risks that we are requiring them to disclose in full—the new requirement will likely add only a small incremental compliance burden.

4. Discretionary Amendments to Incorporation by Reference Requirements

The final rule will modernize Form N-2's requirements for backward incorporation by reference for all affected funds.[447] Specifically, we are requiring that an affected fund make information that is incorporated by reference into its prospectus or SAI, as well as the corresponding prospectus and SAI, readily available and accessible on a website maintained by or for the fund and identified in the fund's prospectus or SAI.

We believe this new requirement will improve the information's online accessibility for investors. In particular, this new requirement will make the incorporated information, prospectus, and SAI more accessible to retail investors online because we believe they may be more inclined to look at a fund's website for information than to search the EDGAR system.[448] We recognize that investors without home internet access, depending on their ability and preference to access fund information electronically, might experience a reduction in their ability to access information that is incorporated by reference into its prospectus or SAI. However, affected funds will also be required to provide incorporated materials upon request free of charge, in recognition that some investors may prefer to review these materials in paper.[449]

This amendment also will facilitate the efficient use of incorporation by reference by affected funds. For example, if an investor requested a copy of the affected fund's prospectus in accordance with rule 173, the fund would in some cases need to deliver a much longer document if we did not amend Form N-2's backward incorporation by reference provisions.[450] We do not, however, expect that the backward incorporation by reference amendment will substantially reduce the amount of information affected funds deliver to investors by mail or electronically. This is because we expect that most affected funds will rely on rules 172 and 173 to satisfy their prospectus delivery obligations. An issuer that uses these rules will satisfy its final prospectus delivery obligations by filing the prospectus with the Commission rather than delivering the prospectus and any incorporated material to investors.[451]

We do not believe the requirement to make a fund's prospectus, SAI, and incorporated materials available on a website will generate significant compliance costs for affected funds because many funds currently post their annual and semi-annual reports and other fund information on their websites. We estimate the annual cost to comply with the website posting requirements to be $496 per fund.[452]

Affected funds may also incur printing and mailing costs under the final rule if some investors request paper copies of the prospectus [453] or of the information that has been incorporated by reference into the prospectus or SAI but not delivered with the prospectus or SAI.[454] In another release, the Commission estimated that the annual printing and mailing cost associated with providing copies of prospectuses and other documents upon request would be approximately $500 per registrant.[455] We are similarly adopting a requirement to send prospectuses and related information in this release, and we have no reason to assume significant differences in the average lengths of the associated materials or the frequency of investor requests under the amendments we are adopting. We estimate that the printing and mailing costs associated with the new requirements will be approximately $750 per fund in recognition that the requirement to deliver information that has been incorporated by reference may result in greater overall costs since affected funds that are eligible to file short-form registration statements under the final rule will be able to use incorporation by reference more frequently.[456] We anticipate, however, that investors may be less likely to request copies of materials that have been incorporated by reference into an affected fund's prospectus or SAI, so we believe this requirement will only incrementally increase costs.

Alternatively, we could have retained Form N-2's current backward incorporation by reference requirements and continued to require funds to deliver incorporated materials to new investors. Because current General Instruction F of Form N-2 does not require affected funds to make incorporated materials available online, funds would not have to incur costs associated with website posting. However, because affected funds that choose to rely on rules 172 and 173 will be deemed to have delivered their disclosures upon filing with the Commission instead of giving them to investors, the current backward incorporation delivery requirement will not result in delivery of incorporated materials to a fund's investors, thus making less accessible the disclosure materials that might affect their investment decision.

We are also modifying Form N-14 to decrease the disclosure burden of the form and reduce the length of Form N-14 prospectuses in certain circumstances.[457] The amendments will allow BDCs to incorporate by reference to the same extent as registered CEFs. This will provide for more consistent treatment between registered CEFs and BDCs. We also are eliminating the requirement that registrants file with the Form N-14 registration statement the documents containing the information that is incorporated by reference into the prospectus or SAI, thus decreasing Start Printed Page 33332compliance costs. Commenters generally supported these changes.[458]

5. Automatic or Immediate Effectiveness of Filings by Affected Funds Conducting Certain Continuous Offerings

In response to comments, the final rule will allow any registered CEF or BDC that conducts continuous offerings under rule 415(a)(1)(ix) to file post-effective amendments and certain registration statements that become effective immediately upon filing or automatically 60 days after filing.[459] We believe this rule amendment will allow these unlisted continuously-offered affected funds to maintain effective registration statements in a more efficient, cost-effective manner, similar to the benefits the final rule provides to affected funds that file short-form registration statements or qualify as WKSIs. Under the amendments, continuously-offered unlisted affected funds, which generally will not qualify as WKSIs or be eligible to file short-form registration statements because they do not have public float, will be able to more efficiently update their financial statements under section 10(a)(3) of the Securities Act to maintain effective registration statements while they engage in continuous offerings. One commenter stated that allowing continuously-offered unlisted affected funds to rely on rule 486 would benefit investors in these funds by allowing the funds to avoid the time and expense of an annual staff review of registration statements where no changes are made beyond immaterial updates and updates to audited financial information.[460]

As an alternative, we could have continued to limit rule 486 to interval funds. Such an alternative would have made it less efficient for certain continuously-offered unlisted affected funds to update their financial statements or make other changes to their registration statements relative to the processes available to all other funds that conduct continuous or delayed offerings under the Commission's rules.

IV. Paperwork Reduction Act Analysis

A. Background

Certain provisions of the final amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (PRA).[461] We are submitting the final amendments to the Office of Management and Budget (OMB) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The hours and costs associated with preparing disclosure, filing forms, and retaining records constitute reporting and cost burdens imposed by the collections of information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The titles for the collection of information are summarized in Table 5 below.

Table 5—Collections of Information

TitleOMB control No.
Form N-23235-0026
Investment Company Interactive Data 13235-0642
Rule 30e-13235-0025
Form 10-K3235-0063
Family of rules under section 8(b) of the Investment Company Act of 1940 23235-0176
Rule 1633235-0619
Rule 4333235-0617
Rule 1733235-0618
Form 24F-23235-0456
Form S-13235-0065
Form S-33235- 0073
Form N-143235-0336
Form F-13235-0258
Form F-33235-0256
Notes:
1. Recently, we issued a release that, among other things, retitled this collection of information (previously, “Mutual Fund Interactive Data”) “Investment Company Interactive Data.” See Variable Contract Summary Prospectus Adopting Release, supra footnote 345.
2. The paperwork burdens for the rules under section 8(b) of the Investment Company Act are imposed through the forms and reports that are subject to the requirements in these rules and are reflected in the PRA burdens of those documents. To avoid a PRA inventory reflecting duplicative burdens and for administrative convenience, we assign a one-hour burden to these rules.

The rules, forms, and regulations listed above were adopted under the Securities Act, the Exchange Act, or the Investment Company Act. They set forth the disclosure requirements for registration statements, prospectuses, periodic reports, and certified shareholder reports that are prepared by registrants to help investors make informed investment and voting decisions. They also permit additional communications by registrants during a registered offering. The final amendments will allow affected funds to use the securities offering rules that are already available to operating companies. In addition, the final rule includes amendments to our rules and forms intended to tailor the disclosure and regulatory framework to affected funds.

The Investment Company Interactive Data collection of information references current requirements for certain registered investment companies to submit to the Commission information included in their registration statements, or information included in or amended by any post-effective amendments to such registration statements, in response to certain form items in interactive data format. It also references the requirement for funds to submit an Interactive Data File to the Commission for any form of prospectus filed pursuant to rule 497(c) or (e) that includes information in response to certain form items. The final amendment will include several new structured data requirements, including requirements for: (1) BDCs to submit financial statement information using Inline XBRL format; (2) affected funds to include structured cover page information in their registration statements on Form N-2 using Inline XBRL format; and (3) affected funds to tag certain prospectus information using Inline XBRL format.[462] Although the interactive data filing requirements are included in the Form N-2 instructions, we are separately reflecting the hour and cost burdens for these requirements in the burden estimate for Investment Company Interactive Data and not in the estimate for Form N-2.

The information collection requirements related to registration statements and Exchange Act reports are mandatory. In addition, there is no mandatory retention period for the information disclosed, and the information gathered will be made publicly available. The information collection requirements related to the communications and prospectus delivery rules we are adopting apply only to affected funds and other offering participants choosing to rely on them. There will be a mandatory record retention period with respect to the communications and prospectus delivery information collections. Under rule 433, issuers and offering participants must retain all free writing prospectuses that have been used, for three years following the date of the initial bona fide offering of the securities in question that were not filed with the Commission. Moreover, free writing prospectuses that are made by or on behalf of an affected fund, and free Start Printed Page 33333writing prospectuses that are broadly disseminated by another offering participant, will have to be filed and will be publicly available on EDGAR, whereas free writing prospectuses prepared by or on behalf of, or used or referred to, by offering participants other than the issuer will not have to be filed.

B. Summary of the Amendments and Impact on Information Collections

We are amending several rules and forms to modify the registration, communications, and offering processes for affected funds under the Securities Act and Investment Company Act. The amendments are designed to carry out the requirements of section 803 of the BDC Act and section 509 of the Registered CEF Act. The amendments generally will allow affected funds to use the securities offering rules that are already available to operating companies.

The amendments principally affect five aspects of the application of our securities offering rules to affected funds. First, the amendments will streamline the registration process under the Securities Act for affected funds to allow them to sell securities more quickly and efficiently under a shelf registration process tailored to affected funds. Second, the amendments will allow affected funds to qualify as WKSIs under rule 405 under the Securities Act. Third, the amendments will allow affected funds to satisfy final prospectus delivery requirements using the same method as operating companies. Fourth, the amendments will allow affected funds to use communications rules currently available to operating companies, such as the use of the safe harbors for disseminating certain factual business information, forward-looking information, a “free writing prospectus,” and broker-dealer research reports. Finally, the amendments will tailor affected funds' disclosure and regulatory framework in light of the amendments to the offering rules applicable to them. These amendments include new structured data requirements, new disclosure requirements for annual reports, and a requirement for interval funds to pay securities registration fees using the same method that mutual funds and ETFs use today.

We anticipate that several provisions of the amendments will increase the burdens and costs for affected funds that will be subject to the amendments. We have estimated the average number of hours an affected fund will spend to prepare and file the information collections and the average hourly rate for the services of outside professionals. In deriving our estimates, we recognize that the burdens will likely vary among individual affected funds based on a number of factors, including their size and the nature of their investment activities.[463] In addition, some affected funds may experience costs in excess of our estimates, and some may experience less than the estimated average costs.

In addition to these amendments relating to affected funds, we are amending several rules and forms to enable certain ETPs that are not registered under the Investment Company Act to elect to register offerings of an indeterminate amount of exchange-traded vehicle securities and pay registration fees for these offerings on an annual net basis. We have estimated the average number of additional hours that such ETPs will spend when filing registration statements for these offerings to prepare and file the information collections and the average hourly rate for the services of outside professionals. We anticipate that the amendments will result in a decrease in the number of registration statements filed by these issuers and that, overall, these amendments will reduce the burdens and costs for these issuers.

1. Amendments to Form N-2 Registration Statement

Form N-2 is the form used by an affected fund to register offerings under the Securities Act and, as applicable, to register as an investment company under the Investment Company Act.

The amendments to Form N-2 will increase the existing disclosure burdens of the form by requiring:

  • Affected funds to use new check boxes on the cover page to provide information about the fund, the purpose of the filing, and the type of offering, including whether the form is being used for automatic shelf registration; [464]
  • BDCs to include financial highlights disclosure in their registration statements, as registered CEFs are currently required to do; [465]
  • Affected funds to provide new undertakings to be furnished in registration statements being filed pursuant to rule 415; [466] and
  • Affected funds to make certain documents available online if they incorporate them by reference, including the prospectus, SAI, and any Exchange Act reports filed under section 13 or section 15(d) of the Exchange Act that are incorporated by reference into the fund's prospectus or SAI.[467]

At the same time, the amendments to Form N-2 will decrease existing burdens for the form by:

  • Permitting eligible affected funds to forward incorporate by reference Exchange Act reports, which will reduce the need for such funds to file a post-effective amendment or a prospectus supplement to update information in the registration statement.[468]

Table 6—Currently Approved Form N-2 PRA Estimates 1

Internal burdenWage rate 2Cost of internal burdenAnnual external cost burden
Burden per Initial Registration Statement
Total burden per registration statement517.6 hours×$269 (blended rate of $365 for compliance attorney and $172 for intermediate accountant)$139,234$32,241
Number of annual initial registration statements× 136× 136× 136
Start Printed Page 33334
Total annual burden70,394 hours$18,935,824$4,384,776
Burden per Post-Effective Amendment
Total burden per post-effective amendment125 hours×$269 (blended rate of $365 for compliance attorney and $172 for intermediate accountant)$33,625$11,114
Number of annual post-effective amendments× 30× 30× 30
Total annual burden3,751 hours$1,008,750$333,420
Total Burden
Total initial registration statement burden70,394 hours$18,935,824$4,384,776
Total post-effective amendment burden3,751 hours$1,008,750$333,420
Total annual burden74,145 hours19,944,5744,718,196
Notes:
1. These estimates were previously submitted to OMB in connection with a revision of the then-currently-approved collection in 2020.
2. Derived from SIFMA's Management & Professional Earnings in the Securities Industry 2013 (modified to account for an 1,800-hour work year; multiplied by 5.35 to account for bonuses, firm size, employee benefits and overheard, and adjusted for inflation).

Table 7—Proposed Form N-2 PRA Estimates 1

Internal burdenWage rate 2Cost of internal burdenAnnual external cost burden
Burden for Initial Registration Statement
Preparing and filing initial registration statement171.67 hours×$401 (attorney)$68,838.33$31,941
171.67 hours×$210 (paralegal)$36,050
171.67 hours×$449 (assistant general counsel)$77,078.33
Total burden per registration statement515 hours$181,966.67$31,941
Number of annual initial registration statements× 138× 138× 138
Total annual burden71,070 hours$25,111,399.08$4,407,858
Burden for Post-Effective Amendment
Preparing and filing post-effective amendments35.67 hours×$401 (attorney)$14,302.33$10,814
35.67 hours×$210 (paralegal)$7,490
35.67 hours×$449 (assistant general counsel)$16,014.33
Total burden per post-effective amendment107 hours$37,806.67$10,814
Number of annual post-effective amendments× 190× 190× 190
Total annual burden20,330 hours$7,183,266.70$2,054,660
Additional Burden for Affected Funds
Proposed new check box requirements0.1667×$352 (compliance attorney)$58.67$0
0.1667×$319 (senior programmer)$53.17
0.1667×$239 (webmaster)$39.83
Proposed online availability requirement0.67 hours×$352 (compliance attorney)$234.67
0.67 hours×$319 (senior programmer)$212.67$0
0.67 hours×$239 (webmaster)$159.33
Total additional burden per affected fund2.5 hours$758.33$0
Number of affected funds× 807× 807× 807
Total annual burden2,018 hours$611,975$0
Additional Burden for BDCS
Financial highlights requirement0.5 hours×$352 (compliance attorney)$176$0
0.5 hours×$319 (senior programmer)$159.50
Start Printed Page 33335
0.5 hours×$239 (webmaster)$119.50
Total additional burden per BDC1.5 hours$455$0
Number of BDCs× 103× 103× 103
Total annual burden155 hours$46,865$0
Total Burden
Total initial registration statement burden71,070 hours$25,111,399.08$4,407,858
Total post-effective amendment burden20,330 hours$7,183,266.70$2,054,660
Total additional burden for affected funds2,018 hours$611,975$0
Total additional burden for BDCs155 hours$46,865$0
Total annual burden93,573 hours$32,953,505.78$6,462,518
Notes:
1.See Proposing Release, supra footnote 10, at section IV.B.1.
2.See supra Table 6, at footnote 2.

Table 8—Final Form N-2 PRA Estimates

Internal burdenWage rate 1Cost of internal burdenAnnual external cost burden
Burden for Initial Registration Statement
Total burden per registration statement517.6 hours×$269 (blended rate of $365 for compliance attorney and $172 for intermediate accountant)$139,234$32,241
Number of annual initial registration statements× 14023× 140 23× 140 23
Total annual burden72,464 hours$19,492,760$4,513,740
Burden for Post-Effective Amendment
Total burden per post-effective amendment125 hours×$269 (blended rate of $365 for compliance attorney and $172 for intermediate accountant)$33,625$11,114
Number of annual post-effective amendments× 1582, 4× 158 24× 158 24
Total annual burden19,750 hours$5,312,750$1,756,012
Additional Burden for Affected Funds
New check box requirements0.1667 hours×$365 (compliance attorney) 2$60.85$0
0.1667 hours×$331 (senior programmer) 2$55.18
0.1667 hours×$248 (webmaster) 2$41.34
Online availability requirement2 hours×$248 (webmaster) 24$496$0
Total additional burden per affected fund2.5 hours$653.37$0
Number of affected funds× 791× 791× 791
Total annual burden1,978 hours$516,815.67$0
Additional Burden for BDCS
Financial highlights requirement0.5 hours×$365 (compliance attorney) 2$182.50$0
0.5 hours×$331 (senior programmer) 2$165.50
0.5 hours×$248 (webmaster) 2$124
Total additional burden per BDC1.5 hours$472$0
Number of BDCs× 105× 105× 105
Total annual burden158 hours49,560$0
Total Burden
Total initial registration statement burden72,464 hours$19,492,760$4,513,740
Total post-effective amendment burden19,750 hours5,312,7501,756,012
Total additional burden for affected funds1,978 hours516,815.670
Start Printed Page 33336
Total additional burden for BDCs158 hours49,5600
Total annual burden94,350 hours$25,371,885.70$6,269,752
Notes:
1.See supra Table 6, at footnote 2. In a change from the Proposing Release, we have revised the wage rate categories for existing Form N-2 burdens, consistent with the currently-approved Form N-2 PRA burden estimates.
2. Estimate revised to reflect updated industry data.
3. We considered whether deeming interval funds to have registered an indefinite number of shares under the amendments to rules 23c-3 and 24f-2 will result in fewer registration statement filings since these funds will no longer need to file registration statements to register additional shares. Based on staff analysis of interval fund filings between January 1, 2017 and December 31, 2019, interval funds very rarely filed registrations statements on Form N-2 solely to register additional shares (i.e., the filing typically also updated the fund's financial statements or included other changes). On average, interval funds filed seven Form N-2 registration statements each year during this period that, among other things, registered additional shares. As a result, for purposes of this PRA estimate, we are not reducing the estimated number of Form N-2 filings to account for the change in how interval funds register additional shares.
4. Estimate revised to reflect the average number of post-effective amendments filed between January 1, 2017 and December 31, 2019 (286 post-effective amendments), minus an estimated reduction of 128 post-effective amendments resulting from the ability of affected funds that are eligible to file short-form registration statements to forward incorporate by reference information into their registration statements. The estimated reduction in the number of post-effective amendment filings has been increased from 112 to 128 filings to account for an increase in the percentage of affected funds that will be eligible to file short-form registration statements (based on updated industry data) and to account for post-effective amendments under rule 486(b) filed by funds that have received relevant staff no-action letters (an average of approximately 29 filings per year over the three-year period). See supra Section II.D (discussing relevant staff no-action letters); Proposing Release, supra footnote 10, at n.447 (discussing the initial estimated reduction in the number of post-effective amendments of 112).

Table 6 above summarizes the current PRA estimates associated with the requirements of Form N-2. Table 7 summarized the proposed PRA estimates included in the Proposing Release.[469] Table 8 summarizes the final PRA estimates associated with Form N-2 as amended. We did not receive public comment on our proposed PRA estimates, but we are revising our estimates as a result of updated industry data. Specifically, we are revising the estimated wage rates, the estimated number of affected funds, and the estimated number of annual initial registration statement and post-effective amendment filings to reflect updated industry data.

As summarized in Table 8 above, we estimate that the total hour burdens and time costs associated with Form N-2 will be an aggregate annual burden of 94,350 hours at an aggregate annual cost of internal burden of $25,371,886. We estimate an aggregate annual external time cost of $6,269,752.

2. Structured Data Reporting Requirements

We are amending Form N-2, as well as Regulation S-K and Regulation S-T,[470] to require certain new structured data reporting requirements for registered CEFs and BDCs.[471] Specifically, the amendments will require:

  • BDCs to submit financial statement information using Inline XBRL format, as is currently required of operating companies.[472] The respondents for this collection of information are an estimated 105 BDCs.
  • Affected funds to include structured cover page information in their registration statements on Form N-2 using Inline XBRL, including the tagging of the new check boxes to the cover page of Form N-2.[473] The respondents for this collection of information are an estimated 791 affected funds. As demonstrated in Table 9 below, we do not believe the cover page tagging requirement will result in significant additional burdens for affected funds.
  • Affected funds to tag certain Form N-2 disclosure items using Inline XBRL.[474] The respondents for this collection of information are an estimated 791 affected funds.

The purposes of these information collections are to make financial information easier for investors to analyze and to help automate regulatory filings and business information processing, and to reduce the current disparity between operating companies and BDCs with respect to the accessibility of information they provide to the market. These collections of information are mandatory for the relevant respondents, discussed for each collection below. Confidential information will not be disclosed pursuant to these new reporting requirements.Start Printed Page 33337

Table 9—Proposed and Final Structured Data Reporting PRA Analysis

Initial hoursAnnual hours 1Initial cost burdenAnnual cost burden
PROPOSED ESTIMATES2
BDC Financial Statement Information—Per BDC Response (I)8165.81 hours$9,262.50$7,525.78
Number of BDC Responses Per Year× 463.5 2× 463.5 2
Total Annual Burden30,503 hours$3,488,199.03
Affected Funds Cover Page Information on Form N 2—Per Affected Fund Response (II)01 hour$0$0
Number of Affected Fund Responses Per Year× 807× 807
Total Annual Burden807 hours$0
Affected Funds Form N-2 Disclosure Items—Per Affected Fund Response (III)15.2512.8 hours$1,350.00$1,096.88
Number of Affected Fund Responses Per Year× 1097.5× 1097.5
Total Annual Burden14,048.26 hours$1,203,825.80
Combined Total Annual Burden45,358.26 hours$4,692,024.83
FINAL ESTIMATES
BDC Financial Statement Information—Per BDC Response (I)81 hours65.81$9,262.50$7,525.78
Number of BDC Responses Per Year× 472.5× 472.5
Total Annual Burden31,095 hours$3,555,931
Affected Funds Cover Page Information on Form N-2—Per Affected Fund Response (II)1 hour$0
Number of Affected Fund Responses Per Year× 791× 791
Total Annual Burden791 hours$0
Affected Funds Form N-2 Disclosure Items (III)15.2512.8 hours$1,350.00$1,097
Number of Affected Fund Responses Per Year× 1,076× 1,076
Total Annual Burden13,773 hours$1,180,372
Combined Total Annual Burden45,659 hours$4,736,303
Notes:
1. Includes initial and ongoing burden estimates annualized over a three-year period. Here, as discussed in the Proposing Release, supra footnote 10, at section V.B.2, we assumed that the one-time cost would result in a 50% incremental increase in the internal burdens and external costs of the BDC financial information and Form N-2 disclosure requirements (items I and III in the chart above) during the first year, and would subsequently decline in the second and third years by 75% from the immediately-preceding year.
2. The proposed estimates are discussed in additional detail in the Proposing Release, supra footnote 10, at section V.B.2.

Table 9 summarizes the proposed PRA estimates included in the Proposing Release and the final PRA estimates for the structured data reporting requirements. We did not receive public comment on our proposed PRA estimates, but we are revising our estimates as a result of updated industry data. Specifically, we are revising the estimated number of BDCs and affected funds to reflect updated industry data.

As summarized in Table 9, we estimate that the total hour burdens and time costs associated with the structured data reporting requirements will be an aggregate annual burden of 45,659 hours. We estimate an aggregate annual external time cost of $4,736,303.

3. New Annual Reporting Requirements Under Rule 30e-1 and Exchange Act Periodic Reporting Requirements for BDCs

Several of the amendments, such as the amendments that would allow certain affected funds to use an automatic shelf registration statement or to forward incorporate by reference Exchange Act reports, may raise the importance of an affected fund's Exchange Act reports to investors.[475] In light of this, we are adopting new disclosure requirements for affected funds' annual reports. Specifically, we are amending:

  • Form N-2 to require affected funds using the short-form registration statement to disclose in their annual reports a fee and expense table, share price data, a senior securities table, and unresolved staff comments regarding the fund's periodic or current reports or registration statement; [476]
  • Form N-2 to require registered CEFs to provide MDFP in their annual reports; [477]
  • Form N-2 to require BDCs to include financial highlights in their annual reports on Form 10-K; [478] and
  • Rule 8b-16 to require a registered CEF that relies on paragraph (b) of that rule to describe in its annual reports its current investment objectives and policies, and principal risks, and certain key changes that occurred during the relevant year in enough detail to allow investors to understand each change and how it may affect the fund.[479]

The collection of information burdens under these amendments correspond to information collections under rule 30e-1 for registered CEFs and Form 10-K for BDCs. Rule 30e-1 generally requires registered investment companies to transmit to their shareholders, at least semi-annually, reports containing the information that is required to be included in such reports by the fund's registration statement form under the Investment Company Act. BDCs, like operating companies, are required to file annual reports on Form 10-K pursuant to section 13 or 15(d) of the Exchange Act.

The burden estimates were calculated by multiplying the estimated number of responses by the estimated average amount of time it would take an affected Start Printed Page 33338fund to prepare and review disclosure required under the amendments. For purposes of the PRA, the burden is allocated between internal burden hours and outside professional costs. For these purposes, we estimate that 75% of the burden of preparing annual reports under rule 30e-1 and on Form 10-K is undertaken by the fund internally, while 25% of this burden is undertaken by outside professionals, such as outside counsel and independent auditors, retained by the fund at an average cost of $400 per hour.[480]

Table 10—Rule 30e-1 Incremental Burden Estimates

Number of estimated affected responsesBurden hour increase per current affected responseIncrease in burden hours for current affected responsesIncrease in company hours for current affected responsesIncrease in professional hours for current affected responsesIncrease in professional costs for current affected responses
(A)(B)(C) = (A) × (B)(D) = (C) × 0.75(E) = (C) × 0.25(F) = (E) × $400
PROPOSED ESTIMATES 1
MDFP requirement7041611,2648,4482,816$1,126,400
Requirements to disclose fee and expense table, share price data, a senior securities table, and unresolved staff comments45731,3711,028343137,200
Amendments to rule 8b-16(b)70442,8162,112704281,600
Total estimated burdens11,588 hours2 $1,545,200
FINAL ESTIMATES
MDFP requirement3 6861610,9768,2322,7441,097,600
Requirements to disclose fee and expense table, share price data, a senior securities table, and unresolved staff comments3 45531,3651,024341136,400
Amendments to rule 8b-16(b)34 5215 52,6051,954651260,400
Total estimated burdens11,210 hours1,494,400
Notes:
1.See Proposing Release, supra footnote 10, at section V.B.3.
2. The Proposing Release reflected an estimate of $1,545,100. Since we are rounding internal burden and external cost estimates to the nearest whole number in this section, this table reflects an estimated annual cost burden of $1,545,200.
3. Revised to reflect updated industry data.
4. Revised to recognize that not all registered CEFs rely on rule 8b-16(b).
5. Revised to reflect a change from the proposed requirements.

Table 10 summarizes the proposed incremental PRA burden estimates and the final incremental PRA burden estimates associated with the new annual report requirements for registered CEFs. We did not receive comments on our proposed estimates, but we have revised them as a result of updated industry data and changes to the proposed amendments. Specifically, we are revising the estimated number of registered CEFs that will be subject to the new annual report requirements to reflect updated industry data and the estimated burden hours associated with the amendments to rule 8b-16(b). As summarized in Table 10 above, the revised additional burdens associated with the new annual report requirements for registered CEFs for purposes of the rule 30e-1 collection of information is 11,210 hours for internal time and external costs of $1,494,400.Start Printed Page 33339

Table 11—Form 10-K Incremental Burden Estimates

Number of estimated affected responsesBurden hour increase per current affected responseIncrease in burden hours for current affected responsesIncrease in company hours for current affected responsesIncrease in professional hours for current affected responsesIncrease in professional costs for current affected responses
(A)(B)(C) = (A) × (B)(D) = (C) × 0.75(E) = (C) × 0.25(F) = (E) × $400
PROPOSED ESTIMATES1
Requirements to disclose fee and expense table, share price data, a senior securities table, and unresolved staff comments4331299732$12,800
Financial highlights requirement1031.51551163915,600
Total estimated burdens213 hours28,400
FINAL ESTIMATES
Requirements to disclose fee and expense table, share price data, a senior securities table, and unresolved staff comments2 443132993313,200
Financial highlights requirement2 1051.51581194016,000
Total estimated burdens218 hours29,200
Notes:
1.See Proposing Release, supra footnote 10, at section V.B.3.
2. Revised to reflect updated industry data.

Table 11 summarizes the proposed incremental PRA burden estimates and the final incremental PRA burden estimates associated with the new annual report requirements for BDCs. We did not receive comments on our proposed estimates, but we have revised them as a result of updated industry data. Specifically, we are revising the estimated number of BDCs that will be subject to the new annual report requirements to reflect updated industry data. As summarized in Table 11 above, the revised additional burdens associated with the new annual report requirements for BDCs for purposes of the Form 10-K collection of information is 218 hours for internal time and external costs of $29,200.

Table 12—Requested Paperwork Burden Under the Amendments to Annual Report Disclosure

Rule or formCurrent annual responsesCurrent burden hoursCurrent cost burdenNumber of affected responsesIncrease in company hoursIncrease in professional costsAnnual responsesBurden hoursCost burden
(A)(B)(C)(D)(E)(F)(G) = (A)(H) = (B) + (E)(I) = (C) + (F)
Current Burden1Program ChangeRequested Change in Burden
30e-123,7841,028,658$147,750,391Varies (see Table 10) 211,210$1,494,40023,7841,039,868$149,244,791
10-K8,13714,198,780$1,895,224,719Varies (see Table 11) 2218$29,2008,13714,198,9981,895,253,919
Notes:
1. The rule 30e-1 estimates are based on the last time the rule's information collections were approved, pursuant to a submission for a PRA extension in 2019. The Form 10-K estimates are based on the last time the form's information collections were approved, pursuant to a submission for a PRA extension in 2019.
2. As reflected in Table 10 and Table 11, the number of registered CEFs and the number of BDCs that will need to comply with the new annual report disclosure requirements will vary depending on the type of new disclosure, although all registered CEFs (686) and all BDCs (105) will be required to provide some additional annual report disclosure.

As summarized above in Table 12, the revised aggregate estimates, including the new amendments, for rule 30e-1 are 1,039,868 hours and $149,244,791 in external costs. The revised aggregate estimates for Form 10-K, including the new amendments, are 14,198,998 hours and $1,895,253,919 in external costs.

4. Securities Offering Communications

Rule 163 permits WKSIs to make unrestricted oral and written offers before filing a registration statement, but any written offer will be considered a free writing prospectus and will generally have to be filed upon filing a registration statement or amendment covering the securities. Rule 433 governs the use of free writing prospectuses by WKSIs and non-WKSI issuers after the filing of a registration statement. A free writing prospectus used by or on behalf of an affected fund, or free writing prospectuses that are broadly disseminated by another offering participant, are required to be filed with the Commission. We have adopted amendments to rules 163 and 433 that will permit affected funds to Start Printed Page 33340rely on these rules to use a free writing prospectus.

We did not receive public comment on our proposed estimates, but we have revised them as a result of updated industry data. Specifically, we are revising the estimated number of firms that will be subject to the rule to reflect updated industry data.

The burden estimates were calculated by multiplying the estimated number of responses by the estimated average amount of time it would take a registrant to prepare and review disclosure required under the proposed amendments. For purposes of the PRA, the burden is to be allocated between internal burden hours and outside professional costs. Table 13 below sets forth the percentage estimates we typically use for the burden allocation for each rule.[481] We also estimate that the average cost of retaining outside professional to be $400 per hour.[482]

Table 13—Standard Estimated Burden Allocation for Securities Act Rules 163 and 433

InternalOutside professionals
ESTIMATED BURDEN ALLOCATION
Rule 16325%75%
Rule 43325%75%

The table below illustrates the incremental change to the total annual compliance burden of affected rules, in hours and costs, as a result of the proposed amendments.

Table 14—Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting from the Amendments

Number of estimated affected responsesBurden hour increase per current affected responseIncrease in burden hours for current affected responsesIncrease in company hours for current affected responsesIncrease in professional hours for current affected responsesIncrease in professional costs for current affect responses
(A) 1 2(B) 3(C) = (A) × (B)(D) = (C) × 0.25 or 0.75(E) = (C) × 0.75 or 0.25(F) = (E) × $400
Incremental Change in Burden Estimates
16320.250.500.1250.375$150
4334,2711.285,4671,3674,100$1,640,000
Notes:
1. For a number of reasons, many issuers that are currently eligible to be WKSIs do not make use of free writing prospectuses in reliance on rule 163. At the time the Commission adopted rule 163, it estimated that 53 free writing prospectuses would be filed under rule 163 per year. However, during the Commission's 2017 fiscal year, only 10 free writing prospectuses in reliance on rule 163 were filed with the Commission. We estimate that 100 affected funds would be eligible to be WKSIs. See supra section III.A.1. If current practices regarding the use of free writing prospectuses under rule 163 continue with respect to affected funds, we do not believe that these affected funds would significantly increase the number of free writing prospectuses under rule 163. Accordingly, we estimate that, on average, affected funds that are eligible to be WKSIs would file 2 free writing prospectuses under the amendments to rule 163 each year.
2. The most recent data that we have available shows that each operating company files an average of approximately 5.4 free writing prospectuses per year in reliance on rule 433. We estimate that there will be 791 affected funds filing approximately 4,271 free writing prospectuses. See supra section III.A.1.
3. The burden hour estimates for rules 163 and 433 are based on the last time the rules' information collections were approved, pursuant to a submission for a PRA extension in 2017. The conditions under rule 433 to use a free writing prospectus, require a free writing prospectus to contain more information and contribute to the greater burden hour than for a rule 163 free writing prospectus.

The following table summarizes the requested paperwork burden, including the estimated total reporting burdens and costs, under the proposed amendments.Start Printed Page 33341

Table 15—Requested Paperwork Burden Under the Amendments to Securities Act Rules 163 and 433

Current annual responsesCurrent burden hoursCurrent cost burdenNumber of affected responsesIncrease in company hoursIncrease in professional costsAnnual responsesBurden hoursCost burden
(A)(B)(C)(D)(E)(F)(G) = (A)(H) = (B) + (E)(I) = (C) + (F)
Current BurdenProgram ChangeRequested Change in Burden
163101$72020.125$150121.125$870
43315,7005,024$6,028,8004,2711,367$1,640,00019,9716,391$7,668,800

As summarized above in Table 15, the revised aggregate estimates, including the new amendments, for rule 163 are 1.125 hours, and $870 in external costs. The revised aggregate estimates for rule 433, including the new amendments, are 6,391 hours and $7,669,017 in external costs.

5. Prospectus Delivery Requirements

Rule 173 requires the delivery of a copy of a final prospectus, or in lieu of a final prospectus, a notice to purchasers stating that a sale of securities was made based on a registration statement or in a transaction in which a final prospectus would have been required to have been delivered in the absence of rule 172.[483] We have adopted amendments to rule 173 to remove the exclusion for offerings of affected funds.[484]

We did not receive public comment on our proposed PRA estimates for rule 173. We have revised our estimates regarding the number of funds likely to rely on rule 173, and to reflect updated industry data.[485] Specifically, based on a review of Form N-2 filings made with the Commission, we are revising downward the proposed estimate of the number of affected funds expected to rely on rule 173 as a result of the amendments, and thus incur burdens associated with the rule.

The burden estimates were calculated by multiplying the estimated number of registrants likely to rely on rule 173 by the number of responses per registrant by the estimated time it would take compile the necessary information and data, prepare and review disclosure, file documents and retain records for issuers that choose to rely on rule 173. We assume, similar to operating companies that rely on rule 173, that each affected fund will incur 100% of the burden. The table below illustrates the incremental change to the total annual burden for affected funds as a result of the amendments.

Table 16—Rule 173 (Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting from the Amendments)

Number of estimated affected responsesBurden hour per current affected responseBurden hours for current affected responsesIncrease in professional hours for current affected responsesIncrease in professional costs for current affect responses
(A) 1(B) 2(C) = (A) × (B)
17316,634,5720.0167277,7970$0
Notes:
1. In the Proposing Release we estimated that all 807 affected funds would rely on rule 173. See supra footnote 10 at section V.B.5. However, because only a fund with an effective Securities Act registration statement may rely on rule 173, we are revising our estimates. Based on our staff's review of Form N-2 Securities Act registration statements filed annually between 2017 and 2019, we estimate 382 annual filings, each by a different affected fund. We estimate that each such fund will provide 43,546 responses annually, for a total of 16,634,572 annual responses per year (382 funds × 43,546 responses annually = 16,634,572).
2. The estimated burden hour per response of 0.0167 hours derives from the most recently-approved rule 173 PRA submission (2017).

The following table summarizes the total PRA burden, including the estimated total reporting burdens and costs, for rule 173 as a result of the amendments. As reflected below, the revised aggregate hourly burden associated with rule 173 as a result of the amendments is 4,159,688 internal burden hours, with no external costs.

Table 17—Rule 173 (Requested Paperwork Burden Under the Amendments)

Current annual responsesCurrent burden hoursCurrent cost burdenNumber of affected responsesIncrease in company hoursIncrease in professional costsAnnual responsesBurden hoursCost burden
(A)(B)(C)(D)(E)(F)(A) + (D)(B) + (E)(C) + (F)
Current BurdenProgram ChangeRequested Change in Burden
173232,448,5483,881,891$0+ 16,634,572+ 277,797$0249,083,1204,159,688$0
Start Printed Page 33342

6. Form 24F-2

Rule 24f-2 requires any open-end management company, unit investment trust, or face-amount certificate company deemed to have registered an indefinite amount of securities to file a Form 24F-2 not later than 90 days after the end of any fiscal year in which it has publicly offered such securities. Form 24F-2 is the annual notice of securities sold by these funds that accompanies the payment of registration fees with respect to the securities sold during the fiscal year, net of securities redeemed or repurchased during the year. We are amending rules 23c-3 and 24f-2 so that interval funds will pay registration fees on the same annual basis using Form 24F-2. We are also adopting a requirement that funds submit reports on Form 24F-2 in an XML structured data format.

Table 18—Form 24F-2 PRA Estimates

Internal burdenWage rate 1Cost of internal burdenAnnual external cost burden
Currently Approved Estimates2
Clerical work to file Form 24F-22 hours×$66 (compliance clerk)$132$0
Number of annual responses× 7,284× 7,284× 7,284
Total annual burden14,568 hours*$961,488$0
Proposed Estimates3
Clerical work to file Form 24F-22 hours×$67 (compliance clerk)$134$0
Submission in a structured data format2 hours×$261 (programmer)$522$0
Total annual burden per response4 hours$656$0
Number of annual responses× 6,177× 6,177× 6,177
Total annual burden24,708 hours$4,052,112$0
Final Estimates
Clerical work to file Form 24F-22 hours×$70 (compliance clerk) 4$140$0
Submission in a structured data format2 hours×$271 (programmer) 4$542$0
Total annual burden per response4 hours$682$0
Number of annual responses× 6,79444 × 6,7944 × 6,794
Total annual burden27,176 hours$4,633,508$0
Notes:
1.See supra Table 6, at footnote 2.
2. This estimate was previously submitted to OMB in connection with the renewal of approval for the collection of information required by Form 24F-2 in 2018.
3. Proposing Release, supra footnote 10, at section IV.B.7.
4. Estimate revised to reflect updated data. Based on a review of Form 24F-2 filings for the period 2017-2019, the staff estimates that 6,741 filings will be made annually, and that 53 interval funds (representing the 3-year average of interval funds registered with the Commission) will file Form 24F-2 as a result of the final amendments (6,741 + 53 = 6,794).

Table 18 above summarizes the current PRA estimates, the proposed PRA estimates, and the final PRA estimates associated with the requirement to file reports on Form 24F-2.[486] We did not receive public comment on our proposed estimates, but we have revised them as a result of updated industry data. Specifically, we are revising the estimated wage rates and estimated number of funds that will be subject to the requirements of Form 24F-2 to reflect updated industry data. As summarized in Table 18 above, the revised aggregate estimates for Form 24F-2, including the new amendments, are 27,176 hours, with no external costs.

7. Amendments Permitting the Registration of Offerings of an Indeterminate Number of Exchange-Traded Vehicle Securities and the Payment of Registration Fees for Such Offerings on an Annual Net Basis

The amendments to certain Securities Act rules and to Forms S-1, S-3, F-1 and F-3 will allow issuers of exchange-traded vehicle securities to elect to register offerings of an indeterminate number of such securities and pay registration fees for these offerings on an annual net basis. We estimate that the amendments will increase the paperwork burden for registration statements on Form S-1 and Form S-3 for such offerings due to the requirement to calculate and pay registration fees on an annual net basis within 90 days after the end of the fiscal year.[487] However, because these issuers will have the ability to elect to register offerings of an indeterminate number of such securities, we also estimate that the amendments will result in a decrease in the number of registration statements on these forms filed by these issuers and that, overall, the amendments will reduce the paperwork burdens associated with Form S-1 and Form S-3. The amendments to Forms F-1 and F-3 are not expected to affect the burdens associated with those forms, in that we do not anticipate that any issuers at this time will use Form F-1 or Form F-3 to register offerings of an indeterminate number of exchange-Start Printed Page 33343traded vehicle securities and pay registration fees for these offerings on an annual net basis.

Based on a review of registration statements filed by ETPs for the period 2017-2019, the staff estimates that, after the effectiveness of these amendments, an average of five registration statements on each of Form S-1 and Form S-3 will be filed each year for offerings of an indeterminate number of exchange-traded vehicle securities with the payment of registration fees on an annual net basis.[488] We estimate that the incremental increase in burden for these registration statements will be two hours, consistent with the estimated burden for Form 24F-2. We would expect there to be only a minimal initial burden of establishing a system for calculating fee payments in this manner, in that these issuers already track the issuances and redemptions of their securities on an ongoing basis. When paying registration fees, these issuers will file prospectus supplements under rule 424 and provide disclosures modeled after Form 24F-2. We estimate that, in filing these prospectus supplements in connection with registration statements on Form S-1 or Form S-3, 25% of the burden of preparation is carried by the issuer internally and that 75% of the burden of preparation is carried by outside professionals retained by the issuer at an average cost of $400 per hour.

Table 19—Incremental Paperwork Burden Under the Amendments for Registration Statements

Current burdenEstimated increase in burden for affected responses
Annual reponsesBurden hoursCostsEstimated number of affected responsesBurden hour change per affected responseChange in burden hours for affected responsesChange in company hours for affected responsesChange in professional hours for affected responsesChange in professional costs
(A)(B)(C) = (A) × (B)(D) = (C) × 0.25(E) = (C) × 0.75
S-1901147,208$180,319,97552102.57.5$3,000
S-31,657193,626236,198,03652102.57.53,000

In addition, we estimate that seven fewer Forms S-1 and ten fewer Forms S-3 will be filed by these issuers each year as a result of the ability to register offerings of an indeterminate number of exchange-traded vehicle securities, which could result in lower costs for these issuers through a reduction in the number of registration statements filed by these issuers.

Table 20—Estimated Decrease in Burden as a Result of the Decrease in the Number of Annual Responses

Current burden  Estimated decrease in burden as a result of the decrease in the number of annual responses
Annual reponsesBurden hoursCostsEstimated decrease in the number of annual responsesEstimated decrease in burden hoursEstimated decrease in costs
S-1901147,208$180,319,97571,144$1,400,932
S-31,657193,626236,198,036101,1691,425,456

The following table illustrates the total annual compliance burden, in hours and in costs, of the affected collections of information resulting from the amendments to these forms.

Table 21—Current and Revised Burdens Under the Amendments to Securities Act Registration Statements

Current burdenRevised burden
Burden hoursCostsBurden hoursCosts
(A)(B)(C)(D)
S-1147,208$180,319,975146,067$178,922,043
S-3193,626236,198,036192,460234,775,580
F-126,69232,275,37526,69232,275,375
F-34,4415,703,6004,4415,703,600
Start Printed Page 33344

8. Amendments to Form N-14

Form N-14 is the form used by an affected fund for the registration of securities issued in business combination transactions. The amendments to Form N-14 will decrease the existing disclosure burden of the form by allowing BDCs to incorporate by reference to the same extent as is currently permitted for registered CEFs and eliminating the requirement for affected funds to file with the Form N-14 registration statement the documents that contain the information that is incorporated by reference into the prospectus or SAI.[489]

Table 22—Currently Approved Form N-14 PRA Estimates 1

Internal burdenWage rate 2Cost of internal burdenAnnual external cost burden
Burden per Initial Filing
310 hours×$401 (attorney)$124,310$27,500
Preparing and filing initial filing248 hours×$209 (senior accountant)$51,832
62 hours×$210 (paralegal)$13,020
Total burden per initial filing620 hours$189,162$27,500
Number of annual initial filings× 156× 156× 156
Total annual burden96,720 hours$29,509,272$4,290,000
Burden per Amendment
150 hours×$401 (attorney)$60,150
30 hours×$210 (paralegal)$6,300
Total burden per amendment300 hours$91,530$16,000
Number of annual amendments× 97× 97× 97
Total annual burden29,100 hours$8,878,410$1,552,000
Total Burden
Total initial filing burden96,720 hours$29,509,272$4,290,000
Total amendment burden29,100 hours$8,878,410$1,552,000
Total annual burden125,820 hours$38,387,682$5,842,000
Notes:
1. These estimates were previously submitted to OMB in connection with the renewal of approval for the collection of information required by Form N-2 in 2019.
2.See supra Table 6, at footnote 2.

Table 23—Final Form N-14 PRA Estimates

Internal burdenWage rate 2Cost of internal burdenAnnual external cost burden
Burden per Initial Filing
Current burden for preparing and filing initial filing310 hours 248 hours 62 hours× × ×2 $415 (attorney) 2 $216 (senior accountant) 2 $218 (paralegal)$128,650 $53,568 $13,516$27,500
Burden reduction from incorporation by reference amendments3 (10 hours)×2 $218 (paralegal)$(2,180)$(0)
Total burden per initial filing610 hours$193,554$27,500
Number of annual initial filings×2 156×2 156×2 156
Total annual burden96,160 hours$29,181,672$4,290,000
Burden per Amendment
Current burden for preparing and filing amendments150 hours 120 hours 30 hours× × ×2 $415 (attorney) 2 $216 (senior accountant) 2 $218 (paralegal)$62,250 $25,920 $6,540$16,000
Burden reduction from incorporation by reference amendments3 (10 hours)×2 $218 (paralegal)$(2,180)$(0)
Total burden per amendment290 hours$92,530$16,000
Number of annual amendments2 × 972 × 972 × 97
Total annual burden29,100 hours$8,674,710$1,552,000
Start Printed Page 33345
Total Burden
Total initial filing burden96,160 hours$29,181,672$4,290,000
Total amendment burden29,100 hours8,674,710$1,552,000
Total annual burden125,260 hours$37,856,382$5,842,000
Notes:
1.See supra Table 6, at footnote 2.
2. Estimate revised to reflect updated industry data.
3. Estimate revised to reflect modifications from the proposal.

Table 22 above summarizes the current PRA estimates associated with the requirements of Form N-14. Table 23 summarizes the final PRA amendments associated with Form N-14 as amended. We are revising our estimates as a result of updated industry data and modifications from the proposal. Specifically, we are deducting 10 hours of internal burden per filing to reflect the burden reduction associated with the incorporation by reference amendments affecting filings on Form N-14. In addition, we are revising the estimated wage rates to reflect updated industry data. As summarized in Table 23 above, we estimate that the total hour burdens and time costs associated with Form N-14 will be an aggregate burden of 125,260 hours at an aggregate annual cost of internal burden of $37,856,382. We estimate an aggregate annual external time cost of $5,842,000.

V. Final Regulatory Flexibility Analysis

The Commission has prepared the following Final Regulatory Flexibility Analysis (“FRFA”) in accordance with section 4(a) of the Regulatory Flexibility Act (“RFA”),[490] regarding the final rule modifications to the registration, communications, and offering processes for affected funds under the Securities Act and the rules and forms under the Exchange Act and Investment Company Act, that will allow affected funds to use the securities offering rules that are already available to operating companies. An Initial Regulatory Flexibility Analysis (“IRFA”) was prepared in accordance with the RFA and is included in the Proposing Release.[491]

A. Need and Objectives of the Final Rule

The BDC Act directs us to allow a BDC to use the securities offering rules that are available to other issuers required to file reports under section 13(a) or section 15(d) of the Exchange Act and specifically enumerates the required revisions. Similarly, the Registered CEF Act directs us to allow any listed registered CEF or interval fund to use the securities offering rules that are available to other issuers that are required to file reports under section 13(a) or section 15(d) of the Exchange Act, subject to appropriate conditions.[492] Pursuant to both Acts, the final rule will modify the registration, communications, and offering processes for affected funds to allow them to use the securities offering rules that are available to other issuers required to file reports under section 13(a) or section 15(d) of the Exchange Act. We are also adopting amendments to our rules and forms, to tailor the disclosure and regulatory framework for affected funds, in light of the amendments to the offering rules applicable to them. The reasons for, and objectives of, the final rule are further discussed in more detail in Section II above. The costs and burdens of these requirements on smaller affected funds are discussed below as well as above in our Economic Analysis and Paperwork Reduction Act Analysis, which discusses the costs and burdens of the final rule on all affected funds.

B. Significant Issues Raised by Public Comments

In the Proposing Release, we requested comment on every aspect of the IRFA, including the number of small entities that would be affected by the proposed rule and form amendments, the existence or nature of the potential impact of the proposals on small entities discussed in the analysis, and how to quantify the impact of the proposed amendments. We also requested comment on the proposed compliance burdens and the effect these burdens would have on smaller entities. Although we did not receive comments specifically addressing the IRFA, several commenters stated in their comment letters the impact they believed certain aspects of the proposed amendments would have on small affected funds.[493] Specifically, one commenter stated that the proposed rules would disadvantage smaller affected funds relative to larger affected funds that have obtained WKSI status, because smaller funds that would benefit from the ability to use automatic effective registration statements to quickly come to market during periods when their shares trade at a premium, may miss the opportunity to raise capital that the proposed rules were designed to facilitate. The commenter stated that this disparity was unnecessary because shareholders of smaller funds would not likely be disadvantaged by a lower level of market commentary about those funds as compared to larger funds given the investor protections afforded to those shareholders by the Investment Company Act.[494] Similarly, another commenter stated that the Commission should reconsider the public float requirement in order to encourage new CEF issuances and give smaller CEFs the opportunity to grow through the issuance of additional shares, because the offering size of most of the recent offerings by public CEFs have been relatively small, making them ineligible for treatment as a “seasoned fund” or WKSI.[495] The second commenter stated that forward incorporation by reference, which is allowed when an affected fund has met the requirements to use a short-form registration statement, should be made available to smaller affected funds.[496] However, as discussed below, commenters defined smaller funds as those funds that did not meet the WKSI Start Printed Page 33346public float threshold of $700 million or more for purposes of using an automatic registration statement, or did not meet the seasoned public float threshold of $75 million or more for purposes of forward incorporation by reference.

Another commenter voiced support for the XBRL format proposed for certain filings by affected funds and recommended expanded use of the format for other disclosures.[497] The commenter noted that a study it conducted along with the AICPA in 2014 and again in 2017 evaluating the annual cost of XBRL preparation for small reporting companies had decreased from $10,000 in 2014 to $5,500 in 2017.[498] In citing to the Council of Institutional Investors (CII) July 19, 2018 comment letter in response to the SEC Draft Strategic Plan 2018-2022, the commenter stated that inline XBRL is an improvement to EDGAR functionality and makes disclosure documents more valuable and cost-effective for a broad range of users including market analysts and data vendors that conduct research on smaller companies.[499] In response to the Commission's request for comment regarding whether the current burdens of preparing financial statements and notes in XBRL format have changed over time for small reporting companies, the commenter reiterated that the cost of XBRL preparation has declined 45% for small reporting companies.[500]

After considering the comments we received on the proposed rule and form amendments, we are adopting the amendments, substantially as proposed, with two modifications intended to reduce the operational challenges commenters identified. Specifically, we are expanding the scope of rule 486 to any registered CEF or BDC conducting continuous offerings under rule 415(a)(1)(ix), and we are not adopting our proposed amendments to Form 8-K.[501] However, we do not believe there would be any meaningful reporting, recordkeeping, or other compliance costs associated with these modifications that would impact small entities.

C. Small Entities Subject to the Rule

An investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year.[502] Commission staff estimates that, as of June 2019, 16 BDCs and 33 registered CEFs are small entities.[503]

A broker-dealer is a small entity if it has total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to 17 CFR 240.17a-5(d) (Exchange Act rule 17a-5),[504] and it is not affiliated with any person (other than a natural person) that is not a small business or small organization.[505] Commission staff estimates that, as of June 30, 2019, there are approximately 942 broker-dealers that may be considered small entities.[506] To the extent a small broker-dealer participates in a securities offering or prepares research reports, it may be affected by the final rule. Generally, we believe larger broker-dealers engage in these activities, and we did not receive comments on whether or how the proposed amendments to rule 138 affect small broker-dealers.[507]

The final rule will also affect ETPs, permitting them to register offerings of an indeterminate number of exchange-traded vehicle securities and pay registration fees for such offerings on an annual net basis. For purposes of the RFA, 17 CFR 230.157 (Securities Act rule 157) defines an issuer, other than an investment company, to be a “small business” or “small organization” if it had total assets of $5 million or less on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering of securities not exceeding $5 million.[508] Exchange Act rule 0-10(a) defines an issuer, other than an investment company, to be a “small business” or “small organization” if it had total assets of $5 million or less on the last day of its most recent fiscal year. Commission staff estimates that, as of February 2020, there are approximately 7 ETPs that are issuers, other than an investment company, that may be considered small entities.[509]

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

The final rule will create, amend, or eliminate current requirements for affected funds and broker-dealers, including those that are small entities discussed in section V.C above.[510]

1. Registration Process and Final Prospectus Delivery

The amendments to the registration process for affected funds will create a short-form registration statement on Form N-2 that will function like a registration statement filed on Form S-3.[511] An affected fund eligible to file the short-form registration statement can use it to register shelf offerings, including shelf registration statements (filed by a WKSI) that become effective Start Printed Page 33347automatically.[512] Such a fund also can satisfy Form N-2's disclosure requirement by incorporating by reference information from the fund's Exchange Act reports.[513]

In addition, the final rule will allow certain affected funds eligible to register a primary offering under the adopted short-form registration instruction to rely on rule 430B to omit information from their base prospectuses, and to permit affected funds to use the process operating companies follow to file prospectus supplements.[514] Affected funds that choose to forward incorporate information by reference into their registration statements will also be able to include additional information in their periodic reports that is not required to be included in these reports in order to update their registration statements.[515]

The amendments to the WKSI definition in rule 405 will also permit affected funds to qualify for enhanced offering and communication benefits under our rules.[516] In order for an issuer to qualify as a WKSI, the issuer must meet the registrant requirements of Form S-3, i.e., it must be “seasoned,” and generally must have at least $700 million in public float.[517] Qualifying as a WKSI will allow such funds to file a registration statement or amendment that becomes effective automatically in a broader variety of contexts than non-WKSIs, and to communicate at any time, including through a free writing prospectus, without violating the “gun-jumping” provisions of the Securities Act.[518]

Smaller affected funds will not be able to avail themselves of the aspects of the adopted rule amendments streamlining the registration process for affected funds or that make available the WKSI designation to affected funds. The adopted short-form registration instruction is designed to provide affected funds parity with operating companies by permitting them to use the instruction to register the same transactions that an operating company can register on Form S-3.[519] In order to qualify to use the short-form registration statement under Form N-2, General Instruction A.2 of Form N-2 generally requires an affected fund to meet the public float requirement of $75 million under the transaction requirements for Form S-3.[520] Likewise, the WKSI provision of rule 405 contains a public float requirement of $700 million, as discussed above. Smaller funds will not generally meet the public float thresholds to file a short-form registration statement or qualify as a WKSI and therefore will not generally be subject to either of these amendments.[521] However, smaller affected funds may be affected by these amendments in other ways. For example, smaller affected funds may be more likely to merge to obtain WKSI status, and could experience competitive disadvantages compared to larger funds that qualify as WKSIs or that file short-form registration statements on Form N-2.[522]

The final rule will also apply the delivery method for operating company final prospectuses to offerings of affected funds. As a result, an affected fund, broker, or dealer will be allowed to satisfy the final prospectus delivery obligations if a final prospectus is or will be on file with the Commission within the time required by the rules and other conditions are satisfied.[523] These requirements will apply to all affected funds, as well as all brokers or dealers.[524]

2. Communications Rules

For offerings of smaller affected funds, we are not adopting any new restrictions on communications. As discussed above, the amendments to Securities Act rules 134, 138, 156, 163, 163A, 164, 168, 169, and 433 will make available the use of certain types of communications that were previously not available to affected funds.[525] Except as otherwise discussed below, we believe that there are no significant reporting, recordkeeping, or other compliance requirements associated with these amendments. As such, except as otherwise discussed below, we believe that there are no attendant costs and administrative burdens for small affected funds associated with these amendments.

In addition, the communications rules themselves do not create any new restrictions for smaller affected funds. Instead, smaller affected funds now may be able to take advantage of new communications options not previously afforded to them.[526] We also note that rule 163, and the new amendments, apply only to WKSIs. Consequently, these amendments to rule 163 will not produce any benefit, or create any burden, for small affected funds because they would not qualify as WKSIs, as discussed above.[527]

To the extent that an affected fund uses a free writing prospectus under the adopted rules, any affected fund—large or small—will incur the burden of the requirement to file a free writing prospectus, or retain a record of the free writing prospectus for three years if it was not filed with the Commission.[528] However, we believe that the burden here will be negligible. Affected funds currently use rule 482 of the Securities Act to engage in communications similar to those that will be permitted under the amendments to rule 433, and these funds are required to file their rule 482 communication with either the Commission or, alternatively, with the Financial Industry Regulatory Authority (“FINRA”).[529] The burden associated with the filing requirements that the amendments to rule 433 will entail will therefore not be meaningfully different than the burden associated with the filing requirement for rule 482 communications. Rule 433 also creates a recordkeeping requirement. We do not believe that this requirement will create any significant burden given that records of rule 482 communications must also be retained for a period that Start Printed Page 33348will generally exceed that required under rule 433.[530] In addition, the recordkeeping requirement will apply only to affected funds (both large and small) that elect to use rule 433, as adopted.

The final rule also will affect broker-dealers participating in a registered offering. Specifically, the amended rules will affect: (1) Broker-dealers' publication and distribution of research reports on affected funds; and (2) broker-dealers' use of free writing prospectuses on affected funds.

The amendments to rule 138 will affect both large and small broker-dealers. These amendments will now permit broker-dealers to publish or distribute research reports with respect to a broader class of issuers and securities without this publication or distribution being an offer that otherwise could be a non-conforming prospectus in violation of section 5 of the Securities Act.[531] Broker-dealers that once used rule 482 ads styled as research reports, and instead rely on rule 138, as adopted, to publish or distribute similar communications, will no longer be subject to any filing requirement for these communications. Consequently, we expect that the amendments to rule 138 will result in fewer rule 482 communications being filed with FINRA.[532] This in turn will reduce filing-related administrative costs for broker-dealers publishing or distributing research reports on affected funds under the amendments to rule 138. However, large and smaller broker-dealers will not be affected differently by the amendments to rule 138.

In addition, the free writing prospectus rule amendments will permit broker-dealers to engage in these communications on behalf of the affected fund issuer.[533] This will require broker-dealers, both large and small, to file the free writing prospectuses that they use with the Commission, or maintain records of any free writing prospectuses used if it was not filed with the Commission.[534] However, certain of these broker-dealers are already required to file communications made under rule 482.[535] Broker-dealers that once used rule 482 ads and instead now choose to rely on adopted amended rule 433 to publish or distribute similar communications, will no longer be required to file these communications with FINRA. Consequently, the amendments to rule 433 could result in fewer rule 482 communications being filed with FINRA and a potential increase in filings of free writing prospectuses by affected funds with the Commission.[536] However, those broker-dealers that have not previously used rule 482 to publish or distribute the types of communications that the amendments to rule 433 permit, will newly be subject to both the filing and recordkeeping requirements of rule 433.

3. New Registration Fee Payment Method for Interval Funds

Interval funds, like other affected funds, are not currently permitted to pay registration fees on this same annual “net” basis as mutual funds and ETFs, and pay the registration fee at the time of filing the registration statement.[537] As discussed above, we believe that interval funds will benefit from the ability to pay their registration fees in the same manner as mutual funds and ETFs, and that this approach is appropriate in light of interval funds' operations.[538] In addition, in response to comments to the Proposing Release, we also are adopting amendments to enable ETPs to register an indeterminate number of securities and to pay registration fees in arrears on an annual net basis.[539] As we discussed above, ETPs operate in a manner substantially similar to that of ETFs, and as commenters noted, share similar attributes with interval funds, which we highlighted in extending to interval funds the ability to pay registration fees on an annual net basis, including routine repurchases of shares at NAV and avoiding the possibility of inadvertently selling more shares than it had registered.[540] As a result, the final rule will require interval funds and allow ETPs to pay securities registration fees using the same method that mutual funds and ETFs use.[541] We believe this will benefit small interval funds and ETPs as well as larger interval funds and ETPs equally, and will make the registration fee payment process for all interval funds and ETPs more efficient as discussed above.[542]

4. Disclosure and Reporting Requirements

We also are adopting amendments, substantially as proposed, to our rules and forms that are intended to tailor the disclosure and regulatory framework for affected funds in light of our amendments to the offering rules applicable to them.[543] These amendments include: Structured data requirements; new periodic requirements; amendments to provide affected funds additional flexibility to incorporate information by reference; and enhancements to the disclosures that registered CEFs make to investors when the funds are not updating their registration statements.[544]

Structured Data Requirements

The amendments will require BDCs, like operating companies, to submit financial statement information using Inline XBRL format; to require that affected funds include structured cover page information in their registration statements on Form N-2 using Inline XBRL format; to require that certain information required in an affected fund's prospectus be tagged using Inline XBRL format; [545] and to require that Start Printed Page 33349filings on Form 24F-2 be submitted in XML format.[546] Large and small affected funds will both incur on a proportional basis, the costs associated with these adopted structured data requirements. Furthermore, as noted above, based on our experience implementing the XBRL format, we recognize that some registrants affected by the adopted requirement, particularly filers with no Inline XBRL experience, likely will incur initial costs to acquire the necessary expertise and/or software as well as ongoing costs of tagging required information in Inline XBRL, and the incremental effect of any fixed costs, including ongoing fixed costs, of complying with the Inline XBRL requirement may be greater for smaller filers.[547] However, we believe that smaller affected funds in particular may benefit more from enhanced exposure to investors that could result from these adopted requirements.[548] If reporting the disclosures in a structured format increases the availability of, or reduces the cost of collecting and analyzing, key information about affected funds, smaller affected funds may benefit from improved coverage by third-party information providers and data aggregators.

Periodic Reporting Requirements

The final rule also will require registered CEFs to provide the MDFP in their annual reports to shareholders, BDCs to provide financial highlights in their registration statements and annual reports, and affected funds filing a short-form registration statement on Form N-2 to disclose material unresolved staff comments.[549] These requirements are intended to modernize and harmonize our periodic reporting disclosure requirements for affected funds with those applicable to operating companies and mutual funds and ETFs.

The final rule requirement for registered CEFs to include an MDFP section in the annual report and for BDCs to provide financial highlights in their registration statement and annual reports will apply to all applicable affected funds, large and small. We do not believe it would be appropriate to treat large and small entities differently for purposes of the MDFP requirement because such disclosures helps investors assess fund performance over the prior year and complements other information in the report, which may make the annual report disclosure more understandable as a whole.[550] Such investor protection benefits are equally significant to investors in smaller affected funds as well as larger affected funds.[551]

For similar reasons, we believe that the informational benefit of BDCs' inclusion of the financial highlights in their registration statements should apply equally to investors in large and small BDCs. We also believe the costs associated with this adopted requirement should be minimal for both large and small BDCs, since we understand that it is general market practice for BDCs to include this information in their registration statements.[552]

Finally, the final rule will require affected funds that file a short-form registration statement on Form N-2 to disclose material unresolved staff comments. Such a requirement will apply only to those entities that qualify for the short-form registration statement, which generally would not include smaller affected funds.[553]

Online Availability of Information Incorporated by Reference

The final rule will modernize Form N-2's requirements for backward incorporation by reference by all affected funds. Affected funds will no longer be required to deliver to new investors information that they have incorporated by reference.[554] Instead, we are adopting new requirements that these funds make the incorporated materials and corresponding prospectus and SAI readily available and accessible on a website maintained by or for the fund and identified in the fund's prospectus or SAI.[555] We do not believe this requirement will generate significant compliance costs for affected funds because many funds currently post their annual and semi-annual reports and other fund information on their websites.[556] Nor do we think it would be appropriate to treat large and small entities differently for these purposes. The adopted requirement will make the incorporated information, prospectus, and SAI more accessible to retail investors, who we believe may be more inclined to look at a fund's website for information than to search the EDGAR system.[557] The final rule also will increase the likelihood that fund investors view the information in their preferred format, and thereby increase their use of the information to make investment decisions.[558] We believe that these investor protection benefits should be available equally for investors in smaller and larger affected funds.

Enhancements to Certain Registered CEFs' Annual Report Disclosure

Finally, the amendments to rule 8b-16(b) under the Investment Company Act will require a fund relying on that rule to describe in its annual report the fund's current investment objectives, policies, and principal risks.[559] The amendments also will require a fund to describe in its annual report certain key changes that occurred during the relevant year in enough detail to allow investors to understand each change and how it may affect the fund, and to preface such disclosures with a legend.[560] The amendments to rule 8b-16(b) will only affect that portion of registered CEFs that rely on the rule.[561] We do not think it would be appropriate to treat large and small entities differently for purposes of the amendments to rule 8b-16(b), as this new requirement will allow investors in funds relying on the rule to more easily identify and understand key information about their investments.[562] We believe that this investor protection benefit should be available equally for investors in smaller and larger affected funds. In addition, the adopted new requirement will likely add only a small incremental compliance burden because funds relying on rule 8b-16(b) are already required to disclose the enumerated changes.[563] The amendments described in section II.I above will apply to affected funds that are small entities as well as other affected funds unless noted otherwise.[564]

Start Printed Page 33350

5. Automatic or Immediate Effectiveness for Filings by Affected Funds Conducting Certain Continuous Offerings

As we discussed above, the amendments we are adopting to rule 486 will permit any registered CEF or BDC that conducts continuous offerings under rule 415(a)(1)(ix), including unlisted continuously-offered affected funds such as tender offer funds, to rely on rule 486.[565] Our amendment to rule 486 will allow such funds to file post-effective amendments and registration statements that become effective immediately upon filing or automatically effective 60 days after filing, depending on the substance of the disclosure changes.[566] In doing so, we believe that such funds will be able to more efficiently update their financial statements under section 10(a)(3) of the Securities Act to maintain effective registration statements while they engage in continuous offerings.[567]

These amendments will benefit both large and small continuously-offered unlisted affected funds, and we believe that they provide benefits similar to the benefits the adopted rule offers affected funds that will file short-form registration statements or qualify as WKSIs.[568] Because the amended rule applies only to those affected funds that conduct continuous offerings under rule 415(a)(1)(ix), we expect this subset of affected funds to be limited.[569] In addition, although reliance on rule 486 is voluntary for continuously-offered affected funds who are newly permitted to rely on the rule, we expect many will rely on it due to the cost efficiencies sustained from a regime providing immediate or automatic effectiveness for post-effective amendments and certain registration statements. Notwithstanding this increased use, and because it will provide greater efficiencies, we do not believe the final rule will create any new meaningful reporting, recordkeeping, or other compliance costs in relation to how affected funds currently file post-effective amendments or registration statements. In addition, immediate or automatic effectiveness would permit smaller funds the ability to engage in offerings that meet investor demand, on a timely basis, for such offerings.

E. Agency Action To Minimize Effect on Small Entities

The RFA directs the Commission to consider significant alternatives that would accomplish our stated objective, while minimizing any significant economic impact on small entities. Although the BDC Act and Registered CEF Act required certain amendments to our rules and forms, we could have, for example, made additional modifications to the relevant provisions with respect to affected funds that are small entities. Alternatively, we also could have limited the scope to BDCs (as the BDC Act specified) and to interval funds and listed registered CEFs (as the Registered CEF Act specified), which would have excluded from the scope of the adopted rules certain small entities that are registered CEFs but that are not interval funds or listed registered CEFs.[570] Where our final rules reflect an exercise of discretion, we considered the following alternatives for small entities in relation to our amendments:

  • Exempting affected funds that are small entities from the adopted disclosure, reporting, or recordkeeping requirements, to account for resources available to small entities;
  • Establishing different compliance or reporting requirements or frequency to account for resources available to small entities;
  • Clarifying, consolidating, or simplifying the compliance requirements under the amendments for small entities; and
  • Using performance rather than design standards.

1. Alternatives to the Adopted Approach to Implementing Statutory Mandates

In accordance with the BDC Act and Registered CEF Act, to the final rule modifies the restrictions regarding offerings and communications permitted around the time of a Securities Act registered offering. The flexibility provided by our amendments will be greatest for larger and seasoned affected funds, but will also provide greater flexibility to all affected funds and broker-dealers, including small entities.

We considered modifying the public float standards in the WKSI definition or the short-form registration instruction by reducing the required level of public float or providing alternative eligibility criteria, such as an aggregate NAV of a certain size for funds whose shares are not traded on an exchange or through the use of “performance” rather than “design” standards.[571] These alternatives would have allowed more affected funds, potentially including small entities, to qualify as WKSIs or file short-form registration statements. However, we believe that modifying the eligibility criteria in the WKSI definition or the short-form registration instruction could weaken the investor protection benefits provided by those criteria.

We also considered extending the adopted rule amendments only to BDCs, listed registered CEFs, and interval funds.[572] However, excluding unlisted registered CEFs from the adopted rule amendments will create unnecessary competitive disparities between unlisted registered CEFs (which will potentially include smaller funds) and unlisted BDCs and will not provide investors in unlisted registered CEFs with the benefits of the new investor protections we are adopting.[573]

2. Alternative Approaches to Discretionary Choices

New Registration Fee Payment Method for Interval Funds

We considered, but are not adopting, provisions allowing a wider range of affected funds, such as registered CEFs that are tender offer funds, to rely on rule 24f-2.[574] To the extent that this alternative would have brought in additional small affected funds, it could have extended the benefits of this fee payment method to additional small entities. However, we did not adopt this alternative approach because interval funds and ETPs have structural similarities to mutual funds and ETFs that other affected funds do not.[575]

Structured Data Requirements

As an alternative, we could have adopted amendments requiring the Inline XBRL requirements only for a subset of affected funds—for example, affected funds that file short-form registration statements on Form N-2 or WKSIs.[576] This would have lessened the burden associated with the structured data requirements on smaller affected funds. However, a structured data program that captures only a subset of affected funds would reduce potential data quality benefits compared to mandatory Inline XBRL requirements Start Printed Page 33351for all affected funds.[577] This in turn would reduce data users' ability to meaningfully analyze, aggregate, and compare data.

However, we are adopting an extended compliance period for the new XBRL reporting requirements we adopted for affected funds that are not eligible to file a short-form registration statement. This extended compliance period—which will apply to affected funds that do not meet the transaction requirement to qualify to file a short-form registration statement on Form N-2 (i.e., generally those affected funds with a public float of $75 million), and which encompasses the small entities subject to the adopted rule amendments discussed above—should enable small entities to defer the burden of additional cost associated with the adopted XBRL requirements and learn from affected funds that comply earlier.

Periodic Reporting Requirements and Online Availability of Information Incorporated by Reference

We also considered a partial or complete exemption from the adopted periodic reporting requirements, and for the adopted requirements to make information incorporated by reference available on a website, for small entities.[578] With respect to the periodic reporting requirements, small entities that are not affected funds currently follow the same requirements that large entities do when filing periodic reports, and we believe that establishing different reporting requirements or frequency for small entities that are affected funds would not be consistent with the Commission's goal of investor protection and industry oversight. For example, we could have adopted amendments to require smaller affected funds to include in their annual reports less information from their registration statements. While requiring less information would reduce costs to smaller affected funds by reducing the amount of required annual report disclosure, it could also make it more difficult for investors in these funds to find important fund information. Similarly, we believe that the investor protection benefits associated with the other adopted periodic reporting requirements that apply to large and small affected funds—for example, the MDFP requirement for registered CEFs and the inclusion of BDCs' financial highlights in their registration statement—should apply equally to investors in large and small affected funds.[579] We also believe that the investor protection benefits stemming from the adopted requirement to make materials incorporated by reference available on a website should be available equally for investors in smaller and larger affected funds, and therefore this adopted rule applies equally to large and small affected funds.[580]

VI. Other Matters

Pursuant to the Congressional Review Act,[581] the Office of Information and Regulatory Affairs has designated this rule a “major rule,” as defined by 5 U.S.C. 804(2). If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application.

VII. Statutory Authority

The amendments contained in this release are being adopted under the authority set forth in the Securities Act, particularly sections 6, 7, 8, 10, 19, and 28 thereof [15 U.S.C. 77a et seq.]; the Exchange Act, particularly sections 3, 4, 10, 12, 13, 14, 15, 17, 23, 35A, and 36 thereof [15 U.S.C. 78a et seq.]; the Investment Company Act, particularly sections 6, 8, 20, 23, 24, 30, 31, and 38 thereof [15 U.S.C. 80a et seq.]; the BDC Act, particularly section 803(b) thereof [Pub. L. 115-141, div. S, title VIII, 132 Stat. 348 (2018)]; and the Registered CEF Act, particularly section 509(a) thereof [Pub. L. 115-174, title V, 132 Stat. 1296 (2018)].

Start List of Subjects

List of Subjects

17 CFR Part 229

  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 230

  • Advertising
  • Confidential business information
  • Investment Companies
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 232

  • Administrative practice and procedure
  • Confidential business information
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 239

  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 240

  • Brokers
  • Confidential business information
  • Fraud
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 243

  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 249

  • Brokers
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 270

  • Confidential business information
  • Fraud
  • Investment companies
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 274

  • Investment companies
  • Reporting and recordkeeping requirements
  • Securities
End List of Subjects

Text of Rule and Form Amendments

For reasons set forth in the preamble, we are amending title 17, chapter II of the Code of Federal Regulations as follows:

Start Part

PART 229—STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975—REGULATION S-K

End Part Start Amendment Part

1. The authority citation for part 229 continues to read as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012).

End Authority Start Amendment Part

2. Amend § 229.601 by revising paragraphs (b)(101)(i) introductory text, (b)(101)(i)(C), (b)(101)(ii)(A), and (b)(101)(iii) to read as follows:

End Amendment Part
(Item 601) Exhibits.
* * * * *

(b) * * *

(101) * * *

(i) Required to be submitted. Required to be submitted to the Commission in the manner provided by § 232.405 of this chapter if the registrant is not registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), except that an Interactive Data File:

* * * * *

(C) Is required for a Form 8-K (§ 249.308 of this chapter):Start Printed Page 33352

(1) Only when the Form 8-K contains audited annual financial statements that are a revised version of financial statements that previously were filed with the Commission and that have been revised pursuant to applicable accounting standards to reflect the effects of certain subsequent events, including a discontinued operation, a change in reportable segments or a change in accounting principle. In such case, the Interactive Data File will be required only as to such revised financial statements regardless of whether the Form 8-K contains other financial statements; and

(2) Except that a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)) also is required to submit an Interactive Data File to the extent required by § 232.405(b)(3)(iii) of this chapter.

(ii) * * *

(A) Registrant is not registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); and

* * * * *

(iii) Not permitted to be submitted. Not permitted to be submitted to the Commission if the registrant is registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).

* * * * *
Start Part

PART 230—GENERAL RULES and REGULATIONS, SECURITIES ACT OF 1933

End Part Start Amendment Part

3. The authority citation for part 230 continues to read, in part, as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78 l, 78m, 78n, 78o, 78o-7 note, 78t, 78w, 78 ll (d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless otherwise noted.

End Authority
* * * * *

Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).

Sec. 230.457 also issued under secs. 6 and 7, 15 U.S.C. 77f and 77g.

* * * * *
Start Amendment Part

4. Amend § 230.134 by revising paragraph (g) to read as follows:

End Amendment Part
Communications not deemed a prospectus.
* * * * *

(g) This section does not apply to a communication relating to an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

Start Amendment Part

5. Amend § 230.138 by:

End Amendment Part Start Amendment Part

a. Removing Instruction to paragraph (a)(1);

End Amendment Part Start Amendment Part

b. Adding paragraph (a)(1)(iii); and

End Amendment Part Start Amendment Part

c. Revising paragraph (a)(2)(i).

End Amendment Part

The addition and revision read as follows:

Publications or distributions of research reports by brokers or dealers about securities other than those they are distributing.

(a) * * *

(1) * * *

(iii) Note: If the issuer has filed a shelf registration statement under § 230.415(a)(1)(x) (Rule 415(a)(1)(x)) or pursuant to General Instruction I.D. of Form S-3, General Instruction I.C. of Form F-3 (§ 239.13 or § 239.33 of this chapter), or pursuant to General Instructions A.2 and B of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) with respect to multiple classes of securities, the conditions of paragraph (a)(1) of this section must be satisfied for the offering in which the broker or dealer is participating or will participate.

(2) * * *

(i)(A) Is required to file reports, and has filed all periodic reports required during the preceding 12 months (or such shorter time that the issuer was required to file such reports) on Forms 10-K (§ 249.310 of this chapter), 10-Q (§ 249.308a of this chapter), and 20-F (§ 249.220f of this chapter) pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); or

(B)(1) Is a registered closed-end investment company; and

(2) Is required to file reports, and has filed all periodic reports required during the preceding 12 months (or such shorter time that the issuer was required to file such reports) on Forms N-CSR (§§ 249.331 and 274.128 of this chapter), N-PORT (§ 274.150 of this chapter), and N-CEN (§§ 249.330 and 274.101 of this chapter) pursuant to Section 30 of the Investment Company Act; or

* * * * *
Start Amendment Part

6. Amend § 230.156 by adding paragraph (d) to read as follows:

End Amendment Part
Investment company sales literature.
* * * * *

(d) Nothing in this section may be construed to prevent a business development company or a registered closed-end investment company from qualifying for an exemption under § 230.168 or § 230.169.

Start Amendment Part

7. Amend § 230.163 by:

End Amendment Part Start Amendment Part

a. In paragraph (b)(3)(i):

End Amendment Part Start Amendment Part

i. Removing “Rule 165 (§ 230.165) or Rule 166 (§ 230.166)” and adding “§ 230.165 (Rule 165) or § 230.166 (Rule 166)” in its place; and

End Amendment Part Start Amendment Part

ii. Adding “or” after the semicolon at the end of the paragraph;

End Amendment Part Start Amendment Part

b. Revising paragraph (b)(3)(ii); and

End Amendment Part Start Amendment Part

c. Removing paragraph (b)(3)(iii).

End Amendment Part

The revision reads as follows:

Exemption from section 5(c) of the Act for certain communications by or on behalf of well-known seasoned issuers.
* * * * *

(b) * * *

(3) * * *

(ii) Communications by an issuer that is an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

* * * * *
Start Amendment Part

8. Amend § 230.163A by revising paragraph (b)(4) to read as follows:

End Amendment Part
Exemption from section 5(c) of the Act for certain communications made by or on behalf of issuers more than 30 days before a registration statement is filed.
* * * * *

(b) * * *

(4) Communications made by an issuer that is an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

* * * * *
Start Amendment Part

9. Amend § 230.164 by revising paragraph (f) to read as follows:

End Amendment Part
Post-filing free writing prospectuses in connection with certain registered offerings.
* * * * *

(f) Excluded issuers. This section and Rule 433 are not available if the issuer is an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

* * * * *
Start Amendment Part

10. Amend § 230.168 by revising paragraphs (b)(1) introductory text, (b)(2) introductory text, and (d)(3) to read as follows:

End Amendment Part
Exemption from sections 2(a)(10) and 5(c) of the Act for certain communications of regularly released factual business information and forward-looking information.
* * * * *

(b) * * *

(1) Factual business information means some or all of the following Start Printed Page 33353information that is released or disseminated under the conditions in paragraph (d) of this section, including, without limitation, such factual business information contained in reports or other materials filed with, furnished to, or submitted to the Commission pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.):

* * * * *

(2) Forward-looking information means some or all of the following information that is released or disseminated under the conditions in paragraph (d) of this section, including, without limitation, such forward-looking information contained in reports or other materials filed with, furnished to, or submitted to the Commission pursuant to the Securities Exchange Act of 1934 or pursuant to the Investment Company Act of 1940:

* * * * *

(d) * * *

(3) The issuer is not an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

Start Amendment Part

11. Amend § 230.169 by revising paragraph (d)(4) to read as follows:

End Amendment Part
Exemption from sections 2(a)(10) and 5(c) of the Act for certain communications of regularly released factual business information.
* * * * *

(d) * * *

(4) The issuer is not an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

Start Amendment Part

12. Amend § 230.172 by:

End Amendment Part Start Amendment Part

a. Revising paragraph (d)(1);

End Amendment Part Start Amendment Part

b. Removing paragraph (d)(2);

End Amendment Part Start Amendment Part

c. Redesignating paragraphs (d)(3) and (4) as paragraphs (d)(2) and (3); and

End Amendment Part Start Amendment Part

d. In newly redesignated paragraph (d)(2), removing “Rule 165(f)(1) (§ 230.165(f)(1)” and adding “§ 230.165(f)(1) (Rule 165(f)(1))” in its place.

End Amendment Part

The revision reads as follows:

Delivery of prospectuses.
* * * * *

(d) * * *

(1) Offering of any investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company;

* * * * *
Start Amendment Part

13. Amend § 230.173 by:

End Amendment Part Start Amendment Part

a. Revising paragraph (f)(2);

End Amendment Part Start Amendment Part

b. Removing paragraph (f)(3);

End Amendment Part Start Amendment Part

c. Redesignating paragraphs (f)(4) and (5) as paragraphs (f)(3) and (4); and

End Amendment Part Start Amendment Part

d. In newly redesignated paragraph (f)(3), removing “Rule 165(f)(1) (§ 230.165(f)(1))” and adding “§ 230.165(f)(1) (Rule 165(f)(1))” in its place.

End Amendment Part

The revision reads as follows:

Notice of registration.
* * * * *

(f) * * *

(2) Offering of an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company;

* * * * *
Start Amendment Part

14. Amend § 230.405 by:

End Amendment Part Start Amendment Part

a. Revising the definition of “Automatic shelf registration statement”;

End Amendment Part Start Amendment Part

b. Adding the definition for “Exchange-traded vehicle security” in alphabetical order;

End Amendment Part Start Amendment Part

c. In the definition of “Ineligible issuer”:

End Amendment Part Start Amendment Part

i. Revising paragraph (1)(i);

End Amendment Part Start Amendment Part

ii. In paragraph (1)(vii), removing the word “or” at the end of the paragraph;

End Amendment Part Start Amendment Part

iii. In paragraph (1)(viii), removing the period and adding in its place “; or”; and

End Amendment Part Start Amendment Part

iv. Adding paragraph (1)(ix);

End Amendment Part Start Amendment Part

d. Adding the definition for “Registered closed-end investment company” in alphabetical order; and

End Amendment Part Start Amendment Part

e. In the definition “Well-known seasoned issuer”, revising paragraphs (1)(i) introductory text, (1)(i)(B)( 2), (1)(v), and (2)(iii).

End Amendment Part

The additions and revisions read as follows:

Definitions of terms.
* * * * *

Automatic shelf registration statement. The term automatic shelf registration statement means a registration statement filed on Form S-3, Form F-3, or Form N-2 (§ 239.13, § 239.33, or §§ 239.14 and 274.11a-1 of this chapter) by a well-known seasoned issuer pursuant to General Instruction I.D. of Form S-3, General Instruction I.C. of Form F-3, or General Instruction B of Form N-2.

* * * * *

Exchange-traded vehicle security. The term exchange-traded vehicle security means a security:

(1) Of an issuer:

(i) That is not a registered investment company under the Investment Company Act of 1940; and

(ii) The assets of which consist primarily of commodities, currencies, or derivative instruments that reference commodities or currencies, or interests in the foregoing;

(2) Offered or sold in a registered offering on a continuous basis pursuant to § 230.415 (Rule 415) by or on behalf of the issuer;

(3) Of a class of securities that is listed for trading on a national securities exchange at or immediately after the time of effectiveness of the registration statement; and

(4) Which is able to be purchased or redeemed, subject to conditions or limitations as described in the registration statement for the offering of such security, by the issuer for a ratable share of the issuer's assets (or the cash equivalent thereof) at their net asset value each business day.

* * * * *

Ineligible issuer. (1) * * *

(i) Any issuer that is required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) or section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29) that has not filed all reports and other materials required to be filed during the preceding 12 months (or for such shorter period that the issuer was required to file such reports pursuant to sections 13 or 15(d) of the Securities Exchange Act of 1934 or section 30 of the Investment Company Act of 1940), other than reports on Form 8-K (§ 249.308 of this chapter) required solely pursuant to an item specified in General Instruction I.A.3(b) of Form S-3 (§ 239.13 of this chapter) or General Instruction A.2.a of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) (or in the case of an asset-backed issuer, to the extent the depositor or any issuing entity previously established, directly or indirectly, by the depositor (as such terms are defined in § 229.1101 of this chapter (Item 1101 of Regulation AB) are or were at any time during the preceding 12 calendar months required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 with respect to a class of asset-backed securities involving the same asset class, such depositor and each such issuing entity must have filed all reports and other material required to be filed for such period (or such shorter period that each such entity was required to file such reports), other than reports on Form 8-K required solely pursuant to an item specified in General Instruction I.A.2 of Form SF-3);

* * * * *

(ix) In the case of an issuer that is a registered closed-end investment Start Printed Page 33354company or a business development company, within the past three years any person or entity that at the time was an investment adviser to the issuer, including any sub-adviser, was made the subject of any judicial or administrative decree or order arising out of a governmental action that determines that the investment adviser aided, abetted or caused the issuer to have violated the anti-fraud provisions of the Federal securities laws.

* * * * *

Registered closed-end investment company. The term registered closed-end investment company means a closed-end company, as defined in section 5(a)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-5(a)(2)), that is registered under the Investment Company Act.

* * * * *

Well-known seasoned issuer. * * *

(1)(i) Meets all the registrant requirements of General Instruction I.A. of Form S-3 or Form F-3 (§ 239.13 or § 239.33 of this chapter), or General Instructions A.2.a and A.2.b of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) and either:

* * * * *

(B) * * *

(2) Will register only non-convertible securities, other than common equity, and full and unconditional guarantees permitted pursuant to paragraph (1)(ii) of this definition unless, at the determination date, the issuer also is eligible to register a primary offering of its securities relying on General Instruction I.B.1. of Form S-3 or Form F-3 or is eligible to register a primary offering described in General Instruction I.B.1. of Form S-3 relying on General Instruction A.2 of Form N-2.

* * * * *

(v) Is not an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a registered closed-end investment company.

(2) * * *

(iii) In the event that the issuer has not filed a shelf registration statement or amended a shelf registration statement for purposes of complying with section 10(a)(3) of the Act for sixteen months, the time of filing of the issuer's most recent annual report on Form 10-K (§ 249.310 of this chapter), Form 20-F (§ 249.220f of this chapter), or Form N-CSR (§§ 249.331 and 274.128 of this chapter) (or if such report has not been filed by its due date, such due date).

* * * * *
Start Amendment Part

15. Amend § 230.415 by revising paragraphs (a)(1)(x) and (xi), adding paragraph (a)(1)(xiii), and revising paragraph (a)(2) to read as follows:

End Amendment Part
Delayed or continuous offering and sale of securities.

(a) * * *

(1) * * *

(x) Securities registered (or qualified to be registered) on Form S-3 or Form F-3 (§ 239.13 or § 239.33 of this chapter), or on Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) pursuant to General Instruction A.2 of that form, which are to be offered and sold on an immediate, continuous or delayed basis by or on behalf of the registrant, a majority-owned subsidiary of the registrant or a person of which the registrant is a majority-owned subsidiary; or

(xi) Shares of common stock which are to be offered and sold on a delayed or continuous basis by or on behalf of a registered closed-end investment company or business development company that makes periodic repurchase offers pursuant to § 270.23c-3 of this chapter.

* * * * *

(xiii) Exchange-traded vehicle securities which are to be offered and sold on a continuous basis by or on behalf of the registrant in accordance with § 230.456(d) (Rule 456(d)).

(2) Securities in paragraphs (a)(1)(viii) and (ix) of this section that are not registered on Form S-3 or Form F-3 (§ 239.13 or § 239.33 of this chapter), or on Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) pursuant to General Instruction A.2 of that form, may only be registered in an amount which, at the time the registration statement becomes effective, is reasonably expected to be offered and sold within two years from the initial effective date of the registration.

* * * * *
Start Amendment Part

16. Amend § 230.418 by revising paragraph (a)(3) introductory text to read as follows:

End Amendment Part
Supplemental information.

(a) * * *

(3) Except in the case of a registrant eligible to use Form S-3 (§ 239.13 of this chapter), or Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) under General Instruction A.2 of that form, any engineering, management or similar reports or memoranda relating to broad aspects of the business, operations or products of the registrant, which have been prepared within the past twelve months for or by the registrant and any affiliate of the registrant or any principal underwriter, as defined in § 230.405 (Rule 405), of the securities being registered except for:

* * * * *
Start Amendment Part

17. Amend § 230.424 by revising paragraph (f) and adding paragraph (i) to read as follows:

End Amendment Part
Filing of prospectuses, number of copies.
* * * * *

(f) This section shall not apply with respect to prospectuses of an investment company registered under the Investment Company Act of 1940, other than a registered closed-end investment company. References to “form of prospectus” in paragraphs (a), (b), and (c) of this section shall be deemed also to refer to the form of Statement of Additional Information.

* * * * *

(i)(1) A form of prospectus filed pursuant to this section that operates to reflect the payment of filing fees for an offering of an indeterminate amount of exchange-traded vehicle securities pursuant to §§ 230.456(d) and 230.457(u) (Rule 456(d) and Rule 457(u)) shall be filed with the Commission within the time period set forth in Rule 456(d). The form of prospectus must be accompanied by the appropriate registration fee.

(2) The form of prospectus must include the following information:

(i) The name and address of issuer;

(ii) The name of the securities for which the prospectus is filed;

(iii) The Securities Act file number(s) of the registration statement(s) associated with the offering;

(iv) The last day of the fiscal year for the issuer for which the prospectus is filed;

(v) The calculation of registration fee information calculated pursuant to Rule 457(u); and

(vi) The total interest due pursuant to Rule 456(d)(5) and the total amount of registration fee due including any such interest, if the prospectus is being filed more than 90 days after the end of the issuer's fiscal year.

Start Amendment Part

18. Amend § 230.430A by revising paragraph (a)(2) to read as follows:

End Amendment Part
Prospectus in a registration statement at the time of effectiveness.

(a) * * *

(2) The registrant furnishes the undertakings required by § 229.512(i) of this chapter (Item 512(i) of Regulation S-K), or the undertakings required by Item 34.4 of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter); and

* * * * *
Start Amendment Part

19. Amend § 230.430B by revising paragraphs (b) introductory text, (f)(4) Start Printed Page 33355introductory text, (f)(4)(ii), and (i) to read as follows:

End Amendment Part
Prospectus in a registration statement after effective date.
* * * * *

(b) A form of prospectus filed as part of a registration statement for offerings pursuant to Rule 415(a)(1)(i) by an issuer eligible to use Form S-3 or Form F-3 (§ 239.13 or § 239.33 of this chapter) for primary offerings pursuant to General Instruction I.B.1 of such forms, or an issuer eligible to register such a primary offering under General Instruction A.2 of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), may omit the information specified in paragraph (a) of this section, and may also omit the identities of selling security holders and amounts of securities to be registered on their behalf if:

* * * * *

(f) * * *

(4) Except for an effective date resulting from the filing of a form of prospectus filed for purposes of including information required by section 10(a)(3) of the Act or pursuant to § 229.512(a)(1)(ii) of this chapter (Item 512(a)(1)(ii) of Regulation S-K) or Item 34.3.a(2) of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), the date a form of prospectus is deemed part of and included in the registration statement pursuant to this paragraph (f)(4) shall not be an effective date established pursuant to paragraph (f)(2) of this section as to:

* * * * *

(ii) Any person signing any report or document incorporated by reference into the registration statement, except for such a report or document incorporated by reference for purposes of including information required by section 10(a)(3) of the Act or pursuant to Item 512(a)(1)(ii) of Regulation S-K or Item 34.3.a(2) of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) (such person except for such reports being deemed not to be a person who signed the registration statement within the meaning of section 11(a) of the Act).

* * * * *

(i) Issuers relying on this section shall furnish the undertakings required by Item 512(a) of Regulation S-K or Item 34.3 of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) as applicable.

Start Amendment Part

20. Amend § 230.433 by revising paragraphs (b)(1)(i) and (iv) and (c)(1)(ii) to read as follows:

End Amendment Part
Conditions to permissible post-filing free writing prospectuses.
* * * * *

(b) * * *

(1) * * *

(i) Offerings of securities registered on Form S-3 (§ 239.33 of this chapter) pursuant to General Instruction I.B.1, I.B.2, I.C., or I.D. thereof or on Form SF-3 (§ 239.45 of this chapter) or on Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) pursuant to General Instruction A.2 with respect to the same transactions;

* * * * *

(iv) Any other offering not excluded from reliance on this section and Rule 164 of securities of an issuer eligible to use Form S-3 or Form F-3 for primary offerings pursuant to General Instruction I.B.1 of such Forms or an issuer eligible to use General Instruction A.2 of Form N-2 to register a primary offering described in General Instruction I.B.1 of Form S-3.

* * * * *

(c) * * *

(1) * * *

(ii) Information contained in the issuer's periodic and current reports filed or furnished to the Commission pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) that are incorporated by reference into the registration statement and not superseded or modified, or pursuant to section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29).

* * * * *
Start Amendment Part

21. Effective August 1, 2021, amend § 230.456 by adding paragraph (d) to read as follows:

End Amendment Part
Date of filing; timing of fee payment.
* * * * *

(d)(1) Notwithstanding paragraph (a) of this section, where a registration statement relates to an offering of exchange-traded vehicle securities, an issuer may elect to register an offering of an indeterminate amount of such securities if it meets the following conditions:

(i) The issuer must state in the “Calculation of Registration Fee” table that it is offering an indeterminate amount of such securities; and

(ii) The issuer must, not later than 90 days after the end of any fiscal year during which it has publicly offered such securities, pay a registration fee to the Commission calculated in accordance with § 230.457(u) (Rule 457(u)) and file a prospectus in accordance with § 230.424(i) (Rule 424(i)).

Instruction 1 to paragraph (d)(1)(ii): To determine the date on which the registration fee must be paid, the first day of the 90-day period is the first calendar day of the fiscal year following the fiscal year for which the registration fee is to be paid. If the last day of the 90-day period falls on a Saturday, Sunday, or Federal holiday, the registration fee is due on the first business day thereafter.

(2) If a registrant elects to register an offering of an indeterminate amount of exchange-traded vehicle securities pursuant to paragraph (d)(1) of this section, the securities sold will be considered registered, for purposes of section 6(a) of the Act, if the registration fee has been paid and a prospectus is filed pursuant to paragraph (d)(1) not later than the end of the 90-day period.

(3) A registration statement filed relying on the registration fee payment provisions of paragraph (d)(1) of this section will be considered filed as to the securities identified in the registration statement for purposes of this section and section 5 of the Act when it is received by the Commission, if it complies with all other requirements under the Act, including this part.

(4) For purposes of this section, if an issuer ceases operations, the date the issuer ceases operations will be deemed to be the end of its fiscal year. In the case of a liquidation, merger, or sale of all or substantially all of the assets (“merger”) of the issuer, the issuer will be deemed to have ceased operations for the purposes of this section on the date the merger is consummated; provided, however, that in the case of a merger of an issuer or a series of an issuer (“Predecessor Issuer”) with another issuer or a series of an issuer (“Successor Issuer”), the Predecessor Issuer will not be deemed to have ceased operations and the Successor Issuer will assume the obligations, fees, and redemption credits of the Predecessor Issuer incurred pursuant to this section if the Successor Issuer:

(i) Had no assets or liabilities, other than nominal assets or liabilities, and no operating history immediately prior to the merger;

(ii) Acquired substantially all of the assets and assumed substantially all of the liabilities and obligations of the Predecessor Issuer; and

(iii) The merger is not designed to result in the Predecessor Issuer merging with, or substantially all of its assets being acquired by, an issuer (or a series of an issuer) that would not meet the conditions of paragraph (d)(4)(i) of this section.

(5) An issuer paying the fee required by paragraph (d)(1) of this section or any portion thereof more than 90 days after the end of the fiscal year of the issuer shall pay to the Commission interest on Start Printed Page 33356unpaid amounts, calculated based on the interest rate in effect at the time of the interest payment by reference to the “current value of funds rate” on the Treasury Department's Financial Management Service internet site at http://www.fms.treas.gov, or by calling (202) 874-6995, and using the following formula: I = (X) (Y) (Z/365), where: I = Amount of interest due; X = Amount of registration fee due; Y = Applicable interest rate, expressed as a fraction; Z = Number of days by which the registration fee payment is late. The payment of interest pursuant to this paragraph (d)(5) shall not preclude the Commission from bringing an action to enforce the requirements of this paragraph (d).

(6) An immaterial or unintentional failure to comply with a requirement of this paragraph (d) will not result in a violation of section 6(a) of the Act (15 U.S.C. 77f(a)), so long as:

(i) A good faith and reasonable effort was made to comply with the requirement; and

(ii) In the case of a late payment of a registration fee, the issuer pays the registration fee and any interest due thereon as soon as practicable after discovery of the failure to pay the registration fee.

Start Amendment Part

22. Effective August 1, 2021, amend § 230.457 by adding paragraph (u) to read as follows:

End Amendment Part
Computation of fee.
* * * * *

(u) Where an issuer elects to register an offering of an indeterminate amount of exchange-traded vehicle securities in accordance with § 230.456(d) (Rule 456(d)), the registration fee is to be calculated in the following manner:

(1) Determine the aggregate sale price of securities sold during the fiscal year.

(2) Determine the sum of:

(i) The aggregate redemption or repurchase price of securities redeemed or repurchased during the fiscal year; and

(ii) The aggregate redemption or repurchase price of securities redeemed or repurchased during any prior fiscal year ending no earlier than August 1, 2021, that were not used previously to reduce registration fees payable to the Commission.

(3) Subtract the amount in paragraph (u)(2) of this section from the amount in paragraph (u)(1) of this section. If the resulting amount is positive, the amount is the net sales amount. If the resulting amount is negative, it is the amount of redemption credits available for use in future years to offset sales.

(4) The registration fee is calculated by multiplying the net sales amount by the fee payment rate in effect on the date of the fee payment. If the issuer determines that it had net redemptions or repurchases for the fiscal year, no registration fee is due.

Start Amendment Part

23. Amend § 230.462 by revising paragraph (f) to read as follows:

End Amendment Part
Immediate effectiveness of certain registration statements and post-effective amendments.
* * * * *

(f) A post-effective amendment filed pursuant to paragraph (e) of this section for purposes of adding a new issuer and its securities as permitted by § 230.413(b) (Rule 413(b)) that satisfies the requirements of Form S-3, Form F-3, or General Instruction A.2 of Form N-2 (§ 239.13, § 239.33, or §§ 239.14 and 274.11a-1 of this chapter), as applicable, including the signatures required by § 230.402(e) (Rule 402(e)), and contains a prospectus satisfying the requirements of § 230.430B (Rule 430B), shall become effective upon filing with the Commission.

Start Amendment Part

24. Amend § 230.486 by:

End Amendment Part Start Amendment Part

a. Revising paragraphs (a), (b) introductory text, and (b)(1)(iv);

End Amendment Part Start Amendment Part

b. Removing “and” at the end of paragraph (b)(1)(v);

End Amendment Part Start Amendment Part

c. Redesignating paragraph (b)(1)(vi) as paragraph (b)(1)(vii);

End Amendment Part Start Amendment Part

d. Adding new paragraph (b)(1)(vi);

End Amendment Part Start Amendment Part

e. Revising the introductory text to paragraph (b)(2); and

End Amendment Part Start Amendment Part

f. Adding paragraph (g).

End Amendment Part

The revisions and additions read as follows:

Effective date of post-effective amendments and registration statements filed by certain closed-end management investment companies.

(a) Automatic effectiveness. Except as otherwise provided in this section, a post-effective amendment to a registration statement, or a registration statement described in paragraph (g) of this section, filed by a registered closed-end management investment company or business development company which makes periodic repurchase offers under § 270.23c-3 of this chapter or which offers securities under § 230.415(a)(1)(ix), shall become effective on the sixtieth day after the filing thereof, or a later date designated by the registrant on the facing sheet of the amendment or registration statement, which date shall not be later than eighty days after the date on which the amendment or registration statement is filed, Provided, that the Commission, having due regard to the public interest and the protection of investors, may declare an amendment or registration statement filed under this paragraph (a) effective on an earlier date.

(b) Immediate effectiveness. Except as otherwise provided in this section, a post-effective amendment to a registration statement, or a registration statement, filed by a registered closed-end management investment company or business development company which makes periodic repurchase offers under § 270.23c-3 of this chapter or which offers securities under § 230.415(a)(1)(ix), shall become effective on the date on which it is filed with the Commission, or a later date designated by the registrant on the facing sheet of the amendment or registration statement, which date shall be not later than thirty days after the date on which the amendment or registration statement is filed, except that a post-effective amendment including a designation of a new effective date under paragraph (b)(1)(iii) of this section shall become effective on the new effective date designated therein, Provided, that the following conditions are met:

(1) * * *

(iv) Disclosing or updating the information required by Item 9.1.c of Form N-2 [17 CFR 239.14 and 274.11a-1];

* * * * *

(vi) Complying with § 230.415(a)(5) and (6); and

* * * * *

(2) The registrant represents that the amendment is filed solely for one or more of the purposes specified in paragraph (b)(1) of this section and that no material event requiring disclosure in the prospectus, other than one listed in paragraph (b)(1) or one for which the Commission has approved a filing under paragraph (b)(1)(vii) of this section, has occurred since the latest of the following three dates:

* * * * *

(g) Registration statements. A registration statement can become effective under paragraph (a) of this section if it is filed for the purpose of:

(1) Registering additional shares of common stock for which a registration statement filed on Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) is effective; or

(2) Complying with § 230.415(a)(5) and (6).

Start Amendment Part

25. Amend § 230.497 by:

End Amendment Part Start Amendment Part

a. Remove from paragraphs (c) and (e) the text “Form N-2 (§§ 239.14 and 274.11a-1 of this chapter),”;

End Amendment Part Start Amendment Part

b. Removing the heading from paragraph (k);

End Amendment Part Start Amendment Part

c. Adding paragraph (l); and

End Amendment Part Start Amendment Part

d. Removing the parenthetical authority citation at the end of the section. Start Printed Page 33357

End Amendment Part

The addition reads as follows:

Filing of investment company prospectuses—number of copies.
* * * * *

(l) Except for an investment company advertisement deemed to be a section 10(b) prospectus pursuant to § 230.482, this section shall not apply with respect to prospectuses of a registered closed-end investment company, or a business development company.

Start Part

PART 232—REGULATION S-T—GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS

End Part Start Amendment Part

26. The general authority citation for part 232 continues to read as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78 l, 78m, 78n, 78o(d), 78w(a), 78 ll, 80a-6(c), 80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.

End Authority
* * * * *
Start Amendment Part

27. Amend § 232.11 by revising the section heading and the definition of “Related Official Filing” to read as follows:

End Amendment Part
Definition of terms used in this part.
* * * * *

Related Official Filing. The term Related Official Filing means the ASCII or HTML format part of the official filing with which all or part of an Interactive Data File appears as an exhibit or, in the case of a filing on Form N-1A (§§ 239.15A and 274.11A of this chapter), Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), Form N-3 (§§ 239.17a and 274.11b of this chapter), Form N-4 (§§ 239.17b and 274.11c of this chapter), Form N-6 (§§ 239.17c and 274.11d of this chapter), and Form N-CSR (§ 274.128 of this chapter), and, to the extent required by § 232.405 [Rule 405 of Regulation S-T] for a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), Form 10-K (§ 249.310 of this chapter), Form 10-Q (§ 249.308a of this chapter), and Form 8-K (§ 249.308 of this chapter), the ASCII or HTML format part of an official filing that contains the information to which an Interactive Data File corresponds.

* * * * *
Start Amendment Part

28. Amend § 232.405 by:

End Amendment Part Start Amendment Part

a. Revising the introductory text and paragraphs (a)(2), (a)(3)(i) introductory text, (a)(3)(ii), and (a)(4);

End Amendment Part Start Amendment Part

b. Adding a heading for paragraph (b);

End Amendment Part Start Amendment Part

c. Removing the heading and revising the introductory text of paragraph (b)(1);

End Amendment Part Start Amendment Part

d. Adding paragraph (b)(3); and

End Amendment Part Start Amendment Part

e. Redesignating the note to § 232.405 as note 2 to § 232.405 and revising the last sentence of newly redesignated note 2 to § 232.405.

End Amendment Part

The revisions and addition read as follows:

Interactive Data File submissions.

This section applies to electronic filers that submit Interactive Data Files. Section 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), and General Instruction C.4 of Form N-CSR (§ 274.128 of this chapter) specify when electronic filers are required or permitted to submit an Interactive Data File (§ 232.11), as further described in note 2 to this section. This section imposes content, format, and submission requirements for an Interactive Data File, but does not change the substantive content requirements for the financial and other disclosures in the Related Official Filing (§ 232.11).

(a) * * *

(2) Be submitted only by an electronic filer either required or permitted to submit an Interactive Data File as specified by § 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), or General Instruction C.4 of Form N-CSR (§ 274.128 of this chapter), as applicable;

(3) * * *

(i) If the electronic filer is neither a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), nor a separate account as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, nor a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), and is not within one of the categories specified in paragraph (f)(1)(i) of this section, as partly embedded into a filing with the remainder simultaneously submitted as an exhibit to:

* * * * *

(ii) If the electronic filer is either a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), or a separate account (as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), and is not within one of the categories specified in paragraph (f)(1)(ii) of this section, as partly embedded into a filing with the remainder simultaneously submitted as an exhibit to a filing that contains the disclosure this section requires to be tagged; and

(4) Be submitted in accordance with the EDGAR Filer Manual and, as applicable, either Item 601(b)(101) of Regulation S-K (§ 229.601(b)(101) of this chapter), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of Start Printed Page 33358this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter); or General Instruction C.4 of Form N-CSR (§ 274.128 of this chapter).

(b) Content—categories of information presented. (1) If the electronic filer is neither a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), nor a separate account (as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, nor a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)) an Interactive Data File must consist of only a complete set of information for all periods required to be presented in the corresponding data in the Related Official Filing, no more and no less, from all of the following categories:

* * * * *

(3) If the electronic filer is either a closed-end management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.) or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), an Interactive Data File must consist only of a complete set of information for all corresponding data in the Related Official Filing, no more and no less, as follows:

(i) For a business development company, for all periods required to be presented:

(A) The complete set of the electronic filer's financial statements (which includes the face of the financial statements and all footnotes); and

(B) All schedules set forth in §§ 210.12-01 through 210.12-29 of this chapter (Article 12 of Regulation S-X) related to the electronic filer's financial statements;

(ii) All of the information required on the cover page of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) except the Calculation of Registration Fee table; and

(iii) As applicable, all of the information provided in response to Items 3.1, 4.3, 8.2.b, 8.2.d, 8.3.a, 8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a-d, 10.2.a-c, 10.2.e, 10.3, and 10.5 of Form N-2 in any registration statement or post-effective amendment thereto filed on Form N-2; or any form of prospectus filed pursuant to § 230.424 of this chapter (Rule 424 under the Securities Act); or, if a Registrant is filing a registration statement pursuant to General Instruction A.2 of Form N-2, any filing on Form N-CSR, Form 10-K, Form 10-Q, or Form 8-K to the extent such information appears therein.

* * * * *

Note 2 to § 232.405: * * * For an issuer that is a management investment company or separate account registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.) or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), and General Instruction C.4 of Form N-CSR (§ 274.128 of this chapter), as applicable, specifies the circumstances under which an Interactive Data File must be submitted.

Start Part

PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

End Part Start Amendment Part

29. The authority citation for part 239 continues to read, in part, as follows:

End Amendment Part Start Authority

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78 l, 78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78 ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 312, unless otherwise noted. Sections 239.31, 239.32 and 239.33 are also issued under 15 U.S.C. 78 l, 78m, 78 o, 78w, 80a-8, 80a-29, 80a-30, 80a-37 and 12 U.S.C. 241.

End Authority
* * * * *
Start Amendment Part

30. Effective August 1, 2021, amend Form S-1 (referenced in § 239.11) by revising the note that immediately follows the “Calculation of Registration Fee” table to read as follows:

End Amendment Part

Note:

The text of Form S-1 does not, and this amendment will not, appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

CALCULATION OF REGISTRATION FEE

* * * * *

Note: Specific details relating to the fee calculation shall be furnished in notes to the table, including references to provisions of Rule 457 (§ 230.457 of this chapter) relied upon, if the basis of the calculation is not otherwise evident from the information presented in the table. If the filing fee is calculated pursuant to Rule 457(o) under the Securities Act, only the title of the class of securities to be registered, the proposed maximum aggregate offering price for that class of securities and the amount of registration fee need to appear in the Calculation of Registration Fee table. If an offering of an indeterminate amount of exchange-traded vehicle securities is being registered, state that the registration statement covers an indeterminate amount of securities to be offered or sold and that the filing fee will be calculated and paid in accordance with Rule 456(d) and Rule 457(u) (§ 230.456(d) and § 230.457(u) of this chapter), respectively. Any difference between the dollar amount of securities registered for such offerings and the dollar amount of securities sold may be carried forward on a future registration statement pursuant to Rule 429 under the Securities Act.

* * * * *
Start Amendment Part

31. Effective August 1, 2021, amend Form S-3 (referenced in § 239.13) by adding Instruction 5 to the notes that immediately follow the “Calculation of Registration Fee” table to read as follows:

End Amendment Part

Note:

The text of Form S-3 does not, and this amendment will not, appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

CALCULATION OF REGISTRATION FEE

* * * * *

5. If an offering of an indeterminate amount of exchange-traded vehicle securities is being registered, the Fee Table must state that the registration statement covers an indeterminate amount of securities to be offered or sold and the filing fee will be calculated and paid in accordance with Rule Start Printed Page 33359456(d) and Rule 457(u) (§ 230.456(d) and § 230.457(u) of this chapter), respectively.

* * * * *
Start Amendment Part

32. Amend Form N-14 (referenced in § 239.23) by revising the first and second undesignated paragraphs of General Instruction G to read as follows:

End Amendment Part

Note:

The text of Form N-14 does not, and these amendments will not, appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

G. Incorporation by Reference and Delivery of Prospectuses or Reports Filed With the Commission

If any party to a transaction registered on Form N-14 is registered under the 1940 Act or is a business development company as defined by Section 2(a)(48) of the 1940 Act and has a current prospectus which meets the requirements of Section 10(a)(3) of the 1933 Act or is current in its reports filed pursuant to Section 13(a) or 15(d) of the 1934 Act and Section 30 of the 1940 Act, the registrant may, if it so elects, incorporate by reference the prospectus, the corresponding Statement of Additional Information, or reports, or any information in the prospectus, the corresponding Statement of Additional Information, or reports, which satisfies the disclosure required by Items 5, 6, and 11 through 14 of this Form. If the registrant elects to incorporate information by reference into the prospectus, a copy of each document from which information is incorporated by reference must accompany the prospectus, except that a prospectus from which information has been incorporated by reference need not be sent to an investor if the obligation to deliver a prospectus under Section 5(b)(2) of the Securities Act [15 U.S.C. 77e] has already been satisfied with respect to that investor pursuant to Rule 498A(j) for the offering described in the prospectus being incorporated by reference. Notwithstanding the foregoing the registrant may, at its discretion, incorporate any or all of the Statement of Additional Information into the prospectus delivered to investors, without delivering the Statement with the prospectus, so long as the Statement of Additional Information is available to investors as provided in General Instruction F. The registrant also may incorporate by reference into the prospectus information about the company being acquired without delivering the information with the prospectus under certain conditions pursuant to Item 6 of Form N-14, and in accordance with the requirements of Instruction F.

If the registrant elects to incorporate information by reference into the Statement of Additional Information, a copy of each document from which information is incorporated by reference must accompany the Statement of Additional Information sent to shareholders.

* * * * *
Start Amendment Part

33. Effective August 1, 2021, amend Form F-1 (referenced in § 239.31) by revising the note that immediately follows the “Calculation of Registration Fee” table to read as follows:

End Amendment Part

Note:

The text of Form F-1 does not, and this amendment will not, appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

CALCULATION OF REGISTRATION FEE

* * * * *

Note: Specific details relating to the fee calculation shall be furnished in notes to the table, including references to provisions of Rule 457 (§ 230.457 of this chapter) relied upon, if the basis of the calculation is not otherwise evident from the information presented in the table. If the filing fee is calculated pursuant to Rule 457(o) under the Securities Act, only the title of the class of securities to be registered, the proposed maximum aggregate offering price for that class of securities and the amount of registration fee need to appear in the Calculation of Registration Fee table. If an offering of an indeterminate amount of exchange-traded vehicle securities is being registered, state that the registration statement covers an indeterminate amount of securities to be offered or sold and that the filing fee will be calculated and paid in accordance with Rule 456(d) and Rule 457(u) (§ 230.456(d) and § 230.457(u) of this chapter), respectively. Any difference between the dollar amount of securities registered for such offerings and the dollar amount of securities sold may be carried forward on a future registration statement pursuant to Rule 429 under the Securities Act.

* * * * *
Start Amendment Part

34. Effective August 1, 2021, amend Form F-3 (referenced in § 239.33) by adding Instruction 5 to the notes that immediately follow the “Calculation of Registration Fee” table to read as follows:

End Amendment Part

Note:

The text of Form F-3 does not, and this amendment will not, appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM F-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

5. If an offering of an indeterminate amount of exchange-traded vehicle securities is being registered, the Fee Table must state that the registration statement covers an indeterminate amount of securities to be offered or sold and that the filing fee will be calculated and paid in accordance with Rule 456(d) and Rule 457(u) (§ 230.456(d) and § 230.457(u) of this chapter), respectively.

* * * * *
Start Part

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

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35. The general authority citation for part 240 continues to read as follows:

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Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78 l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78 ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.

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* * * * *
Start Amendment Part

36. Amend § 240.14a-101 by:

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a. Revising paragraph E of the “Notes” section; and Start Printed Page 33360

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b. Revising paragraph (b)(1) of “Item 13. Financial and other information. (See Notes D and E at the beginning of this Schedule.)”.

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The revisions read as follows:

Schedule 14A. Information required in proxy statement.

Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

* * * * *

Notes

Notes: * * *

E. In Item 13 of this Schedule, the reference to “meets the requirement of Form S-3” or “meets the requirements of General Instruction A.2 of Form N-2” shall refer to a registrant who meets the following requirements:

(a) A registrant meets the requirements of Form S-3 if:

(1) The registrant meets the requirements of General Instruction I.A. of Form S-3 (§ 239.13 of this chapter); and

(2) One of the following is met:

(i) The registrant meets the aggregate market value requirement of General Instruction I.B.1 of Form S-3; or

(ii) Action is to be taken as described in Items 11, 12, and 14 of this schedule which concerns non-convertible debt or preferred securities issued by a registrant meeting the requirements of General Instruction I.B.2. of Form S-3 (referenced in 17 CFR 239.13); or

(iii) The registrant is a majority-owned subsidiary and one of the conditions of General Instruction I.C. of Form S-3 is met.

(b) A registrant meets the requirements of General Instruction A.2 of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter) if the registrant meets the conditions included in such General Instruction, provided that General Instruction A.2.c of Form N-2 is subject to the same limitations described in paragraph (a)(2) of this Note E.

* * * * *

Item 13. Financial and other information. (See Notes D and E at the beginning of this Schedule.)

* * * * *

(b) * * *

(1) S-3 registrants and certain N-2 registrants. If the registrant meets the requirements of Form S-3 or General Instruction A.2 of Form N-2 (see Note E to this Schedule), it may incorporate by reference to previously-filed documents any of the information required by paragraph (a) of this Item, provided that the requirements of paragraph (c) are met. Where the registrant meets the requirements of Form S-3 or General Instruction A.2 of Form N-2 and has elected to furnish the required information by incorporation by reference, the registrant may elect to update the information so incorporated by reference to information in subsequently-filed documents.

* * * * *
Start Part

PART 243—REGULATION FD

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37. The authority citation for part 243 continues to read as follows:

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Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 80a-29, unless otherwise noted.

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38. Amend § 243.103 by revising paragraph (a) to read as follows:

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No effect on Exchange Act reporting status.
* * * * *

(a) For purposes of Forms S-3 (17 CFR 239.13), S-8 (17 CFR 239.16b) and SF-3 (17 CFR 239.45) under the Securities Act of 1933 (15 U.S.C. 77a et seq.), or Form N-2 (17 CFR 239.14 and 274.11a-1) under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), an issuer is deemed to have filed all the material required to be filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) or where applicable, has made those filings in a timely manner; or

* * * * *
Start Part

PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

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39. The authority citation for part 270 continues to read, in part, as follows:

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Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.

End Authority
* * * * *

Section 270.23c-3 also issued under 15 U.S.C. 80a-23(c).

Section 270.24f-2 also issued under 15 U.S.C. 80a-24(f)(4).

* * * * *
Start Amendment Part

40. Amend § 270.8b-16 by revising paragraphs (b)(2) and (4) and adding paragraph (e) to read as follows:

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Amendments to registration statement.
* * * * *

(b) * * *

(2) The company's investment objectives and policies (described in Item 8.2 of Form N-2), and any material changes to same that have not been approved by shareholders;

* * * * *

(4) The principal risk factors associated with investment in the company (described in Item 8.3 of Form N-2), and any material changes to same; and

* * * * *

(e) The changes required to be disclosed by paragraphs (b)(2) through (5) of this section must be described in enough detail to allow investors to understand each change and how it may affect the fund. Such disclosures must be prefaced with the following legend: “The following information [in this annual report] is a summary of certain changes since [date]. This information may not reflect all of the changes that have occurred since you purchased [this fund].”

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41. Effective August 1, 2021, amend § 270.23c-3 by adding paragraph (e) to read as follows:

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Repurchase offers by closed-end companies.
* * * * *

(e) Registration of an indefinite amount of securities. A company that makes repurchase offers pursuant to paragraph (b) of this section shall be deemed to have registered an indefinite amount of securities pursuant to Section 24(f) of the Act (15 U.S.C. 80a-24(f)) upon the effective date of its registration statement.

Start Amendment Part

42. Effective August 1, 2021, amend § 270.24f-2 by revising the first sentence of paragraph (a) to read as follows:

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Registration under the Securities Act of 1933 of certain investment company securities.

(a) General. Any face-amount certificate company, open-end management company, closed-end management company that makes periodic repurchase offers pursuant to § 270.23c-3(b), or unit investment trust (“issuer”) that is deemed to have registered an indefinite amount of securities pursuant to Section 24(f) of the Act (15 U.S.C. 80a-24(f)) must not later than 90 days after the end of any fiscal year during which it has publicly offered such securities, file Form 24F-2 (17 CFR 274.24) with the Commission. * * *

* * * * *
Start Part

PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT of 1940

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43. The authority citation for part 274 continues to read as follows:

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Start Printed Page 33361 Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. Section 274.128 is also issued under 15 U.S.C. 78j-1, 7202, 7233, 7241, 7264, and 7265; and 18 U.S.C. 1350.

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44. Revise Form N-2 (referenced in §§ 239.14 and 274.11a-1) to read as follows:

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Note:

The text of Form N-2 does not, and this amendment will not, appear in the Code of Federal Regulations.

Start Printed Page 33362

Start Printed Page 33363

Calculation of Registration Fee Under the Securities Act of 1933

Title of securities being registeredAmount being registeredProposed maximum offering price per unitProposed maximum aggregate offering priceAmount of registration fee

Instructions.

Complete the Registration Fee table and provide the following (unless payment will be provided using Form 24F-2 [17 CFR 274.24]).

If the registration statement or amendment is filed under only one of the Acts, omit reference to the other Act from the facing sheet. Include the “Approximate Date of Commencement of Proposed Public Offering” and the table showing the calculation of the registration fee only where shares are being registered under the Securities Act.

If the filing fee is calculated pursuant to Rule 457(o) under the Securities Act [17 CFR 230.457], only the title of the class of securities to be registered, the proposed maximum aggregate offering price for that class of securities, and the amount of registration fee need to appear in the Calculation of Registration Fee table.

If the filing fee is calculated pursuant to Rule 457(r) under the Securities Act, the Calculation of Registration Fee table must state that it registers an unspecified amount of securities of each identified class of securities and must provide that the Registrant is relying on Rule 456(b) [17 CFR 230.456] and Rule 457(r). If the Calculation of Registration Fee table is amended in a post-effective amendment to the registration statement or in a prospectus filed in accordance with Rule 456(b)(1)(ii), the table must specify the aggregate offering price for all classes of securities in the referenced offering or offerings and the applicable registration fee.

Any difference between the dollar amount of securities registered for such offerings and the dollar amount of securities sold may be carried forward on a future registration statement pursuant to Rule 457 under the Securities Act.

Fill in the 811-___, 814-___ and 33-___ blanks only if these filing numbers (for the Investment Company Act registration and/or the Securities Act registration, respectively) have already been assigned by the Securities and Exchange Commission.

Form N-2 is to be used by closed-end management investment companies, except small business investment companies licensed as such by the United States Small Business Administration, to register under the Investment Company Act and to offer their shares under the Securities Act. The Commission has designed Form N-2 to provide investors with information that will assist them in making a decision about investing in an investment company eligible to use the Form. The Commission also may use the information provided on Form N-2 in its regulatory, disclosure review, inspection, and policy making roles.Start Printed Page 33364

A Registrant is required to disclose the information specified by Form N-2, and the Commission will make this information public. A Registrant is not required to respond to the collection of information contained in Form N-2 unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. 3507.

Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

Contents of Form N-2

General Instructions

A. Use of Form N-2

B. Automatic Shelf Offerings by Well-Known Seasoned Issuers

C. Registration Fees

D. Application of General Rules and Regulations

E. Amendments

F. Incorporation by Reference

G. Documents Composing the Registration Statement or Amendment

H. Preparation of the Registration Statement or Amendment

I. Interactive Data Files

J. Registration of Additional Securities

Part A: The Prospectus

Part B: Statement of Additional Information

General Instructions for Parts A and B

Part A—Information Required in a Prospectus

Item 1. Outside Front Cover

Item 2. Cover Pages; Other Offering Information

Item 3. Fee Table and Synopsis

Item 4. Financial Highlights

Item 5. Plan of Distribution

Item 6. Selling Shareholders

Item 7. Use of Proceeds

Item 8. General Description of the Registrant

Item 9. Management

Item 10. Capital Stock, Long-Term Debt, and Other Securities

Item 11. Defaults and Arrears on Senior Securities

Item 12. Legal Proceedings

Item 13. [Removed and reserved.]

Part B—Information Required in a Statement of Additional Information

Item 14. Cover Page

Item 15. Table of Contents

Item 16. General Information and History

Item 17. Investment Objective and Policies

Item 18. Management Instructions

Item 19. Control Persons and Principal Holders of Securities

Item 20. Investment Advisory and Other Services

Item 21. Portfolio Managers

Item 22. Brokerage Allocation and Other Practices

Item 23. Tax Status

Item 24. Financial Statements

Part C—Other Information

Item 25. Financial Statements and Exhibits

Item 26. Marketing Arrangements

Item 27. Other Expenses of Issuance and Distributions

Item 28. Persons Controlled by or Under Common Control

Item 29. Number of Holders of Securities

Item 30. Indemnification

Item 31. Business and Other Connections of Investment Adviser

Item 32. Location of Accounts and Records

Item 33. Management Services

Item 34. Undertakings

Signatures

General Instructions

A. Use of Form N-2

1. General. Form N-2 is used by all closed-end management investment companies (“Registrant” or “Fund”), except small business investment companies licensed as such by the United States Small Business Administration, to file: (1) An initial registration statement under Section 8(b) of the Investment Company Act and any amendments to the registration statement, including amendments required by Rule 8b-16 under the Investment Company Act [17 CFR 270.8b-16]; (2) a registration statement under the Securities Act and any amendment to it; or (3) any combination of these filings.

2. Optional Use of Form for Certain Registrants. A Registrant may elect to file a registration statement pursuant to this General Instruction A.2, including a registration statement used in connection with an offering pursuant to Rule 415(a)(1)(x) under the Securities Act [17 CFR 230.415], if it meets all of the following requirements:

a. The Registrant meets the requirements of General Instruction I.A. of Form S-3 [17 CFR 239.13];

b. if the Registrant is registered under the Investment Company Act, it has been registered for a period of at least twelve calendar months immediately preceding the filing of the registration statement on this Form, and has timely filed all reports required to be filed pursuant to Section 30 of the Investment Company Act during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement; and

c. the registration statement to be filed pursuant to this General Instruction A.2 relates to a transaction specified in General Instruction I.B. or I.C of Form S-3, as applicable, and meets all of the conditions to the transaction specified in the applicable instruction.

A registration statement filed pursuant to this instruction shall specifically incorporate by reference into the prospectus and statement of additional information (“SAI”) all of the materials specified in General Instruction F.3, pursuant to the requirements set forth in that instruction.

A Registrant must indicate that the registration statement is being filed pursuant to this instruction by checking the appropriate box on the facing sheet.

Note to General Instruction A.2. Attention is directed to the General Instructions of Form S-3, including General Instructions II.D, F, and G, which contain general information regarding the preparation and filing of automatic and non-automatic shelf registration statements.

B. Automatic Shelf Offerings by Well-Known Seasoned Issuers

Any Registrant that is a Well-Known Seasoned Issuer as defined in Rule 405 of the Securities Act [17 CFR 230.405] at the most recent eligibility determination date specified in paragraph (2) of that definition may use a registration statement filed under General Instruction A.2 of this Form as an automatic shelf registration statement for registration under the Securities Act of securities offerings, other than pursuant to Rule 415(a)(1)(vii) or (viii) of the Securities Act, only for the transactions that are described in, and consistent with the requirements of, General Instruction I.D. of Form S-3.

Note to General Instruction B. Attention is directed to the General Instructions of Form S-3, including General Instructions II.E, F, G, and IV.B, which contain general information regarding the preparation and filing of automatic shelf registration statements.

C. Registration Fees

Section 6(b) of the Securities Act and Rule 457 thereunder set forth the fee requirements under the Securities Act. Registrants that are required to pay registration fees on an annual net basis Start Printed Page 33365pursuant to Rule 24f-2 under the Investment Company Act must provide payment using Form 24F-2.

D. Application of General Rules and Regulations

If the registration statement is being filed under both the Securities and Investment Company Acts or under only the Securities Act, the General Rules and Regulations under the Securities Act, particularly Regulation C, shall apply. If the registration statement is being filed under only the Investment Company Act, the General Rules and Regulations under the Investment Company Act, particularly those under Section 8(b), shall apply.

E. Amendments

1. Paragraph (a) of Rule 8b-16 under the Investment Company Act requires closed-end management investment companies to annually amend the Investment Company Act registration statement. Paragraph (b) of Rule 8b-16 exempts a closed-end management investment company from this requirement if it provides certain information specified by that rule to shareholders in its annual report.

2. If Form N-2 is used to file a registration statement under both the Securities and Investment Company Acts, any amendment of that registration statement shall be deemed to be filed under both Acts unless otherwise indicated on the facing sheet.

3. Registrants offering securities on a delayed or continuous basis in reliance upon Rule 415 under the Securities Act must provide the undertakings with respect to post-effective amendments required by Item 34 of Form N-2.

4. A post-effective amendment to a registration statement on this Form, or a registration statement filed for the purpose of registering additional shares of common stock for which a registration statement filed on this Form is effective or for the purpose of complying with Rule 415(a)(5) and (a)(6), filed on behalf of a Registrant which makes periodic repurchase offers pursuant to Rule 23c-3 under the Investment Company Act [17 CFR 270.23c-3] or which makes a continuous offering of securities pursuant to Rule 415(a)(1)(ix) under the Securities Act may become effective automatically in accordance with Rule 486 under the Securities Act [17 CFR 230.486], as applicable. In accordance with Rule 429 under the Securities Act [17 CFR 230.429], a Registrant filing a new registration statement for the purpose of registering additional shares of common stock may use a prospectus with respect to the additional shares also in connection with the shares covered by earlier registration statements if such prospectus includes all of the information which would currently be required in a prospectus relating to the securities covered by the earlier statements. The filing fee required by the Securities Act and Rule 457 under the Securities Act shall be paid with respect to the additional shares only.

F. Incorporation by Reference

1. General Requirements. All incorporation by reference must comply with the requirements of this Form and the following rules on incorporation by reference: Rule 411 under the Securities Act [17 CFR 230.411] (general rules on incorporation by reference in a prospectus); Rule 303 of Regulation S-T [17 CFR 232.303] (specific requirements for electronically filed documents); and Rule 0-4 [17 CFR 270.0-4], (additional rules on incorporation by reference for investment companies).

2. Specific Requirements for Incorporation by Reference for Registrants Not Relying on General Instruction A.2.

a. A Registrant may not incorporate by reference into a prospectus information that Part A of this Form requires to be included in a prospectus, except as specifically permitted by Part A of this Form or paragraph F.2.d below.

b. A Registrant may incorporate by reference any or all of the SAI into the prospectus (but not to provide any information required by Part A to be included in the prospectus) without delivering the SAI with the prospectus.

c. A Registrant may incorporate by reference into the SAI or its response to Part C, information that Parts B and C require to be included in the Registrant's registration statement.

d. A Registrant may incorporate by reference into the prospectus or the SAI in response to Items 4.1 or 24 of this Form the information contained in Form N-CSR [17 CFR 249.331 and 274.128] or any report to shareholders meeting the requirements of Section 30(e) of the Investment Company Act and Rule 30e-1 [17 CFR 270.30e-1] thereunder (and a Registrant that has elected to be regulated as a business development company may so incorporate into Items 4.1, 4.2, 8.6.c, or 24 of this Form the information contained in its annual report under the Exchange Act), provided:

(1) The material incorporated by reference is prepared in accordance with, and covers the periods specified by, this Form; and

(2) the Registrant states in the prospectus or the SAI, at the place where the information required by Items 4.1, 4.2, 8.6.c., or 24 of this Form would normally appear, that the information is incorporated by reference from a report to shareholders or a report on Form N-CSR or an annual report on Form 10-K [17 CFR 249.310]. (The Registrant also may describe briefly, in either the prospectus, the SAI, or Part C of the registration statement (in response to Item 25.1) those portions of the report to shareholders or report on Form N-CSR or Form 10-K that are not incorporated by reference and are not a part of the registration statement.)

3. Specific Requirements for Incorporation by Reference for Certain Registrants. If a Registrant is filing a registration statement pursuant to General Instruction A.2, the following requirements apply:

a. Backward Incorporation by Reference. The documents listed in (1) and (2) below shall be specifically incorporated by reference into the prospectus and SAI by means of a statement to that effect in the prospectus and SAI listing all such documents:

(1) The Registrant's latest annual report filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act that contains financial statements for the Registrant's latest fiscal year for which a Form N-CSR or Form 10-K was required to be filed;

(2) all other reports filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act since the end of the fiscal year covered by the annual report referred to in (1) above; and

(3) if capital stock is to be registered and securities of the same class are registered under Section 12 of the Exchange Act, the description of such class of securities which is contained in a registration statement filed under the Exchange Act, including any amendment or reports filed for the purpose of updating such description.

b. Forward Incorporation by Reference. The prospectus and SAI shall also state that all documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, prior to the termination of the offering shall be deemed to be incorporated by reference into the prospectus and SAI.

c. Use of Information to be Incorporated. Any information required in the prospectus and SAI in response to Items 3-12 and Items 16-24 of this Form may be included in the prospectus and SAI through documents filed pursuant to Sections 13(a), 14, or 15(d) of the Exchange Act that are incorporated or deemed incorporated by Start Printed Page 33366reference into the prospectus and SAI that are part of the registration statement.

Instruction. Attention is directed to Rule 439 under the Securities Act [17 CFR 230.439] regarding consent to use of material incorporated by reference.

4. Disclosure.

a. The Registrant must make its prospectus, SAI, and any periodic and current reports filed pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference readily available and accessible on a website maintained by or for the Registrant and containing information about the Registrant.

b. The Registrant must state in its prospectus and SAI:

(1) That it will provide to each person, including any beneficial owner, to whom a prospectus or SAI is delivered, a copy of any or all information that has been incorporated by reference into the prospectus or SAI but not delivered with the prospectus or SAI;

(2) that it will provide this information upon written or oral request;

(3) that it will provide this information at no charge;

(4) the name, address, telephone number, and email address, if any, to which the request for this information must be made; and

(5) the Registrant's website address where the prospectus, SAI, and any incorporated information may be accessed.

Instruction. If the Registrant sends any of the information that is incorporated by reference into the prospectus or SAI to security holders, it also must send any exhibits that are specifically incorporated by reference into that information.

c. The Registrant also must:

(1) Identify the reports and other information that it files with the SEC; and

(2) state that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (http://www.sec.gov).

G. Documents Composing the Registration Statement or Amendment

1. A registration statement or an amendment to it filed under both the Securities and Investment Company Acts consists of the facing sheet of the Form, Part A, Part B, Part C, required signatures, all other documents filed as a part of the registration statement, and documents or information permitted to be incorporated by reference.

2. A registration statement or amendment to it that is filed under only the Securities Act shall contain all the information and documents specified in paragraph 1 of this Instruction G.

3. A registration statement or an amendment to it that is filed under only the Investment Company Act shall consist of the facing sheet of the Form, responses to all items of Parts A and B except Items 1, 2, 3.2, 4, 5, 6, and 7 of Part A, responses to all items of Part C except Items 25.2.h, 25.2. l, 25.2.n, and 25.2.o, required signatures, and all other documents that are required or which the Registrant may file as part of the registration statement.

H. Preparation of the Registration Statement or Amendment

The following instructions for completing Form N-2 are divided into three parts. Part A relates to the prospectus required by Section 10(a) of the Securities Act. Part B relates to the SAI that must be provided upon request to recipients of the prospectus. Part C relates to other information that is required to be in the registration statement.

I. Interactive Data Files

1. An Interactive Data File as defined in Rule 11 of Regulation S-T [17 CFR 232.11] is required to be submitted to the Commission in the manner provided by Rule 405 of Regulation S-T [17 CFR 232.405] for any registration statement or post-effective amendment thereto filed on Form N-2 that contains the cover page information specified in Rule 405 of Regulation S-T. The Interactive Data File must be submitted either with the filing, or as an amendment to the registration statement to which it relates that is submitted on or before the date the registration statement or post-effective amendment that contains the related information becomes effective.

2. An Interactive Data File is required to be submitted to the Commission in the manner provided by Rule 405 of Regulation S-T for any registration statement or post-effective amendment thereto filed on Form N-2 or for any form of prospectus filed pursuant to Rule 424 under the Securities Act [17 CFR 230.424] that includes or amends information provided in response to Items 3.1, 4.3, 8.2.b, 8.2.d, 8.3.a, 8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a-d, 10.2.a-c, 10.2.e, 10.3, or 10.5. The Interactive Data File must be submitted either with the filing, or as an amendment to the registration statement to which it relates, on or before the date the registration statement or post-effective amendment that contains the related information becomes effective. Interactive Data Files must be submitted with the filing made pursuant to Rule 424.

3. If a Registrant is filing a registration statement pursuant to General Instruction A.2, an Interactive Data File is required to be submitted to the Commission in the manner provided by Rule 405 of Regulation S-T for any of the documents listed in General Instruction F.3.(a) or General Instruction F.3.(b) that include or amend information provided in response to Items 3.1, 4.3, 8.2.b, 8.2.d, 8.3.a, 8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a-d, 10.2.a-c, 10.2.e, 10.3, or 10.5. The Interactive Data File must be submitted with the filing of the document(s) listed in General Instruction F.3.(a) or General Instruction F.3.(b).

4. The Interactive Data Files must be submitted in accordance with the specifications in the EDGAR Filer Manual, and must be submitted in such a manner that—for any information that does not relate to all of the classes of a Registrant—will permit each class of the Registrant to be separately identified.

J. Registration of Additional Securities

With respect to the registration of additional securities for an offering pursuant to Rule 462(b) under the Securities Act [17 CFR 230.462], the Registrant may file a registration statement consisting only of the following: the facing page; a statement that the contents of the earlier registration statement, identified by file number, are incorporated by reference; required opinions and consents; the signature page; and any price-related information omitted from the earlier registration statement in reliance on Rule 430A [17 CFR 230.430A] that the Registrant chooses to include in the new registration statement. The information contained in such a Rule 462(b) registration statement shall be deemed to be part of the earlier registration statement as of the date of effectiveness of the Rule 462(b) registration statement. Any opinion or consent required in such a registration statement may be incorporated by reference from the earlier registration statement with respect to the offering, if: (i) Such opinion or consent expressly provides for such incorporation; and (ii) such opinion relates to the securities registered pursuant to Rule 462(b). See Rules 411(c), 439(b), and 483(c) under the Securities Act [17 CFR 230.483].

Part A: The Prospectus

The purpose of the prospectus is to provide essential information about the Registrant in a way that will help investors make informed decisions Start Printed Page 33367about whether to purchase the securities being offered. THE INFORMATION IN THE PROSPECTUS SHOULD BE CLEAR, CONCISE, AND UNDERSTANDABLE. AVOID THE USE OF TECHNICAL OR LEGAL TERMS, COMPLEX LANGUAGE, OR EXCESSIVE DETAIL.

Responses to the items of Part A should be as simple and direct as possible and should include only information needed to understand the fundamental characteristics of the Registrant. Descriptions of practices that are required by law generally should not include detailed discussions of the law itself. No response is required for inapplicable items.

Part B: Statement of Additional Information

The items in Part B call for additional information about the Registrant that may be of interest to some investors. Part B also allows the Registrant to augment discussions of matters described in the prospectus with additional information the Registrant believes may be of interest to some investors. If information is included in the prospectus, it need not be repeated in the SAI, and a Registrant need not prepare a SAI or refer to it in the prospectus (or provide the undertaking required by Item 34.7 as to the SAI) if all of the information required to be in the SAI is included in the prospectus. A Registrant placing information in Part B should not repeat information that is in the prospectus, except where necessary to make Part B understandable.

Information in the SAI need not be included in the prospectus or be sent to investors with the prospectus provided that the cover page of the prospectus states that the SAI is available upon oral or written request and without charge, and includes a toll-free telephone number and email address, if any, for use by prospective investors to request the SAI. If the request is made prior to delivery of a confirmation with respect to a security offered by the prospectus, the SAI must be sent in a manner reasonably calculated for it to arrive prior to the confirmation. The SAI may be sent to the address to which the prospectus was delivered, unless the requester provides an alternate address for delivery of the SAI.

General Instructions for Parts A and B

1. The information in the prospectus and the SAI should be organized to make it easy to understand the organization and operation of the Registrant. The information need not be in any particular order, with the exception that Items 1, 2, 3, and 4 must appear in order in the prospectus and may not be preceded or separated by any other information.

2. The prospectus or the SAI may contain more information than called for by this Form, provided the information is not incomplete, inaccurate, or misleading and does not, because of its nature, quantity, or manner of presentation, obscure or impede understanding of required information.

3. The requirements for dating the prospectus apply equally to dating the SAI for purposes of Rule 423 under the Securities Act [17 CFR 230.423]. The SAI should be made available at the same time that the prospectus becomes available for purposes of Rules 430 and 460 under the Securities Act [17 CFR 230.430 and 230.460].

4. The prospectus should not be presented in fold-out or road-map type fashion.

5. Instructions for charts, graphs, and sales literature:

(a) A registration statement may include any chart, graph, or table that is not misleading; however, only the fee table and the table of contents (required by Rule 481(c) under the Securities Act [17 CFR 230.481]) may precede the financial highlights specified in Item 4.

(b) If “sales literature” is included in the prospectus, (1) it should not significantly lengthen the prospectus nor obscure essential disclosure, and (2) members of the Financial Industry Regulatory Authority (“FINRA”) are not relieved of the filing and other FINRA requirements for investment company sales literature. (See Securities Act Release No. 5359, Jan. 26, 1973 [38 FR 7220 (Mar. 19, 1973)].)

Part A—Information Required in a Prospectus

Item 1. Outside Front Cover

1. The outside front cover must contain the following information:

a. the Registrant's name;

b. identification of the type of Registrant (e.g., bond fund, balanced fund, business development company, etc.) or a brief statement of the Registrant's investment objective(s);

c. the title and amount of securities offered and a brief description of such securities (unless not necessary to indicate the material terms of the securities, as in the case of an issue of common stock with full voting rights and the dividend and liquidation rights usually associated with common stock);

d. a statement that (A) the prospectus sets forth concisely the information about the Registrant that a prospective investor ought to know before investing; (B) the prospectus should be retained for future reference; and (C) additional information about the Registrant has been filed with the Commission and is available upon written or oral request and without charge (this statement should explain how to obtain the SAI, and whether any of it has been incorporated by reference into the prospectus). This statement should also explain how to obtain the Registrant's annual and semi-annual reports to shareholders. Provide a toll-free (or collect) telephone number for investors to call, and email address, if any, to request the Registrant's SAI; annual report; semi-annual report; or other information about the Registrant; and to make shareholder inquiries. Also state whether the Registrant makes available its SAI and annual and semi-annual reports, free of charge, on or through the Registrant's website at a specified internet address. If the Registrant does not make its SAI and shareholder reports available in this manner, disclose the reasons why it does not do so (including, where applicable, that the Registrant does not have an internet website). Also include the information that the Commission maintains a website (http://www.sec.gov) that contains the SAI, material incorporated by reference, and other information regarding Registrants;

e. the date of the prospectus and the date of the Statement of Additional Information;

f. if any of the securities being registered are to be offered for the account of shareholders, a statement to that effect;

g. information in substantially the tabular form indicated as to all securities being registered that are to be offered for cash (estimate, if necessary):

Price to publicSales loadProceeds to registrant or other persons
Per Share
Total
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Instructions.

1. If it is impracticable to state the price to the public, briefly explain how the price will be determined (e.g., by reference to net asset value). If the securities will be offered at the market, indicate the market involved and the market price as of the latest practicable date.

2. The term “sales load” is defined in Section 2(a)(35) of the Investment Company Act. Subject to Instruction 3, only include the portion of the sales load that consists of underwriting discounts and commissions, and include any commissions paid by selling shareholders (the term “commissions” is defined in paragraph 17 of Schedule A of the Securities Act [15 U.S.C. 77aa(17)]). Commissions paid by other persons and other consideration to underwriters shall be noted in the second column and briefly described in a footnote.

3. Include in the table as sales load amounts borrowed to pay underwriting discounts and commissions or any other offering costs that are required to be repaid in less than one year. Exclude from the table, but include in a note thereto, the amount of funds borrowed to pay such costs that are required to be repaid in more than one year, and provide a cross-reference to the prospectus discussion of the borrowed amounts and the effect of repayment on fund assets available for investment.

4. Where an underwriter has received an over-allotment option, present maximum-minimum information in the price table or in a note thereto, based on the purchase of all or none of the shares subject to the option. The terms of the option may be described briefly in response to Item 5 rather than on the prospectus cover page.

5. If the securities are to be offered on a best efforts basis, set forth the termination date of the offering, any minimum required purchase, and any arrangements to place the funds received in an escrow, trust, or similar arrangement. If no arrangements have been made, so state. Set forth the following table in lieu of the “Total” information called for by the required table.

Price to publicSales loadProceeds to registrant or other persons
Total Minimum
Total Maximum

6. Set forth in a note to the proceeds column the total of other expenses of issuance and distribution called for by Item 27, stated separately for the Registrant and for the selling shareholders, if any.

h. the statements required by paragraphs (1) and (2) of Rule 481(b) under the Securities Act;

i. if the Registrant's securities have no history of public trading, a prominent statement to that effect and a statement describing the tendency of closed-end fund shares to trade frequently at a discount from net asset value and the risk of loss this creates for investors purchasing shares in the initial public offering;

Instruction. A Registrant may omit the discount statement if it believes that, as a result of its investment or other policies, its capital structure, or the markets in which its shares trade, its shares are unlikely to trade at a discount from net asset value.

j. a cross-reference to the prospectus discussion of any factors that make the offering speculative or one of high risk, printed in bold face common type at least as large as ten point modern type and at least two points leaded; and

Instruction. No cross-reference is required where the risks associated with securities in which the Registrant is authorized to invest are only the basic risks of investing in securities (e.g., the risk that the value of portfolio securities may fluctuate depending upon market conditions, or the risks that debt securities may be prepaid and the proceeds from the prepayments invested in debt instruments with lower interest rates). Include the cross-reference if the nature of the Registrant's investment objectives, investment policies, capital structure, or the trading markets for the Registrant's securities increase the likelihood that an investor could lose a significant portion of his or her investment.

k. any other information required by Commission rules or by any other governmental authority having jurisdiction over the Registrant or the issuance of its securities.

l. A statement to the following effect, if applicable:

Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Registrant's shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary, such as a broker-dealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions].

You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary].

2. The cover page may include other information if it does not, by its nature, quantity, or manner of presentation impede understanding of the required information.

Item 2. Cover Pages; Other Offering Information

1. Disclose whether any national securities exchange or the Nasdaq Stock Market lists the securities offered, naming the particular market(s), and identify the trading symbol(s) for those securities on the inside front or outside back cover page of the prospectus, unless the information appears on the front cover page.

2. Provide the information required by paragraph (d) of Rule 481 under the Securities Act in an appropriate place in the prospectus.

3. Provide the information required by paragraph (e) of Rule 481 under the Securities Act on the outside back cover page of the prospectus.

Item 3. Fee Table and Synopsis

1. If the prospectus offers common stock of the Registrant, include information about the costs and expenses that the investor will bear directly or indirectly, using the captions and tabular format illustrated below:

Start Printed Page 33369

Instructions.

General Instructions

1. Immediately after the table, provide a brief narrative explaining that the purpose of the table is to assist the investor in understanding the various costs and expenses that an investor in the fund will bear directly or indirectly. Include, where appropriate, cross-references to the relevant sections of the prospectus for more complete descriptions of the various costs and expenses.

2. Any caption not applicable to the Registrant may be omitted from the table.

3. Round all dollar figures to the nearest dollar and all percentages to the nearest hundredth of one percent.

Shareholder Transaction Expenses

4. “Dividend Reinvestment and Cash Purchase Plan Fees” include all fees (except brokerage commissions) that are charged to participating shareholder accounts. The basis on which such fees are imposed should be described briefly in a note to the table.

5. If the Registrant (or any other party under an agreement with the Registrant) charges any other transaction fee, add another caption describing it, and list the maximum amount of the fee or basis on which the fee is deducted. Underwriters' compensation that is paid with the proceeds of debt that is not to be repaid within one year need not be identified as sales load, but should be set forth as a shareholder transaction expense with a brief narrative following the table explaining the nature of such payments.

Annual Expenses

6. State the basis on which payments will be made. “Other Expenses” should be estimated and stated (after any expense reimbursement or waiver) as a percentage of net asset value attributable to common shares. State in the narrative following the table that “Other Expenses” are based on estimated amounts for the current fiscal year.

7.a. “Management Fees” include investment advisory fees (including any component thereof based on the performance of the Registrant), any other management fees payable to the investment adviser or its affiliates, and administrative fees payable to the investment adviser or its affiliates not included as “Other Expenses,” and any expenses incurred within the Registrant's own organization in connection with the research, selection, and supervision of investments. Where management fees are “tiered” or based on a “sliding scale,” they should be calculated based on the fund's asset size after giving effect to the anticipated net proceeds of the present offering. In the case of a performance fee arrangement, assume the base fee. With respect to a best-efforts offering with breakpoints, assume the maximum fee will be payable.

b. In lieu of the information about management fees required by Item 3.1, a business development company with a fee structure that is not based solely on the aggregate amount of assets under management should provide disclosure concerning the fee arrangement to allow investors to assess its impact on the Registrant's expenses; a business development company may use any appropriate expense categories and may include items that may not, for accounting purposes, be treated as expenses. A business development company with special fee arrangements should provide a cross-reference, where applicable, to the discussion in Item 9.1.a of special management compensation plans.

8. “Interest Payments on Borrowed Funds” include all interest paid in connection with outstanding loans Start Printed Page 33370(including interest paid on funds borrowed to pay underwriting expenses), bonds, or other forms of debt. Show interest expenses as a percentage of net assets attributable to common shares and not the face amount of debt.

9. “Other Expenses” include all expenses (except fees and expenses reported in other items in the table) that are deducted from the Registrant's assets and will be reflected as expenses in the Registrant's statement of operations (including increases resulting from complying with paragraph 2(g) of Rule 6-07 [17 CFR 210.6-07] of Regulation S-X).

10. a. If the Registrant invests, or intends to invest based upon the anticipated net proceeds of the present offering, in shares of one or more “Acquired Funds,” add a subcaption to the “Annual Expenses” portion of the table directly above the subcaption titled “Total Annual Expenses.” Title the additional subcaption: “Acquired Fund Fees and Expenses.” Disclose in the subcaption fees and expenses incurred indirectly by the Registrant as a result of investment in shares of one or more Acquired Funds. For purposes of this Item, an “Acquired Fund” means any company in which the Registrant invests or intends to invest (A) that is an investment company or (B) that would be an investment company under Section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in Sections 3(c)(1) and 3(c)(7) of the Investment Company Act. If a Registrant uses another term in response to other requirements of this Form to refer to Acquired Funds, it may include that term in parentheses following the subcaption title. In the event the fees and expenses incurred indirectly by the Registrant as a result of investment in shares of one or more Acquired Funds do not exceed 0.01 percent (one basis point) of average net assets of the Registrant, the Registrant may include these fees and expenses under the subcaption “Other Expenses” in lieu of this disclosure requirement.

b. Determine the “Acquired Fund Fees and Expenses” according to the following formula:

AFFE = [(F1/FY)*AI1* D1]+[(F2/FY)*AI2* D2]+[(F3/FY)*AI3* D3] + Transaction Fees + Incentive Allocations

Average Net Assets of the Registrant
Where:
AFFEAcquired Fund fees and expenses;
F1, F2, F3, . . .Total annual operating expense ratio for each Acquired Fund;
FYNumber of days in the relevant fiscal year;
AI1, AI2, AI3, . . .Average invested balance in each Acquired Fund;
D1, D2, D3, . . .Number of days invested in each Acquired Fund;
“Transaction Fees”The total amount of sales loads, redemption fees, or other transaction fees paid by the Registrant in connection with acquiring or disposing of shares in any Acquired Funds during the most recent fiscal year; and
“Incentive Allocations”Any allocation of capital from the Acquiring Fund to the adviser of the Acquired Fund (or its affiliate) based on a percentage of the Acquiring Fund's income, capital gains and/or appreciation in the Acquired Fund.

c. Calculate the average net assets of the Registrant for the most recent fiscal year, as provided in Item 4.1 (see Instruction 15 to Item 4.1), and include the anticipated net proceeds of the present offering.

d. The total annual operating expense ratio used for purposes of this calculation (F1) is the annualized ratio of operating expenses to average net assets for the Acquired Fund's most recent fiscal period as disclosed in the Acquired Fund's most recent shareholder report. If the ratio of expenses to average net assets is not included in the most recent shareholder report or the Acquired Fund is a newly formed fund that has not provided a shareholder report, then the ratio of expenses to average net assets of the Acquired Fund is the ratio of total annual operating expenses to average annual net assets of the Acquired Fund for its most recent fiscal period as disclosed in the most recent communication from the Acquired Fund to the Registrant. If the Registrant has a written fee agreement with the Acquired Fund that would affect the ratio of expenses to average net assets as disclosed in the Acquired Fund's most recent shareholder report, the Registrant should determine the ratio of expenses to average net assets for the Acquired Fund's most recent fiscal period using the written fee agreement. For purposes of this instruction: (i) Acquired Fund expenses include increases resulting from brokerage service and expense offset arrangements and reductions resulting from fee waivers or reimbursements by the Acquired Funds' investment advisers or sponsors; and (ii) Acquired Fund expenses do not include any expenses (i.e., performance fees) that are calculated solely upon the realization and/or distribution of gains, or the sum of the realization and/or distribution of gains and unrealized appreciation of assets distributed in-kind. If an Acquired Fund has no operating history, include in the Acquired Funds' expenses any fees payable to the Acquired Fund's investment adviser or its affiliates stated in the Acquired Fund's registration statement, offering memorandum or other similar communication without giving effect to any performance.

e. If a Registrant has made investments in the most recent fiscal year, to determine the average invested balance (AI1), the numerator is the sum of the amount initially invested in an Acquired Fund during the most recent fiscal year (if the investment was held at the end of the previous fiscal year, use the amount invested as of the end of the previous fiscal year) and the amounts invested in the Acquired Fund no less frequently than monthly during the period the investment is held by the Registrant (if the investment was held through the end of the fiscal year, use each month-end through and including the fiscal year-end). Divide the numerator by the number of measurement points included in the calculation of the numerator (i.e., if an investment is made during the fiscal year and held for 3 succeeding months, the denominator would be 4).

f. For investments based upon the anticipated net proceeds from the present offering, base the “Acquired Fund Fees and Expenses” on: (i) Assumptions about specific funds in which the Registrant expects to invest, (ii) estimates of the amount of assets the Registrant expects to invest in each of those Acquired Funds, and (iii) an assumption that the investment was held for all of the Registrant's most Start Printed Page 33371recent fiscal year and was subject to the Acquired Funds' fees and expenses for that year. Disclose in a footnote to the table that Acquired Fund fees and expenses are based on estimated amounts for the current fiscal year.

g. If an Acquired Fund charges an Incentive Allocation or any other fee based on income, capital gains and/or appreciation (i.e., performance fee), the Registrant must include a footnote to the “Acquired Fund Fees and Expenses” subcaption that:

(1) discloses the typical Incentive Allocation or such other fee (expressed as a percentage) to be paid to the investment advisers of the Acquired Funds (or an affiliate);

(2) discloses that Acquired Funds' fees and expenses are based on historic fees and expenses; and

(3) states that future Acquired Funds' fees and expenses may be substantially higher or lower because certain fees are based on the performance of the Acquired Funds, which may fluctuate over time.

h. If the Registrant is a Feeder Fund, reflect the aggregate expenses of the Feeder Fund and the Master Fund in the “Acquired Fund Fees and Expenses.” The aggregate expenses of the Master-Feeder Fund must include the fees and expenses incurred indirectly by the Feeder Fund as a result of the Master Fund's investment in shares of one or more companies (A) that are investment companies or (B) that would be investment companies under Section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in Sections 3(c)(1) and 3(c)(7) of the Investment Company Act. For purposes of this instruction, a “Master-Feeder Fund” means a two-tiered arrangement in which one or more investment companies registered under the Investment Company Act (each a “Feeder Fund”) holds shares of a single management investment company registered under the Investment Company Act (the “Master Fund”) in accordance with Section 12(d)(1)(E) of the Investment Company Act.

i. The Registrant may clarify in a footnote to the fee table that the total annual expenses item under Item 3.1 is different from the ratio of expenses to average net assets given in response to Item 4.1, which reflects the operating expenses of the Registrant and does not include Acquired Fund fees and expenses.

Example

11. For purposes of the Example in the table:

a. assume that the rates listed under “Annual Expenses” remain the same each year, except to reduce annual expenses to reflect the scheduled maturity of outstanding debt or the completion of organization expense amortization;

b. assume reinvestment of all dividends and distributions at net asset value;

c. reflect all recurring and nonrecurring fees including underwriting discounts and commissions; and

d. prominently disclose that the Example should not be considered a representation of future expenses and that actual expenses may be greater or lesser than those shown.

2. Include a synopsis of information contained in the prospectus when the prospectus is long or complex. Normally, a synopsis should not be provided where the prospectus is twelve or fewer printed pages.

Instruction. The synopsis should provide a clear and concise description of the key features of the offering and the Registrant, with cross-references to relevant disclosures elsewhere in the prospectus or Statement of Additional Information.

3. In the case of a business development company, include the information required by Item 101(e) of Regulation S-K [17 CFR 229.101] (concerning reports and other information filed with the Commission).

Item 4. Financial Highlights

1. General. Furnish the following information for the Registrant, or for the Registrant and its subsidiaries, consolidated as prescribed in Rule 6-03 of Regulation S-X [17 CFR 210.6-03]:

Financial Highlights

Per Share Operating Performance

a. Net Asset Value, Beginning of Period

(1) Net Investment Income

(2) Net Gains or Losses on Securities (both realized and unrealized)

b. Total From Investment Operations

c. Less Distributions

(1) Dividends (from net investment income)

(A) To Preferred Shareholders

(B) To Common Shareholders

(2) Distributions (from capital gains)

(A) To Preferred Shareholders

(B) To Common Shareholders

(3) Returns of Capital

(A) To Preferred Shareholders

(B) To Common Shareholders

d. Total Distributions

e. Net Asset Value, End of Period

f. Per Share Market Value, End of Period

g. Total Investment Return

Ratios/Supplemental Data

h. Net Assets, End of Period

i. Ratio of Expenses to Average Net Assets

j. Ratio of Net Income to Average Net Assets

k. Portfolio Turnover Rate

Instructions.

General Instructions

1. [Removed and reserved.]

2. Briefly explain the nature of the information contained in the table and its source. The auditor's report as to the financial highlights need not be included in the prospectus. Note that the auditor's report is contained elsewhere in the registration statement, specify its location, and state that it can be obtained by shareholders.

3. Present the information in comparative columns for each of the last ten fiscal years of the Registrant (or for the life of the Registrant and its immediate predecessors, if less), but only for periods subsequent to the effective date of the Registrant's first Securities Act registration statement. In addition, present the information for the period between the end of the latest fiscal year and the date of the latest balance sheet or statement of assets and liabilities. Where the period for which the Registrant provides financial highlights is less than a full fiscal year, the ratios set forth in the table may be annualized but the fact of this annualization must be disclosed in a note to the table.

4. List per share amounts at least to the nearest cent. If the offering price is computed in tenths of a cent or more, state the amounts on the table in tenths of a cent. Present all information using a consistent number of decimal places.

5. Provide all information in the table, including distributions to preferred shareholders, on a common share equivalent basis.

6. Make, and indicate in a note, appropriate adjustments to reflect any stock split or stock dividend during the period.

7. If the investment adviser has been changed during the period covered by this Item, indicate the date(s) of the change(s) in a note.

8. The financial highlights for at least the latest five fiscal years must be audited and must so state.

Per Share Operating Performance

9. Derive the amount for caption a(1) by adding (deducting) the increase (decrease) per share in undistributed net investment income for the period to Start Printed Page 33372(from) dividends from net investment income per share for the period. The increase (decrease) may be derived by comparing the per share figures obtained by dividing undistributed net investment income at the beginning and end of the period by the number of shares outstanding on those dates. Other methods may be acceptable but should be explained briefly in a note to the table.

10. The amount shown at caption a(2) is the balancing figure derived from the other figures in the statement. The amount shown at this caption for a share outstanding throughout the year may not agree with the change in the aggregate gains and losses in the portfolio securities for the year because of the timing of sales and repurchases of the Registrant's shares in relation to fluctuating market values for the portfolio.

11. For any distributions made from sources other than net investment income and capital gains, state the per share amounts thereof separately at caption c(3) and note the nature of the distributions.

12. In caption e, use the net asset value for the end of each period for which information is being provided. If the Registrant has not been in operation for a full fiscal year, state its net asset value immediately after the closing of its first public offering in a note to the caption.

Total Investment Return

13. When calculating “total investment return” for caption g:

a. Assume a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each period reported on the table;

b. note that the total investment return does not reflect sales load; and

c. assume reinvestment of dividends and distributions at prices obtained by the Registrant's dividend reinvestment plan or, if there is no plan, at the lower of the per share net asset value or the closing market price of the Registrant's shares on the dividend/distribution date.

14. A Registrant also may include, as a separate caption, total return based on per share net asset value, provided the Registrant briefly explains in a note the differences between this calculation and the calculation required by caption g.

Ratios and Supplemental Data

15. Compute “average net assets” for captions i and j based on the value of net assets determined no less frequently than the end of each month. Indicate in a note that the expense ratio and net investment income ratio do not reflect the effect of dividend payments to preferred shareholders.

16. Compute the “ratio of expenses to average net assets” using the amount of expenses shown in the Registrant's statement of operations for the relevant fiscal year, including increases resulting from complying with paragraph 2(g) of Rule 6-07 of Regulation S-X, and including reductions resulting from complying with paragraphs 2(a) and (f) of Rule 6-07 regarding fee waivers and reimbursements. If a change in the methodology for determining the ratio of expenses to average net assets results from applying paragraph 2(g) of Rule 6-07, explain in a note that the ratio reflects fees paid with brokerage commissions and fees reduced in connection with specific agreements only for fiscal years ending after September 1, 1995.

17. Compute portfolio turnover rate as follows:

a. Divide (A) the lesser of purchases or sales of portfolio securities for the fiscal year by (B) the monthly average of the value of portfolio securities owned by the Registrant during the fiscal year. Calculate the monthly average by totaling the values of portfolio securities as of the beginning and end of the first month of the fiscal year and as of the end of each of the succeeding eleven months and dividing the sum by 13.

b. Exclude from both the numerator and denominator all securities, including options, whose maturity or expiration date at the time of acquisition was one year or less. Include all long-term securities, including U.S. Government securities. Purchases include cash paid upon conversion of one portfolio security into another and the cost of rights or warrants. Sales include net proceeds of the sale of rights or warrants and net proceeds of portfolio securities that have been called or for which payment has been made through redemption or maturity.

c. If during the fiscal year the Registrant acquired the assets of another investment company or of a personal holding company in exchange for its own shares, exclude from purchases the value of securities so acquired, and, from sales, all sales of the securities made following a purchase-of-assets transaction to realign the Registrant's portfolio. Appropriately adjust the denominator of the portfolio turnover computation, and disclose the exclusions and adjustments.

d. Include in purchases and sales short sales that the Registrant intends to maintain for more than one year and put and call options with expiration dates more than one year from the date of acquisition. Include proceeds from a short sale in the value of portfolio securities sold during the period; include the cost of covering a short sale in the value of portfolio securities purchased during the period. Include premiums paid to purchase options in the value of portfolio securities purchased during the reporting period; include premiums received from the sale of options in the value of portfolio securities sold during the period.

2. Business Development Companies. If the Registrant is regulated as a business development company under the Investment Company Act, furnish in a separate section the information required by Items 301, 302, and 303 of Regulation S-K.

3. Senior Securities. Furnish the following information as of the end of the last ten fiscal years for each class of senior securities (including bank loans) of the Registrant. If consolidated statements were prepared as of any of the dates specified, furnish the information on a consolidated basis:

YearTotal amount outstanding exclusive of treasury securitiesAsset coverage per unitInvoluntary liquidating preference per unitAverage market value per unit (exclude bank loans)
(1)(2)(3)(4)(5)

Instructions.

1. Instructions 2, 3, and 8 to Item 4.1 also apply to this sub-item.

2. Use the method described in Section 18(h) of the Investment Company Act to calculate the asset coverage to be set forth in column (3). However, in lieu of expressing asset coverage in terms of a ratio, as described in Section 18(h), express it for each class of senior securities in terms of dollar amounts per share (in the case of preferred stock) or per $1,000 of indebtedness (in the case of senior indebtedness).Start Printed Page 33373

3. Column (4) need be included only with respect to senior stock.

4. Set forth in a note to the table the method used to determine the averages called for by column (5) (e.g., weighted, monthly, daily, etc.).

5. Briefly explain the terms used in the headings of the columns.

Item 5. Plan of Distribution

Briefly describe how the securities being registered will be distributed. Include the following information:

1. For each principal underwriter distributing the securities being offered set forth:

a. Its name and principal business address;

b. a brief discussion of the nature of any material relationship with the Registrant (other than that of principal underwriter), including any arrangement under which a principal underwriter or its affiliates will perform administrative or custodial services for the Registrant;

Instruction. Any material relationship between the underwriter (or its affiliates) and the investment adviser (or its affiliates) of the Registrant relating to the business or operation of the Registrant constitutes a material relationship of the underwriter with the Registrant.

c. the amount of securities underwritten; and

d. the nature of the obligation to distribute the Registrant's securities.

Instruction. All that is required to be disclosed as to the nature of the underwriter's obligation is whether the underwriter will be committed to take and pay for all the securities if any are taken, or whether it is merely an agency or “best-efforts” arrangement under which the underwriter is required to take and pay for only such securities as it may sell to the public. Conditions precedent to the underwriter's taking the securities, including “market outs,” need not be described, except in the case of an agency or “best-efforts” arrangement.

2. The price to the public.

Instructions.

1. If it is impracticable to state the price to the public, concisely explain the manner in which the price will be determined, including a description of the valuation procedure used by the Registrant in determining the price. If the securities are to be offered at the market price, or if the offering price is to be determined by a formula related to market price, indicate the market involved and the market price as of the latest practicable date.

2. For restrictions on distributions and repurchases of closed-end company securities, see Section 23 of the Investment Company Act, and Investment Company Act Rel. No. 3187 (Feb. 6, 1961) [26 FR 1275 (Feb. 15, 1961)].

3. Briefly explain the basis for any differences in the price at which securities are offered to the public, as individuals and/or as groups, and to officers, directors and employees of the Registrant, its adviser or underwriter.

3. To the extent not set forth on the cover page of the prospectus, state the amount of the sales load, if any, as a percentage of the public offering price, and concisely describe the commissions to be allowed or paid to (i) underwriters, including all other items that would be deemed by FINRA to constitute underwriting compensation for purposes of FINRA's rules regarding securities offerings, underwriting and compensation, and (ii) dealers, including all cash, securities, contracts, and/or other considerations to be realized by any dealer in connection with the sale of securities.

Instruction. If any dealers are to act in the capacity of sub-underwriters and are allowed or paid any additional discounts or commission for acting in such capacity, a general statement to that effect will suffice without giving the additional amounts to be sold.

4. If the underwriting agreement provides for indemnification by the Registrant of the underwriters or their controlling persons against any liability arising under the Securities Act or Investment Company Act, briefly describe such indemnification provisions.

5. Provide the identity of any finder and, if applicable, concisely describe the nature of any material relationship between such finder and the Registrant, its officers, directors, principal shareholders, finders or promoters or the principal underwriter(s), or the managing underwriter(s), if any, and, in each case, the affiliates or associates thereof.

6. Indicate the date by which investors must pay for the securities.

7. If the securities are being offered in conjunction with any retirement plan, provide a statement regarding the manner in which further information about the plan can be obtained.

8. If investors' funds will be forwarded to an escrow account, identify the escrow agent, and briefly describe the conditions for release of the funds, whether such funds will accrue interest while in escrow, and the manner in which the monies in such account will be distributed if such conditions are not satisfied, including how accrued interest, if any, will be distributed to investors.

9. If the securities offered by the Registrant are not being listed on a national securities exchange, disclose whether any of the underwriters intends to act as a market maker with respect to such unlisted securities.

10. Briefly outline the plan of distribution of any securities that are to be offered other than through underwriters.

a. If the securities are to be offered through the selling efforts of brokers or dealers, concisely describe the plan of distribution and the terms of any agreement, arrangement, or understanding entered into with broker(s) or dealer(s) prior to the effective date of the registration statement, including volume limitations on sales, parties to the agreement, and the conditions under which the agreement may be terminated. If known, identify the broker(s) or dealer(s) that will participate in the offering, and state the amount to be offered through each.

b. If any of the securities being registered are to be offered other than for cash, describe briefly the general purposes of the distribution, the basis upon which the securities are to be offered, the amount of compensation and other expenses of distribution, and the person(s) responsible for such expenses.

c. If the distribution is to be made under a plan of acquisition, reorganization, readjustment, or succession, provide a statement regarding the general effect of the plan and when it becomes operative. As to any material amount of assets to be acquired under the plan, furnish the information required by Instruction 4 to Item 7.1 below.

Item 6. Selling Shareholders

If any securities being registered are to be offered for the account of shareholders, furnish the information required by Item 507 of Regulation S-K [17 CFR 229.507].

Item 7. Use of Proceeds

1. State the principal purposes for which the net proceeds of the offering are intended to be used and the approximate amount intended to be used for each purpose.

Instructions.

1. If any substantial portion of the proceeds will not be allocated in accordance with the investment objectives and policies of the Registrant, a statement to that effect should be made together with a statement of the amount involved and an indication of how that amount will be invested.