[Federal Register Volume 59, Number 163 (Wednesday, August 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20623]


[[Page Unknown]]

[Federal Register: August 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230

[Release Nos. 33-7084; IC-20487; File No. S7-15-93]
RIN 3235-AF86

 

Continuous or Delayed Offerings by Certain Closed-End Management 
Investment Companies

AGENCY: Securities and Exchange Commission.

ACTION: Final rule amendment.

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SUMMARY: The Securities and Exchange Commission is adopting an 
amendment to the ``shelf registration'' rule. The amendment will enable 
a closed-end management investment company or business development 
company that makes periodic repurchase offers to offer securities on a 
continuous or delayed basis under the shelf registration provisions of 
the Securities Act of 1933.

EFFECTIVE DATE: This rule amendment will become effective on September 
26, 1994.

FOR FURTHER INFORMATION CONTACT: Robert G. Bagnall, Assistant Chief, 
(202) 942-0686, or Thomas M. J. Kerwin, Staff Attorney, (202) 942-0692, 
Office of Regulatory Policy, Division of Investment Management, 
Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 
10-6, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission is 
adopting substantially as proposed paragraph (a)(1)(xi) of rule 415 [17 
CFR 230.415] under the Securities Act of 1933 [15 U.S.C. 77a] (the 
``Securities Act''). The Commission also is adopting separately a 
related provision, new rule 486 [17 CFR 230.486] under the Securities 
Act.\1\ Rule 486 permits closed-end investment companies making 
periodic repurchase offers to file certain post-effective amendments 
that become effective automatically, assisting those funds that make 
continuous or delayed offerings in maintaining continuously effective 
registration statements.
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    \1\See Post-Effective Amendments to Investment Company 
Registration Statements, Investment Company Act Release No. 20486.
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I. Background and Discussion

    On April 7, 1993, the Commission adopted rule 23c-3 [17 CFR 
270.23c-3] under the Investment Company Act of 1940 [15 U.S.C. 80a] 
(the ``Investment Company Act'').\2\ Rule 23c-3, among other things, 
authorizes certain closed-end management investment companies and 
business development companies (``closed-end interval funds'') to make 
periodic repurchase offers for their own shares. The Commission 
recognized that closed-end interval funds may need to replenish their 
assets from time to time by selling new shares of common stock. To 
facilitate such sales, the Commission proposed to amend the shelf 
registration rule, rule 415 under the Securities Act, to permit closed-
end interval funds to make delayed or continuous offerings.\3\
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    \2\See Repurchase Offers by Closed-End Management Investment 
Companies, Investment Company Act Release No. 19399 (April 7, 1993), 
58 FR 19330.
    \3\Continuous or Delayed Offerings by Certain Closed-End 
Management Investment Companies; Automatic Effectiveness of Certain 
Registration Statements and Post-Effective Amendments, Investment 
Company Act Release No. 19391 (April 7, 1993), 58 FR 19361.
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    Comments generally favored the proposed amendment to rule 415. The 
Commission is adopting the amendment substantially as proposed.\4\ New 
paragraph (a)(1)(xi) of rule 415 permits closed-end interval funds to 
register ``shares of common stock which are to be offered and sold on a 
delayed or continuous basis.'' Most commenters agreed that closed-end 
interval funds need authority to make delayed as well as continuous 
offerings.\5\ For example, interval funds making offerings only at 
specific times, such as in offerings coinciding with periodic 
repurchases, would require authority to make delayed offerings.\6\ 
Offerings under paragraph (a)(1)(xi) are not subject to the two-year 
limitation in paragraph (a)(2).
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    \4\As adopted, paragraph (a)(1)(xi) adds the word ``registered'' 
before the words ``closed-end management investment company'' to 
conform to the wording of rule 23c-3.
    \5\E.g., Letter from Investment Company Institute to Jonathan G. 
Katz, Secretary, SEC at 2 (June 14, 1993), File No. S7-15-93; Letter 
from American Bar Association to Jonathan G. Katz, Secretary, SEC at 
3 (June 10, 1993), File No. S7-15-93; Letter from Dechert Price & 
Rhoads to Jonathan G. Katz, Secretary, SEC at 2 (June 14, 1993), 
File No. S7-15-93.
    \6\Delayed or continuous offerings by closed-end interval funds 
may require careful attention to share pricing. Rule 23c-
3(b)(7)(iii) applies section 23(b) to require that shares be priced 
by reference to the net asset value next determined after receipt of 
a purchase order, and generally requires daily calculation of net 
asset value when an interval fund is offering its shares.
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    Paragraph (a)(1)(xi) would apply only to offerings of common stock 
by closed-end interval funds and would not be available to other 
closed-end investment companies. Several commenters asserted that other 
closed-end companies need the ability to use shelf registration for 
delayed offerings.\7\ Closed-end interval funds will benefit from 
authority to undertake continuous or delayed offerings of equity 
securities to replenish assets periodically depleted by repurchases. 
While closed-end companies other than interval funds may repurchase 
shares occasionally and therefore seek to sell new securities, or may 
wish to offer additional shares depending on market conditions, closed-
end interval funds have a fundamental policy of making periodic 
repurchase offers. Closed-end interval funds have a clear, ongoing need 
to make continuous or periodic offerings of shares, evidencing the 
``bona fide intent to offer and sell'' traditionally required for 
delayed shelf offerings.\8\ Therefore, the Commission is retaining the 
limitation in paragraph 415(a)(1)(xi) to closed-end interval funds. 
While the Commission is not now authorizing other closed-end companies 
to make delayed offerings, it expects to continue to consider the 
matter.
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    \7\E.g., Letter from Investment Company Institute, supra note 3, 
at 2, 4 (authority should be available to all closed-end companies 
that repurchase their own shares, even if not under rule 23c-3); 
Letter from American Bar Association, supra note 3, at 3-4 (should 
be available to all closed-end companies, or at least those similar 
to interval funds); Letter from Dechert Price & Rhoads, supra note 
3, at 2-3 (should be available to all closed-end funds).
    \8\E.g., Proposed Revision of Regulation S-K and Guides for the 
Preparation and Filing of Registration Statements and Reports, 
Securities Act Release No. 6276 Sec. III.E. (Dec. 23, 1980), 46 FR 
78, 88 (addressing proposed rule 462A, predecessor to rule 415; 
``essential conditions'' of proposed shelf registration authority 
include ``a bona fide intent to offer and sell''); cf. 
Simplification of Registration Procedures for Primary Securities 
Offerings, Securities Act Release No. 6964, Sec. II.A.6. (Oct. 22, 
1992), 57 FR 48970, 48974 (Form S-3 registrant eligible to file 
``delayed basis'' shelf registration should do so only if the 
registration statement accurately reflects the registrant's current 
distribution plans and arrangements).
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II. Cost Benefit Analysis

    The amendment to rule 415 will benefit closed-end interval funds by 
permitting them to conduct continuous or delayed offerings of their 
shares. Interval funds may conduct such offerings more efficiently and 
on shorter notice, filing fewer registration statements and other 
related documents. The amendment does not impose any significant new 
burdens on investment companies. The Commission also may benefit 
because its staff need not review as many registration statements as 
otherwise might be filed.

III. Summary of Final Regulatory Flexibility Analysis

    The Commission prepared a summary of the Initial Regulatory 
Flexibility Analysis concerning the amendment to rule 415 in accordance 
with 5 U.S.C. 603 and published it in the proposing release.\9\ No 
comments addressed the analysis. The Commission has prepared a Final 
Regulatory Flexibility Analysis in accordance with 5 U.S.C. 604. The 
Analysis explains that the amendment will aid closed-end interval 
funds, including certain business development companies, in 
replenishing assets as needed in conjunction with periodic repurchases 
of their shares. The Analysis states that the amendment enhances 
flexibility and maintains investor protection in a manner that should 
minimize any impact on, or cost to, small entities. A copy of the Final 
Regulatory Flexibility Analysis may be obtained by contacting Thomas M. 
J. Kerwin at Mail Stop 10-6, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549.
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    \9\Inv. Co. Act Rel. 19391, supra note 2, Sec. IV, 58 FR at 
19363.
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IV. Statutory Authority

    The Commission is adopting the amendment to rule 415 pursuant to 
sections 6, 7, 10, and 19(a) of the Securities Act [15 U.S.C. 77f, 77g, 
77j, and 77s(a)].

List of Subjects in 17 CFR Part 230

    Investment companies, Reports and recordkeeping requirements, 
Securities.

Text of Adopted Rule Amendment

    For the reasons set out in the preamble, Chapter II, Title 17 of 
the Code of Federal Regulations is amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for Part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 
80a-37, unless otherwise noted.
* * * * *
    2. Section 230.415 is amended by removing the word ``or'' at the 
end of paragraph (a)(1)(ix), removing the period and adding the word 
``;or'' at the end of paragraph (a)(1)(x), and adding new paragraph 
(a)(1)(xi) to read as follows:


Sec. 230.415   Delayed or continuous offering and sale of securities.

    (a) * * *
    (1) * * *
    (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 
management investment company or business development company that 
makes periodic repurchase offers pursuant to Sec. 270.23c-3 of this 
chapter.
* * * * *
    By the Commission.

    Dated: August 17, 1994.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20623 Filed 8-23-94; 8:45 am]
BILLING CODE 8010-01-P