[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Proposed Rules]
[Pages 14448-14552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05776]
[[Page 14447]]
Vol. 84
Wednesday,
No. 69
April 10, 2019
Part II
Securities and Exchange Commission
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17 CFR Parts 229, 230 et al.
Securities Offering Reform for Closed-End Investment Companies;
Proposed Rule
Federal Register / Vol. 84 , No. 69 / Wednesday, April 10, 2019 /
Proposed Rules
[[Page 14448]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 230, 232, 239, 240, 243, 249, 270, and 274
[Release Nos. 33-10619; 34-85382; IC-33427; File No. S7-03-19]
RIN 3235-AM31
Securities Offering Reform for Closed-End Investment Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is
proposing rules that would 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 proposing rules that would allow these
investment companies to use the securities offering rules that are
already available to operating companies. The proposed rules would
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, the
proposed rules would include amendments to our rules and forms intended
to tailor the disclosure and regulatory framework to these investment
companies. The proposed rules also include a modernized approach to
securities registration fee payment that would require closed-end
investment companies that operate as ``interval funds'' to pay
securities registration fees using the same method that mutual funds
use today. Lastly, we are proposing certain structured data reporting
requirements, including the use of structured data format 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: Comments should be received by June 10, 2019.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment forms (http://www.sec.gov/rules/proposed.shtml); or
Send an email to [email protected]. Please include
File Number S7-03-19 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-03-19. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (http://www.sec.gov/rules/proposed.shtml). Comments also are
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: Asaf Barouk, Attorney-Adviser; J.
Matthew DeLesDernier, Senior Counsel; Sean Harrison, Senior Counsel;
Amy Miller, Senior Counsel; Angela Mokodean, Senior Counsel; Jacob D.
Krawitz, Branch Chief; David J. Marcinkus, Branch Chief; Amanda
Hollander Wagner, Branch Chief; or Brian McLaughlin Johnson, Assistant
Director, at (202) 551-6792, Investment Company Regulation Office;
Christian T. Sandoe, Assistant Director or Michael J. Spratt, Assistant
Director, at (202) 551-6921, Disclosure Review and Accounting Office;
Division of Investment Management; U.S. Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
SUPPLEMENTARY INFORMATION: The Commission is proposing for public
comment amendments to:
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 15 U.S.C. 80a-1 et seq.
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Commission reference CFR citation
(17 CFR)
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Securities Act of 1933 Rule 134.......... Sec. 230.134.
(``Securities Act '') \1\.
Rule 138.......... Sec. 230.138.
Rule 139.......... Sec. 230.139.
Rule 156.......... Sec. 230.156.
Rule 163.......... Sec. 230.163.
Rule 163A......... Sec. 230.163A.
Rule 164.......... Sec. 230.164.
Rule 168.......... Sec. 230.168.
Rule 169.......... Sec. 230.169.
Rule 172.......... Sec. 230.172.
Rule 173.......... Sec. 230.173.
Rule 405.......... Sec. 230.405.
Rule 415.......... Sec. 230.415.
Rule 418.......... Sec. 230.418.
Rule 424.......... Sec. 230.424.
Rule 430B......... Sec. 230.430B.
Rule 433.......... Sec. 230.433.
Rule 462.......... Sec. 230.462.
Rule 497.......... Sec. 230.497.
[[Page 14449]]
Securities Exchange Act of 1934 Rule 13a-11....... Sec. 240.13a-11.
(``Exchange Act '') \2\.
Rule 15d-11....... Sec. 240.15d-11.
Form 8-K.......... Sec. 249.308.
Investment Company Act of 1940 Rule 8b-16........ Sec. 270.8b-16.
(``Investment Company Act '')
\3\.
Rule 23c-3........ Sec. 270.23c-3.
Rule 24f-2........ Sec. 270.24f-2.
Form 24F-2........ Sec. 274.24.
Securities Act and Investment Form N-2.......... Sec. 239.14 and
Company Act. Sec. 274.11a-1.
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Table of Contents
I. Introduction
II. Discussion
A. Scope of Closed-End Investment Companies Affected by the
Proposed Rules
B. Registration Process
1. Current Shelf Offering Process for Affected Funds
2. Proposed Amendments to the Registration Process for Affected
Funds
C. Well-Known Seasoned Issuer Status
D. Final Prospectus Delivery Reforms
E. Communications Reforms
1. Offering Communications
2. Broker-Dealer Research Reports
F. Other Proposed Rule Amendments
1. Rule 418 Supplemental Information
2. Amendments to Incorporation by Reference Into Proxy
Statements
G. New Registration Fee Payment Method for Interval Funds
H. Disclosure and Reporting Parity Proposals
1. Structured Data Requirements
2. Periodic Reporting Requirements
3. New Current Reporting Requirements for Affected Funds
4. Online Availability of Information Incorporated by Reference
5. Enhancements to Certain Registered CEFs' Annual Report
Disclosure
I. Certain Staff No-Action Letters
J. Conforming Changes to Form N-2
K. Compliance Date
III. General Request for Comment
IV. 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 Proposed Approach to Implementing Statutory
Mandates
E. Discussion of Discretionary Choices
1. New Registration Fee Payment Method for Interval Funds
2. Structured Data Requirements
3. Periodic Reporting Requirements
4. New Current Reporting Requirements for Affected Funds
5. Online Availability of Information Incorporated by Reference
F. Request for Comments
V. Paperwork Reduction Act Analysis
A. Background
B. Summary of the Proposed Amendments and Impact on Information
Collections
1. Proposed Amendments to Form N-2 Registration Statement
2. Proposed Structured Data Reporting Requirements
3. Proposed New Annual Reporting Requirements Under Rule 30e-1
and Exchange Act Periodic Reporting Requirements for BDCs
4. Securities Offering Communications
5. Prospectus Delivery Requirements
6. Proposed Form 8-K Reporting Requirements
7. Form 24F-2
C. Request for Comments
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for and Objectives of the Proposed Actions
B. Legal Basis
C. Small Entities Subject to the Rule
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
1. Registration Process and Final Prospectus Delivery
2. Communication Rules
3. New Registration Fee Payment Method for Interval Funds
4. Disclosure and Reporting Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
1. Alternatives to Proposed Approach to Implementing Statutory
Mandates
2. Alternative Approaches to Discretionary Choices
G. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority
Text of Proposed Rules and Forms
I. Introduction
We are proposing rules that would modify the registration,
communications, and offering processes for business development
companies (``BDCs'') and registered closed-end investment companies
(``registered CEFs'' and, collectively with BDCs, ``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 proposing rules that would allow affected funds to use the
securities offering rules that are already available to operating
companies.\7\
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\4\ BDCs are a category of closed-end investment companies that
do not register under the Investment Company Act, but rather elect
to be subject to the provisions of sections 55 through 65 of the
Investment Company Act. See section 2(a)(48) of the Investment
Company Act [15 U.S.C. 80a-2(a)(48)]. Congress established BDCs for
the purpose of making capital more readily available to small,
developing and financially troubled companies that do not have ready
access to the public capital markets or other forms of conventional
financing. See H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21 (1980).
\5\ Securities Offering Reform, Securities Act Release No. 8591
(July 19, 2005) [70 FR 44721 (Aug. 3, 2005)] (``Securities Offering
Reform Adopting Release''). In this release we generally use the
term ``operating company'' to refer to issuers that are not
investment companies and that are currently eligible to rely on the
rules we are proposing to amend.
\6\ See, e.g., id. at 44727 (discussing the exclusion of
investment companies registered under the Investment Company Act and
BDCs from the definition of ``well-known seasoned issuer''); id. at
44735 (discussing the exclusion of such companies from safe harbors
for factual business information and forward-looking information);
id. at 44784 (discussing the exclusion of such companies from final
prospectus delivery reforms).
\7\ See Part II.A infra concerning the definition of ``affected
funds.''
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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.\8\ As discussed in detail below,
the BDC Act identifies with specificity the required revisions.\9\ The
Economic Growth, Regulatory Relief, and Consumer Protection Act (the
``Registered CEF Act'') (and, together with the BDC Act, the ``Acts'')
directs us to finalize rules to allow any registered CEF that is listed
on a national
[[Page 14450]]
securities exchange (a ``listed registered CEF'') or that makes
periodic repurchase offers under rule 23c-3 under the Investment
Company Act (``rule 23c-3'') \10\ (an ``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.\11\ Unlike the BDC
Act, the Registered CEF Act does not identify with specificity the
revisions that are required.
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\8\ Section 803(b) of Small Business Credit Availability Act,
Public Law 115-141, 132 Stat. 348 (2018) (``BDC Act''). This section
also directs us to make specified revisions to allow a BDC to use
the proxy rules that are available to such other issuers. Id.
Affected funds generally use the proxy rules that are available to
operating companies already. One current difference applicable to
these entities, however, is a more limited ability to incorporate
information into their proxy statements by reference. The BDC Act
directs that we eliminate this difference by providing these
entities parity with operating companies. Section 803(b)(2)(N) of
the BDC Act; see also infra Part II.F.2.
\9\ See section 803(b)(2) of BDC Act.
\10\ 17 CFR 270.23c-3.
\11\ Section 509(a) of Economic Growth, Regulatory Relief, and
Consumer Protection Act, Public Law 115-174, 132 Stat. 1296 (2018)
(``Registered CEF Act''). The Registered CEF Act also refers to
proxy rules, as does the BDC Act. See supra footnote 8.
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The proposed rules would institute a number of reforms:
First, they would 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 proposed rules would allow affected funds to
qualify as ``well-known seasoned issuers'' (``WKSIs'') under rule 405
under the Securities Act.
Third, they would allow affected funds to satisfy final
prospectus delivery requirements using the same method as operating
companies.
Fourth, they would allow affected funds to use
communications rules currently available to operating companies, such
as the use of certain factual business information, forward-looking
information, a ``free writing prospectus,'' and broker-dealer research
reports.
Finally, they would tailor the disclosure and regulatory
framework for affected funds in light of the proposed amendments to the
offering rules applicable to them. These proposed 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 new requirement for
registered CEFs to file reports on Form 8-K in a manner similar to
operating companies and BDCs, including new Form 8-K items tailored to
registered CEFs and BDCs; and a proposal to require interval funds to
pay securities registration fees using the same method that mutual
funds and exchange-traded funds (``ETFs'') use today.
As discussed in detail below, the proposed rules would affect
categories of affected funds differently just as categories of
operating companies are treated differently under these rules
currently. For example, some of the rules would apply to all affected
funds, that is, all BDCs and registered CEFs. Many of the proposed
rules, however, would apply only to ``seasoned funds.'' These are
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.'' \12\ Some of the proposed rules would apply only to
seasoned funds that also qualify as WKSIs, that is, seasoned funds that
generally have at least $700 million in public float. Table 1
summarizes these different impacts.
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\12\ See infra footnote 18. Form S-3 defines an issuer's
``aggregate market value,'' commonly referred to as ``public
float,'' as the ``aggregate market value of the voting and non-
voting common equity held by non-affiliates.'' See General
Instruction I.B.1 of Form S-3. The determination of public float is
based on a public trading market, such as an exchange or certain
over-the-counter markets. See Securities Offering Reform Adopting
Release, supra footnote 5, at n.50.
Table 1
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Entities affected by
Rule Summary description of rule proposed changes Discussed below in
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REGISTRATION PROVISIONS
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Securities Act Rule 415............ Permits registration of Seasoned Funds*....... Parts II.B.1-II.B.2.a.
securities to be offered
on a delayed or a
continuous basis.
Proposed General Instructions A.2 Provide for backward and Seasoned Funds........ Part II.B.2.a.
and F.3 of Form N-2. forward incorporation by
reference.
Proposed General Instruction F.4.a. Requires online posting of Affected Funds........ Part II.H.4.
information incorporated
by reference.
Securities Act Rule 430B........... Permits certain issuers to Seasoned Funds........ Part II.B.2.b.
omit certain information
from their ``base''
prospectuses and update
the registration statement
after effectiveness.
Securities Act Rules 424 and 497... Provide the processes for Affected Funds........ Part II.B.2.b.
filing prospectus
supplements.
Securities Act Rule 462............ Provides for effectiveness WKSIs................. Part II.B.2.a.
of registration statements
immediately upon filing
with the Commission.
Securities Act Rule 418............ Exempts some registrants Seasoned Funds........ Part II.F.1.
from an obligation to
furnish certain
engineering, management,
or similar reports.
Investment Company Act Rule 22c-3.. Subjects interval funds to Interval Funds........ Part II.G.
the registration fee
payment system based on
annual net sales.
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COMMUNICATIONS PROVISIONS
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Securities Act Rule 134............ Permits issuers to publish Affected Funds........ Part II.E.1.
factual information about
the issuer or the
offering, including
``tombstone ads''.
Securities Act Rule 163A........... Permits issuers to Affected Funds........ Part II.E.1.
communicate without risk
of violating the gun-
jumping provisions until
30 days prior to filing a
registration statement.
Securities Act Rules 168 and 169... Permit the publication and Affected Funds........ Part II.E.1.
dissemination of regularly
released factual and
forward-looking
information.
Securities Act Rules 164 and 433... Permit use of a ``free Affected Funds........ Part II.E.1.
writing prospectus''.
[[Page 14451]]
Securities Act Rule 163............ Permits oral and written WKSIs................. Part II.E.1.
communications by WKSIs at
any time.
Securities Act Rule 138............ Permits a broker or dealer Seasoned Funds........ Part II.E.2.
to publish or distribute
certain research about
securities other than
those they are
distributing.
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PROXY STATEMENT PROVISION
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Item 13 of Schedule 14A............ Permits certain registrants Seasoned Funds........ Part II.F.2.
to use incorporation by
reference to provide
information that otherwise
must be furnished with
certain types of proxy
statements.
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PROSPECTUS DELIVERY PROVISIONS
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Securities Act Rules 172 and 173... Permit issuers, brokers, Affected Funds........ Part II.D.
and dealers to satisfy
final prospectus delivery
obligations if certain
conditions are satisfied.
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STRUCTURED DATA REPORTING PROVISIONS
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Structured Financial Statement Data A requirement that BDCs tag BDCs.................. Part II.H.1.a.
their financial statements
using Inline eXtensible
Business Reporting
Language (``Inline XBRL'')
format.
Prospectus Structured Data A requirement that Affected Funds........ Parts II.H.1.b-
Requirements. registrants tag certain II.H.1.c.
information required by
Form N-2 using Inline XBRL.
Form 24F-2 Structured Format....... A requirement that filings Form 24F-2 Filers..... Part II.H.1.d.
on Form 24F-2 be submitted
in a structured format.
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PERIODIC REPORTING PROVISIONS
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Investment Company Act Rule 8b-16.. A requirement that funds Registered CEFs....... Part II.H.5.
that rely on the rule
disclose certain
enumerated changes in the
annual report in enough
detail to allow investors
to understand each change
and how it may affect the
fund.
Proposed Item 24.4.h(2) of Form N-2 A requirement for Seasoned Funds........ Part II.H.2.a.
information about the
investor's costs and
expenses in the
registrant's annual report.
Proposed Item 24.4.h(3)............ A requirement for Seasoned Funds........ Part II.H.2.a.
of Form N-2........................ information about the
share price of the
registrant's stock and any
premium or discount in the
registrant's annual report.
Proposed Item 24.4.h(1) of Form N-2 A requirement for Seasoned Funds........ Part II.H.2.a.
information about each of
a fund's classes of senior
securities in the
registrant's annual report.
Proposed Item 24.4.g of Form N-2... A requirement for narrative Registered CEFs....... Part II.H.2.b.
disclosure about the
fund's performance in the
fund's annual report.
Item 4 of Form N-2................. Requires disclosure of BDCs.................. Part II.H.2.c.
certain financial
information.
Proposed Item 24.4.h(4) of Form N-2 A requirement to disclose Seasoned Funds........ Part II.H.2.d.
outstanding material staff
comments that remain
unresolved for a
substantial period of time.
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CURRENT REPORT PROVISIONS
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Exchange Act Rules 13a-11 and 15d- Require registered CEFs to Registered CEFs....... Part II.H.3.a.
11. file current reports on
Form 8-K.
Proposed Section 10 of Form 8-K.... Requires current reporting Affected Funds........ Part II.H.3.b.
of two new events specific
to affected funds.
Regulation FD Rule 103............. Provides that a failure to Seasoned Funds........ Part II.H.3.d.
make a public disclosure
required solely by rule
100 of Regulation FD will
not disqualify a
``seasoned'' issuer from
use of certain forms.
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* Some of the proposed rule changes that are shown above as affecting ``seasoned funds'' would only affect those
seasoned funds that elect to file a registration statement on Form N-2 using a proposed instruction permitting
funds to use the form to file a short-form registration statement.
[[Page 14452]]
II. Discussion
A. Scope of Closed-End Investment Companies Affected by the Proposed
Rules
While the rulemaking mandate of the BDC Act applies to all BDCs,
the mandate of the Registered CEF Act extends to most, but not all,
registered CEFs.\13\ Specifically, the BDC Act addresses both BDCs that
are listed on an exchange and those that are not, while the Registered
CEF Act extends to all registered CEFs that are listed on an exchange
as well as interval funds, but excludes other unlisted funds. We
propose to apply the proposed rules to all BDCs and registered CEFs,
with certain conditions and exceptions discussed below and generally
illustrated in Table 1 above.
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\13\ See section 509(a) of Registered CEF Act.
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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.
Except as noted below, we believe, for purposes of the relevant
securities offering and communications rules, that unlisted registered
CEFs are not distinguishable from unlisted BDCs, which the proposed
rules must cover, and that unlisted registered CEFs would benefit from
parity of treatment. Although certain benefits of the rules we are
proposing to amend are less likely to apply, by their existing terms,
to unlisted issuers,\14\ the scope of our proposed amendments would
generally treat unlisted BDCs, unlisted registered CEFs, and unlisted
operating companies in a consistent manner. We believe that this
approach would benefit unlisted registered CEFs and their investors,
including by providing new investor protections to investors in these
funds. It also could avoid adverse consequences that could result from
treating unlisted registered CEFs differently from all other registered
CEFs and unlisted BDCs. For example, such disparate treatment could
produce potential competitive disparities \15\ and the possibility of
anomalous results if an unlisted registered CEF were to list its shares
and at that time become subject to different offering requirements. The
proposal therefore would provide all BDCs and registered CEFs
additional flexibility in raising capital, subject to the conditions
and associated investor protections included in the proposed rules. We
recognize that despite this consistent treatment of affected funds,
unlisted affected funds may not qualify to rely on all of the rules we
propose to amend, by those rules' existing terms and conditions (for
example, most interval funds). However, these funds still would be able
to rely on many of the rules to gain additional flexibility in multiple
aspects of the offering process.\16\
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\14\ For example, affected funds that do not list their
securities on an exchange and do not have ``public float''--such as
most interval funds--would generally not qualify to be WKSIs or to
file short-form registration statements. See, e.g., infra footnotes
35-37.
\15\ See infra Part IV.B.1.
\16\ For example, these funds would newly be able to satisfy
final prospectus delivery obligations by filing a prospectus with
the Commission under the conditions discussed in Part II.D infra,
and the proposed rules also would significantly expand these funds'
flexibility with respect to offering communications as discussed in
Part II.E infra. These funds would also be subject to the other
requirements we are proposing for affected funds, such as the
requirement to provide reports on Form 8-K discussed in Part II.H.3
infra. We are also proposing a modernized approach to interval
funds' payment of securities registration fees. See infra Part II.G.
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Although the BDC Act's requirements are more specific than those in
the Registered CEF Act, we believe they both share the overall purpose
of providing offering and communication rule parity to the investment
companies covered by the Acts. In particular, both Acts direct that we
make available to these investment companies the securities offering
rules that are available to other issuers required to file reports
under section 13 or 15(d) of the Exchange Act. The BDC Act expressly
and specifically requires that we apply many of the proposed amendments
to BDCs while the Registered CEF Act does not expressly and
specifically identify the required revisions for registered CEFs, but
the two Acts share similar broad mandates. We believe that, except
where dictated by meaningful differences between BDCs and registered
CEFs--or each type of entity's broader regulatory environment--
consistent application of the proposed rules across affected funds
would result in more efficient offering processes and more consistent
investor protections. Accordingly, the proposed rules would generally
apply the specific requirements of the BDC Act to both BDCs and
registered CEFs, with certain conditions and exceptions discussed
below.
We request comment on the proposed scope of affected funds.
Is the proposed scope of affected funds appropriate?
Should open-end registered investment companies be
included in the scope of the affected funds? Why or why not? Should
some open-end registered investment companies but not others be
included? If so, which ones and why?
Should any investment companies be removed from the scope
of affected funds? If so, which ones and why? Should the scope--or the
scope of any of the individual aspects of the proposed rules--be
narrowed to exclude registered CEFs that are neither interval funds nor
listed registered CEFs?
We also request comment as to whether each proposed
amendment discussed throughout this release should include additional
or fewer types of investment companies.
B. Registration Process
We are proposing amendments to our rules and forms to permit
affected funds to use the more flexible registration process currently
available to operating companies. Specifically, the proposed amendments
would allow affected funds to 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, that are eligible to register
their securities offerings 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.\17\ 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.\18\
The issuer can then take down
[[Page 14453]]
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.\19\
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\17\ Primary offerings that are not continuous in nature may
only be made on a delayed, or ``shelf,'' basis if they fit within
one of the narrow sets of permissible delayed offerings in Rule
415(a)(1), including rule 415(a)(1)(x). In a continuous offering, an
issuer must be ready and willing to sell the securities at all
times. The issuer may not suspend and resume the offering. See
Continuous or Delayed Offerings by Certain Closed-End Management
Investment Companies, Investment Company Act Release No. 19391 (Apr.
7, 1993) [58 FR 19361, 19362 (Apr. 14, 1993)]. An issuer also can
rely on rule 415(a)(1)(x) to make an immediate offering.
\18\ In this release we use the term ``seasoned'' to refer
generally to an issuer that meets the registrant requirements in
General Instruction I.A of Form S-3 and, when referring to seasoned
funds, a fund that meets these Form S-3 registrant requirements as
well as certain proposed modifications for registered CEFs. Among
other things, General Instruction I.A requires that the registrant
(1) has been subject to the reporting requirements of sections 12 or
15(d) of the Exchange Act and has filed all of the material required
to be filed pursuant to sections 13, 14, or 15(d) of the Exchange
Act for at least twelve calendar months immediately preceding the
filing of the registration statement; and (2) has filed in a timely
manner all reports required to be filed during the twelve calendar
months and any portion of a month immediately preceding the filing
of the registration statement (with specified Form 8-K exceptions).
A foreign private issuer also can meet the registrant requirements
of Form F-3, in lieu of Form S-3. We focus in this release on Form
S-3 because a foreign investment company generally cannot make a
public offering of its securities in the United States. See section
7(d) of the Investment Company Act [15 U.S.C. 80a-7(d)].
\19\ Issuers that rely on rule 415(a)(1)(x) must file a new
registration statement every three years, with unsold securities and
unused fees carried forward to the new registration statement. See
Securities Act rule 415(a)(5) [17 CFR 230.415(a)(5)]. If the new
registration statement is an automatic shelf registration statement
filed by a WKSI, it will be effective immediately upon filing.
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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.\20\ 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.\21\
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.
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\20\ See Revisions to the Eligibility Requirements for Primary
Securities Offerings on Forms S-3 and F-3, Securities Act Release
No. 8878 (Dec. 19, 2007) [72 FR 73534, 73537 n.36 (Dec. 27, 2007)]
(``Rule 415(a)(1)(x) permits shelf offerings of securities
`registered (or qualified to be registered) ' on Form S-3 or Form F-
3. We note that a closed-end investment company, including a
business development company . . . that meets the eligibility
standards enumerated in Form S-3, as revised by new General
Instruction I.B.6., may register its securities in reliance on Rule
415(a)(1)(x) notwithstanding the fact that closed-end funds register
their securities on Form N-2 rather than Form S-3.'' (emphasis
added)). Affected funds also can currently conduct offerings under
other provisions of rule 415(a)(1).
\21\ The base prospectus of a shelf registration statement will
generally describe in broad terms the types of securities and
offerings that the issuer may conduct at some later time.
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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.\22\ When an affected fund
sells securities, including as part of a ``takedown off the shelf,''
its registration statement must include all required information.\23\
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.\24\ 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 our staff's
review and comment process.\25\
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\22\ Form N-2 permits registrants to ``backward incorporate''
financial information from a previously-filed report under limited
circumstances: (1) A registered CEF can satisfy the requirements to
provide financial highlights in the prospectus, and financial
statements in the SAI, by incorporating this information by
reference to a previously-filed annual or semi-annual report filed
on Form N-CSR; and (2) a BDC may satisfy the requirement to provide
similar financial and other information by reference to a
previously-filed annual report on Form 10-K. See General Instruction
F of Form N-2.
\23\ The fund's registration statement must include all required
information to avoid liability from selling securities from an out-
of-date prospectus and to satisfy section 10(a) of the Securities
Act. See infra footnotes 67-68 and accompanying text.
\24\ Section 10(a)(3) of the Securities Act provides that when a
prospectus is used more than nine months after the effective date of
the registration statement, the information contained therein shall
be as of a date not more than sixteen months prior to such use. 15
U.S.C. 77j. An affected fund registering an offering under rule 415
also must undertake to file a post-effective amendment to the
registration statement: (1) To include any prospectus required by
section 10(a)(3) of the Securities Act; (2) to reflect in the
prospectus any facts or events after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; and (3) to include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement. See Item 34.4 of Form N-2.
\25\ These post-effective amendments are filed pursuant to
section 8(c) of the Securities Act and must be declared effective,
typically by the staff acting pursuant to delegated authority. In
contrast, under Form S-3, an issuer's section 10(a)(3) update need
not be made through a separate post-effective amendment. Rather,
under that form, when the issuer files its annual report on Form 10-
K containing the issuer's audited financial statements for its most
recently completed fiscal year by the due date of the annual report,
it operates as a post-effective amendment to the registration
statement for purposes of section 10(a)(3). See Securities Offering
Reform Adopting Release, supra footnote 5, at n.61.
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Affected funds also cannot currently rely on rule 430B, which
allows certain issuers to omit information from a base prospectus, or
the process that operating companies follow to file prospectus
supplements.\26\ 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.\27\
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\26\ Rule 430B is available for automatic shelf registration
statements filed by WKSIs and shelf registration statements filed by
certain issuers eligible to use Form S-3 for a primary offering.
Affected funds currently rely on Securities Act rule 430A and rule
430C, which do not permit an issuer to omit as much information as
permitted under rule 430B.
\27\ Affected funds in particular may want greater flexibility
to control the timing of their capital raising because section 23(b)
of the Investment Company Act generally prohibits a registered CEF
from issuing its shares at a price below the fund's current net
asset value (``NAV'') without shareholder approval (and this
provision applies to BDCs as well with certain modifications). 15
U.S.C. 80a-23(b); 15 U.S.C. 80a-62. Because the shares of affected
funds often trade at a discount to NAV, these funds may want to
quickly access the markets when their shares are trading at a
premium. Selling securities ``off the shelf'' is one way to achieve
such quick access.
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2. Proposed Amendments to the Registration Process for Affected Funds
Consistent with the BDC Act and the Registered CEF Act, we are
proposing to provide affected funds parity with operating companies by
permitting affected funds to:
File a short-form registration statement on Form N-2 that
will function like a Form S-3 registration statement. An affected fund
eligible to file this short-form registration statement could use it to
register shelf offerings, including shelf registration statements filed
by WKSI affected funds that become effective automatically, and could
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, provided that this information is
identified as being included for this purpose.
a. Short-Form Registration on Form N-2
We are proposing a new instruction to Form N-2 to allow affected
funds to file a short-form registration statement on Form N-2 that will
function like a registration statement filed on Form
[[Page 14454]]
S-3. We generally refer to this proposed instruction, General
Instruction A.2, as the ``short-form registration instruction'' and
funds relying on this instruction as filing a short-form registration
statement on Form N-2.\28\ If a fund is eligible to file a registration
statement under this new instruction, the fund's registration statement
would 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 could use the proposed instruction to register a shelf
offering under rule 415(a)(1)(x), and we are proposing conforming
amendments to that rule to make this clear. But the proposed
instruction would not be limited to offerings under rule 415(a)(1)(x);
an affected fund could use the proposed instruction to register any of
the securities offerings that operating companies are permitted to
register on Form S-3.\29\
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\28\ Proposed General Instruction A.2 of Form N-2. Some of the
required amendments and the conditions in our current rules are
available only to issuers that meet the eligibility and transaction
requirements of Form S-3 and are therefore eligible to file a short-
form registration statement on that form. The proposed short-form
registration instruction in Form N-2 is designed to facilitate these
amendments that we are proposing to implement the BDC Act and the
Registered CEF Act.
\29\ See General Instruction I.B of Form S-3 (identifying
transactions that can be registered on the form); proposed General
Instruction A.2.c of Form N-2. Form S-3, and therefore the proposed
short-form registration instruction, also is available to a
majority-owned subsidiary that is a closed-end management investment
company eligible to register a securities offering on Form N-2 if
(1) the subsidiary independently satisfies the form's registrant
eligibility and transactional requirements; (2) the parent satisfies
the form's registrant requirements and the transaction requirement
for a primary offering of non-convertible securities; (3) the parent
satisfies the form's registrant eligibility and transactional
requirements and provides a full and unconditional guarantee of the
payment obligations on the securities being registered; (4) the
parent satisfies the form's registrant eligibility and transactional
requirements and the securities of the registrant subsidiary being
registered are guarantees of the payment obligations on the parent's
non-convertible securities; and (5) the parent satisfies the form's
registrant eligibility and transactional requirements and the
securities of the registrant subsidiary being registered are
guarantees of the payment obligations on the non-convertible
securities being registered by another majority-owned subsidiary.
See General Instruction I.C of Form S-3.
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Eligibility To File a Short-Form Registration Statement
An affected fund would be able to file a short-form registration
statement under the proposed short-form registration instruction if:
For either a BDC or a registered CEF, the fund meets the
registrant and transaction requirements of Form S-3 (i.e., the fund
could register the offering on Form S-3 if it were an operating
company); \30\ and
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\30\ See proposed General Instructions A.2.a and A.2.c of Form
N-2; General Instructions I.A (registrant requirements) and I.B
(transaction requirements) of Form S-3.
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For registered CEFs, 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.\31\ This time period and timely-filing
requirement parallel the requirements in Form S-3 regarding an issuer's
Exchange Act reports.
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\31\ Under the proposed amendment, the fund would also have to
have timely filed all reports required to be filed under section 30
of the Investment Company Act during any portion of a month
immediately preceding the filing of the registration statement. See
proposed General Instruction A.2.b of Form N-2.
An affected fund would generally 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.\32\ An affected
fund would generally meet the transaction requirements of Form S-3 for
a primary offering if the fund's public float is $75 million or
more.\33\ Requiring affected funds to satisfy the requirements of Form
S-3 in order to file a short-form registration statement would provide
parity for affected funds and operating companies.
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\32\ See General Instruction I.A.3 of Form S-3. In addition, we
are proposing two new Form 8-K reporting items for affected funds.
An affected fund's failure to timely file Form 8-K reports solely
under these proposed items would not affect the fund's ability to
file a short-form registration statement on Form N-2. See infra Part
II.H.3.
\33\ See General Instruction I.B of Form S-3. For example,
certain issuers with less than a $75 million public float also are
eligible to use Form S-3 to register a primary offering but are
limited as to the amount of securities they can register. See
General Instruction I.B.6 of Form S-3. See also infra Part II.C
(discussing our consideration of a different level of public float
for an affected fund to qualify as a WKSI or to file a short-form
registration statement on Form N-2, or a different metric in lieu of
an affected fund's public float).
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Certain affected funds, including most interval funds,\34\ do not
list their securities on an exchange and do not have public float. As a
result, there are some affected funds that generally would not be able
to satisfy the transaction requirement necessary to file a short-form
registration statement.\35\ Interval funds have their own offering
provision, Securities Act rule 415(a)(1)(xi),\36\ and certain post-
effective amendments to their registration statements are immediately
effective under rule 486(b) under the Securities Act.\37\ 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. In addition,
because interval funds make continuous offerings, they 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.
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\34\ Only one interval fund is currently exchange-traded.
\35\ The proposed 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. To
register a primary offering of equity securities on Form S-3, an
issuer must have a requisite amount of public float. See General
Instruction I.B.1 of Form S-3. Alternatively, an issuer must have
shares listed on an exchange and limit the amount sold over a
twelve-month period to no more than one-third of the aggregate value
of voting and non-voting common equity held by non-affiliates. See
General Instruction I.B.6 of Form S-3. Interval funds that are not
exchange-listed and without public float would not be qualified to
register a primary offering of their shares on Form S-3.
\36\ 17 CFR 230.415(a)(1)(xi).
\37\ 17 CFR 230.486(b).
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Along with 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 proposed short-form
registration instruction.\38\ 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,\39\ as well as reports required only under
section 30 of the Investment Company Act, such as reports on new Forms
N-CEN \40\ and N-PORT.\41\
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\38\ See proposed General Instruction A.2.b of Form N-2.
\39\ 17 CFR 249.331 and 17 CFR 274.128. Reports on Form N-CSR
are filed both under the Exchange Act and the Investment Company
Act.
\40\ 17 CFR 249.330 and 17 CFR 274.101.
\41\ 17 CFR 274.150. In October 2016, we modernized the
reporting and disclosure of information by registered investment
companies. Specifically, we adopted a new monthly portfolio
reporting form, Form N-PORT, which replaces Form N-Q [17 CFR 249.332
and 17 CFR 274.130]. Form N-PORT requires registered investment
companies other than money market funds and small business
investment companies to report information about their monthly
portfolio holdings to the Commission in a structured data format on
a quarterly basis, 60 days after quarter end. See Investment Company
Reporting Modernization, Investment Company Act Release No. 32314
(Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (``Reporting
Modernization Release''); see also Amendments to the Timing
Requirements for Filing Reports on Form N-PORT, Investment Company
Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)]
(``N-PORT Modification Release''). We also adopted a new annual
reporting form, Form N-CEN, to be used by registered investment
companies to report annually certain census-type information. Fund
groups with $1 billion or more in net assets will begin filing
reports on Form N-PORT with the Commission by April 30, 2019 (for
the period ending March 31, 2019). Smaller fund groups (i.e., fund
groups with less than $1 billion in net assets) will be required to
begin submitting reports on Form N-PORT by April 30, 2020 (for the
period ending March 31, 2020). See also Investment Company Reporting
Modernization, Investment Company Act Release No. 32936 (Dec. 8,
2017) [82 FR 58731 (Dec. 14, 2017)].
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[[Page 14455]]
An issuer's Exchange Act record provides 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.\42\ Although all affected funds file reports under the
Exchange Act, registered CEFs also file reports under the Investment
Company Act. 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.\43\ Moreover, requiring registered CEFs to have timely filed
their Investment Company Act reports would also provide parity among
BDCs, registered CEFs, and operating companies. This is because once
Form N-PORT fully replaces Form N-Q,\44\ registered CEFs will only file
Exchange Act reports semi-annually on Form N-CSR, whereas BDCs and
operating companies file Exchange Act reports quarterly on Forms 10-K
and 10-Q.\45\ Under the proposal, all issuers would be required to have
filed their quarterly and other required reports in order to file a
short-form registration statement.\46\
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\42\ See Shelf Registration, Securities Act Release No. 6499
(Nov. 17, 1983) [48 FR 52889 (Nov. 23, 1983)]. See also Securities
Offering Reform Adopting Release, supra footnote 5, at 44726
(recognizing that an ``issuer's Exchange Act record provides the
basic source of information to the market and to potential
purchasers regarding the issuer and its management, business,
financial condition, and prospects. Because an issuer's Exchange Act
reports and other publicly available information form the basis for
the market's evaluation of the issuer and the pricing of its
securities, investors in the secondary market use that information
in making their investment decisions.'').
\43\ Exchange Act reports, such as reports on Form 10-Q or Form
N-CSR, include information required by Regulation S-X. Certain
reports on Form N-PORT must include the portfolio holdings
information required by the schedules set forth in rules 12-12
through 12-14 of Regulation S-X. See Part F of Form N-PORT. We also
require reports on Form N-PORT to include, in a structured format,
data elements that are otherwise required by Regulation S-X. See
Reporting Modernization Release, supra footnote 41, at 81894.
\44\ Form N-Q will be rescinded on May 1, 2020. See supra
footnote 41.
\45\ Reports on Form N-PORT with monthly information will be
filed with the Commission on a quarterly basis, but only information
reported for the third month of each fund's fiscal quarter on Form
N-PORT will be publicly available (and not until 60 days after the
end of the fiscal quarter).
\46\ Affected funds historically must have timely filed reports
on Forms N-Q and N-SAR for the preceding 12 months in order to rely
on rule 415(a)(1)(x). This is because to rely on that rule, an
issuer must have timely filed required Exchange Act reports and Form
N-Q is, and Form N-SAR was, filed under both the Investment Company
Act and section 13(a) or 15(d) of the Exchange Act.
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Information Incorporated by Reference
The same rules on incorporation by reference that apply to Form S-3
registration statements would apply to a short-form registration
statement filed on Form N-2.\47\ Specifically, an affected fund relying
on the short-form registration instruction would be required to:
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\47\ See section 803(c)(1) of the BDC Act (directing us to
include an item or instruction that is similar to item 12 on Form S-
3 to provide that a BDC that would otherwise meet the requirements
of Form S-3 shall incorporate by reference the reports and documents
filed by the BDC under the Exchange Act into the registration
statement of the BDC filed on Form N-2). We would eliminate current
General Instruction F.3 of Form N-2 in its entirety and replace it
with proposed General Instruction F.3. In these proposed provisions
and others that are substantively identical to parallel provisions
in Form S-3, we have proposed conforming references to a fund's SAI.
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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 sections 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); \48\ and
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\48\ Proposed General Instruction F.3.a(1)-(2) of Form N-2; cf.
Item 12(a)(1)-(2) of Form S-3. In addition, if sales of a class of
capital stock are to be registered on Form N-2 and the same class is
registered under section 12 of the Exchange Act, the affected fund
must incorporate by reference the description of the class contained
in the Exchange Act registration statement with respect to that
class (including any amendment or reports filed for the purpose of
updating such description). Proposed General Instruction F.3.a(3) of
Form N-2; cf. Item 12(a)(3) of Form S-3.
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State that all documents subsequently filed 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 (forward incorporation by
reference).\49\
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\49\ Proposed General Instruction F.3.b of Form N-2; cf. Item
12(b) of Form S-3.
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We also are proposing to allow 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.\50\ This approach, which is
substantively identical to a parallel item in Form S-3, would 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.\51\
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\50\ See proposed General Instruction F.3. The proposed
amendments would permit a fund to use this incorporated information
to provide the disclosure required by Items 3-13 and Items 16-24 of
Form N-2. Proposed General Instruction F.3.c of Form N-2; cf. Item
12(d) of Form S-3.
\51\ The BDC Act directs that we extend this parallel item in
Form S-3 (Item 12) to BDCs that meet Form S-3's requirements. See
supra footnote 47; Item 12(d) of Form S-3; see also section 509(a)
of the Registered CEF Act.
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We considered requiring registered CEFs to incorporate by reference
into their prospectuses and SAIs reports filed on Forms N-PORT and Form
N-CEN. These forms provide important information to investors, other
market participants, and Commission staff, and we propose including
these forms in the timeliness requirement for registered CEFs to use
the new short-form registration statement instruction.\52\ This
information, however, is not specifically required disclosure under
Form N-2, and so incorporating it by reference would not update the
required disclosures on Form N-2. Taking this consideration into
account, we are not proposing to require such incorporation.
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\52\ Proposed General Instruction A.2.b of Form N-2.
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We are also proposing conforming changes to Form N-2's
undertakings.\53\ Form N-2 currently requires an
[[Page 14456]]
undertaking that would prevent seasoned funds from incorporating
information by reference as proposed because it requires these funds to
file post-effective amendments in certain circumstances (and would do
so regardless of whether the information had already been incorporated
by reference).\54\ In contrast, operating companies registering on Form
S-3 are not required to make this undertaking if the required
information is included in an Exchange Act report incorporated by
reference or in a prospectus supplement that is part of the
registration statement.\55\ To implement the statutory mandate and
provide parity for affected funds, we propose to amend 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.\56\
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\53\ See section 803(b)(2)(P) of the BDC Act (directing us to
revise Item 34 of Form N-2 to require a BDC to provide undertakings
that are no more restrictive than the undertakings that are required
of a registrant pursuant to Item 512 of Regulation S-K, which are
the undertakings that apply to an operating company registering an
offering on Form S-3).
\54\ Form N-2 currently requires an affected fund registering an
offering under rule 415 to undertake to file, during any period in
which offers or sales are being made, a post-effective amendment to
the registration statement under certain circumstances, including to
provide any prospectus required by section 10(a)(3) of the
Securities Act. Item 34.4.a(1) of Form N-2.
\55\ See Item 512(a)(iii)(B) of Regulation S-K [17 CFR
229.512(a)(iii)(B)].
\56\ Specifically, we propose to add a new provision to Item
34.4.a of Form N-2 stating that the requirement to undertake to file
a post-effective amendment would not apply if the registration
statement is filed under the proposed short-form registration
instruction and the information required to be included in a post-
effective amendment by Items 34.4.a(1)-(3) is contained in Exchange
Act reports that are incorporated by reference into the fund's
registration statement or is contained in a form of prospectus that
is part of the registration statement. See proposed Item 34.4.a of
Form N-2; cf. Item 512(a) of Regulation S-K.
We also propose to revise Item 34 to make conforming changes to
mirror parallel undertakings in Item 512 of Regulation S-K. See,
e.g., proposed Item 34.4.a(2) of Form N-2; cf. Item 512(a)(1)(ii) of
Regulation S-K; proposed Item 34.4.d(1) of Form N-2; cf. Item
512(a)(5)(i) of Regulation S-K; proposed Item 34.4.e(2)-(3) of Form
N-2; cf. Item 512(a)(6)(ii)-(iii) of Regulation S-K; proposed Item
34.6 of Form N-2; cf. Item 512(b) of Regulation S-K; and proposed
Item 34.7 of Form N-2; cf. Item 512(h) of Regulation S-K.
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Affected Funds' Use of Rule 415(a)(1)(x) and Automatic Shelf
Registration Statements
We are proposing two additional amendments to allow affected funds
to use the shelf registration system in parity with operating
companies. First, we propose to amend rule 415(a)(1)(x) to clarify that
affected funds may use that rule by adding references to a registration
statement filed under the proposed short-form registration
instruction.\57\ Second, we propose a new general instruction to permit
affected funds that would be WKSIs under the proposed amendments to
file an automatic shelf registration statement.\58\ A WKSI can register
unspecified amounts of different types or classes of securities on an
automatic shelf registration statement.\59\ The ability to use an
automatic shelf registration statement means that the registration
statement and any amendments will be effective immediately upon
filing.\60\ 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 also 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.\61\ Our proposed amendments would extend
these same benefits to affected funds that would be WKSIs under the
proposed amendments, as directed by the BDC Act and the Registered CEF
Act.\62\
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\57\ See proposed rule 415(a)(1)(x) (revised to include
securities registered pursuant to General Instruction A.2 of Form N-
2). See also section 803(b)(2)(J) of the BDC Act (directing us to
revise rule 415(a)(1)(x) to provide that a BDC that would otherwise
meet the eligibility requirements of Form S-3 can register its
securities under that provision). We also are proposing to add a
reference to a Form N-2 registration statement filed pursuant to
General Instruction A.2 to rule 415(a)(2) to make clear that
affected funds registering offerings pursuant to rule 415(a)(1)(ix),
like other issuers relying on that provision, would not be subject
to the limitation that they register an amount of securities that
the issuer reasonably expected would be offered or sold within two
years from the date that the registration statement became
effective. Cf. Securities Offering Reform Adopting Release, supra
footnote 5, at 44774-44775.
\58\ See proposed General Instruction B of Form N-2; section
803(c)(2) of the BDC Act (directing that we amend Form N-2 to
include an instruction that is similar to the instruction regarding
automatic shelf registration offerings by well-known seasoned
issuers on Form S-3 to provide that a BDC that is a well-known
seasoned issuer may file automatic shelf offerings on Form N-2). The
proposed instruction would provide that an affected fund that is a
WKSI may use the form as an automatic shelf registration statement
only for the transactions that are described in, and consistent with
the requirements of, General Instruction I.D of Form S-3. This
provides parity with operating companies because General Instruction
I.D of Form S-3 specifies the transactions and requirements for an
automatic shelf registration statement filed on Form S-3. Consistent
with General Instruction I.D of Form S-3, proposed General
Instruction B specifies that the form could not be used as an
automatic shelf registration statement for securities offerings
under rule 415(a)(1)(vii) or (viii).
\59\ See rule 430B(a) under the Securities Act [17 CFR
230.430B(a)].
\60\ See rule 462(e) and rule 462(f) under the Securities Act
[17 CFR 230.462(e) and 17 CFR 230.462(f)].
\61\ See rule 457(r) and rule 456(b) under the Securities Act
[17 CFR 230.457(r) and 17 CFR 230.456(b)].
\62\ We are proposing conforming amendments to Securities Act
rule 462(f) and to the registration fee table in Form N-2 to enhance
consistency with Form S-3 and to recognize that affected funds that
would be WKSIs could use the pay-as-you-go registration fee process.
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We request comment on these proposed amendments, including:
Do the proposed amendments provide parity to affected
funds? Why or why not? Are there other changes that we should make that
would provide parity for affected funds? What changes and why?
Currently, Form S-3 under specified circumstances allows
majority-owned subsidiaries of a parent issuer eligible to use Form S-3
to register offerings of certain non-convertible securities or
guarantees under General Instruction I.C of the form. Under the
proposed amendments, an affected fund could use the new short-form
registration instruction of Form N-2 to register the same types of
offerings that operating companies can register on Form S-3, including
offerings by majority-owned subsidiaries that are closed-end management
investment companies eligible to register a securities offering on Form
N-2. Is it appropriate to amend Form N-2 to provide a similar process
for affected funds to register the same types of offerings by majority-
owned subsidiaries that operating companies can register on Form S-3?
Would affected funds expect to register these offerings using the
proposed short-form registration instruction? How do affected funds
treat securities issued by majority-owned subsidiaries that are
investment companies when calculating asset coverage under sections 18
or 61 of the Investment Company Act? \63\ If affected funds do not
include these securities in calculating asset coverage, why not?
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\63\ 15 U.S.C. 80a-18 and 80a-60.
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Rather than amending Form N-2, should we create a separate
registration form specifically for affected funds to file a short-form
registration statement?
Should we require registered CEFs to have timely filed
reports under section 30 of the Investment Company Act during the prior
year in order to file a short-form registration on Form N-2, as
proposed?
We are proposing to allow 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. Are there any
[[Page 14457]]
specific prospectus or SAI disclosure items that an affected fund
should not be permitted to incorporate by reference into the
registration statement? If so, which ones and why?
An affected fund filing a short-form registration
statement on Form N-2 would incorporate by reference into its
prospectus and SAI certain past and future Exchange Act reports. This
could increase an affected fund's liability with respect to information
that has not previously been incorporated into its registration
statement. Would this raise any concerns unique to affected funds? For
example, is there any information in registered CEFs' annual and semi-
annual reports that should not be incorporated by reference? If so,
which information and why?
Are there any changes we should make to the registration
process for interval funds? Should we, for example, permit them to
forward incorporate if they would be eligible to rely on the proposed
short-form registration instruction but for their lack of public float?
Why or why not? Is there a basis to treat interval funds differently in
this respect than any other issuer that does not have public float?
Besides the additional flexibility in the aspects of the offering
process that interval funds would receive under this proposal,\64\ are
there any other ways in which we should modernize the offering process
for interval fund offerings?
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\64\ See supra footnote 16.
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Unlisted BDCs and unlisted registered CEFs also would not
generally have ``public float.'' Are there any changes we should make
to the shelf registration process for these funds?
Are there any other line items or language from Forms S-1
or S-3 that we should include in Form N-2 to facilitate the
incorporation by reference regime (or to otherwise enhance or modernize
Form N-2 to provide parity with the operating company regime)? For
example, is it necessary or useful to add a new item for ``Material
Changes'' in Form N-2 that mirrors Item 11A of Form S-1 and Item 11(a)
of Form S-3? \65\ Those items generally provide that, where a
registrant is backward incorporating information by reference into a
new registration statement, it must disclose in the registration
statement any material changes that have not been disclosed in an
Exchange Act report being incorporated by reference. Would it be
necessary or useful to include a new item for ``Material Changes'' in
Form N-2 to remind registrants that, as currently required, the new
registration statement must include all material information? Would it
elicit any disclosure that is not otherwise required by Form N-2's
other items?
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\65\ See Item 11A of Form S-1 (directing a registrant that
elects to incorporate information by reference to describe any and
all material changes in the registrant's affairs which have occurred
since the end of the latest fiscal year for which audited financial
statements were included in the latest Form 10-K and that have not
been described in a Form 10-Q or Form 8-K filed under the Exchange
Act); see also Item 11(a) of Form S-3 (describing parallel
requirements).
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We are not proposing to require that registered CEFs
incorporate by reference reports filed on Forms N-PORT or N-CEN. Do
commenters agree that this is appropriate? Conversely, should the
reports on those forms be incorporated by reference? Should we permit
or require a fund to incorporate the exhibit to certain reports on Form
N-PORT that sets forth a registered CEF's complete portfolio holdings
presented using the form and content specified by Regulation S-X? Would
incorporating these reports allow funds to update any aspect of their
registration statement and in that way avoid having to provide the same
information through a prospectus supplement or post-effective
amendment?
Are there incorporation by reference provisions in any
other registration forms filed by affected funds that should be
modified to provide parity or consistency across registration
statements, and if so, in what respect? For example, should we amend
General Instruction G of Form N-14 to provide that BDCs may incorporate
by reference to the same extent as registered CEFs? Would BDCs use this
ability to incorporate information by reference?
Proposed General Instruction B cross-references General
Instructions II.E, F, and G and IV of Form S-3. These instructions
explain the application of general rules and regulations. Cross-
referencing these instructions would direct registrants' attention to
them without having to set forth the instructions in Form N-2 as well.
Would it be clearer, however, to set forth the substance of those
instructions in Form N-2?
b. Omitting Information From a Base Prospectus and Prospectus
Supplements
Affected funds registering securities in shelf offerings under
Securities Act rule 415 can generally omit required information from
the base prospectus that is unknown or not reasonably available to the
fund when the registration statement becomes effective.\66\ Rule 430B
also permits WKSIs and certain issuers eligible to use Form S-3 for
primary offerings 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.\67\ Filing a
prospectus supplement is one way to provide information required for a
prospectus to satisfy section 10(a).\68\
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\66\ See Securities Act rule 409 [17 CFR 230.409].
\67\ 15 U.S.C. 77j(a).
\68\ Omitted information also may be provided in a post-
effective amendment or, where permitted, through Exchange Act
filings that are incorporated by reference.
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Our rules currently 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 only if the issuer makes substantive
changes from or additions to a previously-filed prospectus, whereas
rule 497 requires funds to file every prospectus that varies from any
previously-filed prospectus.
In order to provide parity with operating companies, the BDC Act
directs us to include a process for a BDC to file a prospectus in the
same manner as under rule 424(b).\69\ Consistent with this directive
and with the Registered CEF Act, we are proposing to amend rule 424(f)
to allow affected funds to file a prospectus under rule 424.\70\ Under
the proposed amendment, an affected fund would 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. We also are proposing to amend 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
[[Page 14458]]
prospectus under rule 482.\71\ This would 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.
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\69\ See section 803(b)(2)(K) of the BDC Act.
\70\ The proposed amendments would not apply to open-end funds
or other registered investment companies. Accordingly, those
investment companies would continue to file prospectuses pursuant to
rule 497. See proposed amendments to rule 424(f). We also are
proposing to amend rule 424(f) to state that references to the term
``form of prospectus'' in the rule includes the Statement of
Additional Information.
\71\ See proposed Securities Act rule 497(l).
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We also are proposing an amendment to permit affected funds to use
rule 430B in parity with operating companies. That rule permits an
issuer to omit specified information from its base prospectus in two
circumstances. First, a WKSI filing an automatic shelf registration
statement can omit the plan of distribution and whether the offering is
a primary one or an offering on behalf of selling security holders. An
amendment to rule 430B is not required to achieve parity with respect
to this first use because, once affected funds are permitted to qualify
as WKSIs, those that are WKSIs would be able to rely on rule 430B as
currently written. Second, the rule also applies to issuers eligible to
file a registration statement on Form S-3 to register a primary
offering, where the issuer is registering securities for selling
security holders. In this case, the prospectus can omit the same
information that WKSIs can omit, as well as the identities of selling
security holders and the amount of securities to be registered on their
behalf, subject to conditions. Unlike the first use, this second use
would not be available to affected funds without a modification to the
rule. Accordingly, we are proposing an amendment to allow affected
funds eligible to register a primary offering under the proposed short-
form registration instruction to rely on rule 430B for this second use
as well. In addition, affected funds relying on rule 430B, like
operating companies, would undertake that for purposes of determining
liability under the Securities Act with respect to any purchaser, each
prospectus supplement is deemed part of the registration statement
containing the base prospectus to which the supplement relates. This is
measured as of the earlier of the date the prospectus supplement is
first used after effectiveness or the date of the first contract of
sale of securities in the offering described in the prospectus.\72\
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\72\ See proposed rule 430B(b). Rules 430B, 424, and 158 specify
when information contained in a prospectus supplement will be deemed
part of and included in the registration statement and circumstances
that will trigger a new effective date of the registration statement
for purposes of section 11(a) of the Securities Act. These rules
would apply to affected funds just as they apply to operating
companies. We also are proposing to amend the undertakings in Form
N-2 to require affected funds relying on rule 430B to make the same
undertakings required of operating companies that rely on the rule.
See proposed Item 34.4.d(1); cf. Item 512(a)(5)(i) of Regulation S-
K. See also supra footnote 53.
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We request comment on these proposed amendments, including:
Should we amend rule 424(f) as proposed to allow affected
funds to file a prospectus under rule 424? Is this an effective means
to implement the parity requirements of the BDC Act and Registered CEF
Act? Why or why not?
Are there additional amendments that we should make to
rules 430B, 424, or 497 to allow affected funds to omit information
from their base prospectuses and file prospectus supplements in parity
with operating companies?
Should we make rule 424 the exclusive rule under which
affected funds must file prospectuses as proposed, or should we allow
affected funds to have the option to file a prospectus under rule 424
or rule 497? If we provided optionality, would that increase the
potential to cause confusion for funds or investors? Are there any
other consequences of requiring affected funds to use rule 424 that we
should consider? Rather than require affected funds to use rule 424 as
proposed, should we amend rule 497 to include the substantive
requirements of rule 424 for affected funds?
c. Additional Information in Periodic Reports
Under the proposed amendments, certain affected funds would be
permitted 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 propose to
include a new instruction to Form N-2 that would allow a fund to
include additional information so as long as the fund includes a
statement in the report identifying information that it has included
for this purpose.\73\ This would provide context for investors in
considering this additional disclosure, akin to the context funds today
provide investors when they mail prospectus ``stickers'' updating
disclosure in the prospectus.
---------------------------------------------------------------------------
\73\ Proposed Instruction 6.i of Item 24 of Form N-2.
---------------------------------------------------------------------------
We request comment on this proposed instruction, including:
Does the proposed instruction adequately provide a
mechanism for affected funds to update their registration statements
via their periodic reports?
Does the proposed instruction provide sufficient guidance
to an affected fund regarding whether and how it may include additional
information in its periodic reports to update its registration
statement, and how to identify that information?
Is there any reason we should not permit affected funds to
incorporate by reference information from their periodic reports that
is not required to be included in those reports, or should we further
prescribe how any additional information must be presented? Should we,
for example, require that any additional information appear after the
information affected funds are required to include in their annual
reports?
In addition to affected funds' periodic reports, should we
also require an affected fund to identify information included in a
report on Form 8-K filed for the purpose of updating the fund's
registration statement?
C. Well-Known Seasoned Issuer Status
We are proposing amendments that would allow an affected fund to
qualify as a WKSI. In 2005, the Commission created a new category of
issuer--a WKSI--that benefits to the greatest degree from the
modifications to our rules regarding communications and the
registration processes that the Commission adopted at that time.\74\ A
WKSI, for example, can file a registration statement or amendment that
becomes effective automatically in a broader variety of contexts than
non-WKSIs. Subject to certain conditions, our rules also permit a WKSI
to communicate at any time, including through a free writing
prospectus, without violating the ``gun-jumping'' provisions of the
Securities Act.\75\ 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,'' \76\ and generally must have at least $700 million in
``public float.'' \77\ An issuer is ineligible for
[[Page 14459]]
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).\78\
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\74\ Securities Offering Reform Adopting Release, supra footnote
5, at 44727.
\75\ See infra Part II.E.1.
\76\ See supra footnote 18.
\77\ See paragraph (1)(i)(A) of the WKSI definition in rule 405
(providing that the issuer must have at least $700 million in
worldwide ``public float,'' that is, the market value of outstanding
voting and non-voting common equity held by non-affiliates). An
alternative basis for an issuer to satisfy this requirement is to
have issued, for cash, within the last three years, at least $1
billion in aggregate principal amount of non-convertible securities
through primary offerings registered under the Securities Act
(paragraph (1)(i)(B) of the WKSI definition). The definition also
includes provisions for transactions involving majority-owned
subsidiaries (paragraph (1)(ii) of the WKSI definition).
\78\ See paragraph (1)(i) and (1)(vi) of the definition of
ineligible issuer in Securities Act rule 405.
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The BDC Act directs us to revise Securities Act rule 405 to allow a
BDC to qualify as a WKSI and the Registered CEF Act directs us to allow
registered CEFs covered by the Act to use the securities offering rules
that are available to operating companies.\79\ We are also proposing
conforming amendments to the definition of an ``ineligible issuer.''
Specifically:
---------------------------------------------------------------------------
\79\ Section 803(b)(2)(A)(i).
---------------------------------------------------------------------------
First, the WKSI definition specifically excludes BDCs and
registered investment companies. We propose to amend rule 405 so that
the exclusion does not apply to affected funds.\80\
---------------------------------------------------------------------------
\80\ See proposed amendments to paragraph (1)(v) of rule 405.
---------------------------------------------------------------------------
Second, the WKSI definition currently provides that an
issuer must meet the registrant requirements of Form S-3. We propose to
add a parallel reference to the registrant requirements of the proposed
short-form registration instruction.\81\
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\81\ See proposed amendments to paragraph (1)(v) of the WKSI
definition in rule 405. In addition, in certain places where the
WKSI definition currently refers to Form S-3, we propose to add
conforming references to a Form N-2 registration statement filed
under proposed General Instruction A.2 of Form N-2. See proposed
amendments to paragraph (1)(i) and (1)(i)(B)(2) of the definition of
WKSI in rule 405. See proposed General Instruction A.2 of Form N-2.
We also are proposing a conforming amendment to paragraph (2) of the
definition of WKSI to add a reference to Form N-CSR, the form on
which registered CEFs file their shareholder reports with the
Commission. See proposed amendment to paragraph (2) of the
definition of WKSI in Securities Act rule 405. See also infra Part
II.D.2.
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Third, we propose to amend 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.\82\
---------------------------------------------------------------------------
\82\ See supra footnote 78.
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Finally, we propose to amend the definition of ineligible
issuer to give effect to the current anti-fraud prong in that
definition in the context of affected funds. Specifically, we are
proposing a parallel anti-fraud prong for affected funds. The current
anti-fraud prong provides that an issuer that, within the past three
years, was 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 would be an ineligible
issuer.\83\ The proposed new anti-fraud prong for affected funds would
provide that an affected fund would be 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 that the
investment adviser aided or abetted or caused the affected fund to have
violated the anti-fraud provisions of the federal securities laws.\84\
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.
---------------------------------------------------------------------------
\83\ See paragraph (1)(vi) of the ineligible issuer definition
in rule 405.
\84\ See proposed paragraph (1)(ix) of the ineligible issuer
definition in rule 405. The proposed amendment's reference to an
affected fund's investment adviser would include any sub-adviser.
This is consistent with the Investment Company Act's definition of
an ``investment adviser'' to an investment company, which includes
sub-advisers. See section 2(a)(20) of the Investment Company Act.
Cf. proposed Item 10.01 of Form 8-K (providing that an affected fund
would be required to file a Form 8-K report if the fund's investment
adviser, including any sub-adviser, has determined to implement a
material change to the registrant's investment objectives or
policies, and such change has not been, and will not be, submitted
to shareholders for approval).
---------------------------------------------------------------------------
We considered proposing a different level of public float for an
affected fund to qualify as a WKSI (or to file a short-form
registration statement on Form N-2), or a different metric in lieu of
an affected fund's public float, such as its net asset value for funds
whose shares are not traded on an exchange.\85\ Either of these types
of changes could permit additional affected funds to qualify as WKSIs
and enjoy the associated benefits. The BDC Act and the Registered CEF
Act, however, direct that we allow the funds covered by those Acts to
use the rules available to operating companies.
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\85\ We focus in this section on affected funds' public float
because we believe that affected funds would be more likely to
qualify for WKSI status on the basis of having $700 million or more
in public float than to have to have issued, for cash, within the
last three years, at least $1 billion in aggregate principal amount
of non-convertible securities in registered offerings. See supra
footnote 77.
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Specifically, the WKSI definition, including its $700 million
public float threshold, is meant to capture issuers that are
presumptively the most widely followed in the marketplace and whose
disclosures and other communications are subject to market scrutiny by
investors, the financial press, analysts, and others.\86\ As a result
of the active participation of these issuers in the markets and, among
other things, the wide following of these issuers by market
participants, the media, and institutional investors, the Commission
has previously stated that it believes that it is appropriate to
provide communications and registration flexibilities to WKSIs beyond
that provided to other issuers, including other seasoned issuers.\87\
---------------------------------------------------------------------------
\86\ See id. at 44726-30.
\87\ See id. at 44727.
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In adopting the current $700 million public float threshold for
WKSIs, the Commission observed that high levels of analyst coverage,
institutional ownership, and trading volume are useful indicators of
the scrutiny that an issuer receives from the market, recognizing that
no one statistic can fully capture the extent to which an issuer is
followed by the market.\88\ Operating company issuers with market
capitalization in excess of $700 million that conducted offerings from
1997 to 2004 typically had an average of 12 analysts following them
prior to the offering, which the Commission observed was likely a
conservative indicator of analyst scrutiny because it included only
sell-side analysts.\89\ Institutional investors accounted for an
average of 52% of equity ownership prior to offerings by issuers with
market capitalization above $700 million; these issuers had an average
daily trading volume of nearly $52 million prior to offerings in this
period; and these issuers accounted for significant percentages of
capital raised (e.g., 70% of equity capital raised from 1997 to
2004).\90\ The Commission observed that the issuers that would meet the
thresholds for WKSI status are the most active issuers in the U.S.
public capital markets.\91\
---------------------------------------------------------------------------
\88\ See id. at 44728.
\89\ Id.
\90\ Id.
\91\ Id. at 44727.
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Affected funds, in contrast, have limited analyst coverage relative
to operating companies and many have high levels of retail, rather than
institutional, investors.\92\ Affected funds
[[Page 14460]]
have relatively modest daily trading volumes: For example, the average
daily dollar volume of a listed affected fund (a listed BDC or listed
registered CEF) prior to offerings was $3.8 million in 2017, and listed
affected funds represented less than one percent of the daily dollar
trading volume on the New York Stock Exchange and NASDAQ in 2017.\93\
Affected funds also do not account for significant percentages of
capital raised, with affected funds (listed and non-listed) raising
about two percent of the total capital raised in 2017 in registered
offerings.\94\ Based on our consideration of the same criteria the
Commission evaluated in 2005, we do not believe that affected funds
would be likely to have a level of market following at lower levels of
public float than operating companies that would justify a lower public
float threshold or alternative metric to qualify as a WKSI. We also are
not aware of alternative indicia of a market following for affected
funds or any particular type of affected funds that would suggest a
lower public float threshold, or alternative metric in lieu of public
float, would be appropriate. We believe these same considerations also
support our proposal to require affected funds to have the same level
of public float to file a short-form registration statement--currently
$75 million--that applies to operating companies.\95\
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\92\ For example, listed BDCs having on average six security
analysts following them as of December 2017, and listed registered
CEFs having on average zero security analysts following them as of
December 2017. Data on analyst coverage is taken from the I/B/E/S
database (Thomson Reuters).
\93\ Data on daily trading volume is taken from the TAQ
database. Data on securities offerings is taken from taken from
Securities Data Corporation's New Issues database (Thomson Reuters).
We estimated affected funds' average daily trading volume during a
period of a month prior to a securities offering. See also infra
footnote 383 and accompanying text (discussing institutional
ownership of affected funds and operating companies).
\94\ Data on registered securities offerings are taken from
Securities Data Corporation's New Issues database (Thomson Reuters).
\95\ See supra footnote 33 (explaining that there are other
bases to file a short-form registration statement on Form S-3 that
do not require an issuer to have $75 million in public float and
that these other bases would also be available to affected funds
filing a short-form registration statement on Form N-2).
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Indeed, based on the general level of affected funds' analyst
coverage, trading volume, and capital raised, we considered whether the
public float threshold should be higher for affected funds than for
operating companies. We determined not to propose a higher threshold,
however, because we believe the same public float threshold for all
issuers would be consistent with the general directive in the BDC Act
and the Registered CEF Act to provide the funds covered in those Acts
the securities offerings rules available to operating companies.
We also considered whether to propose any modifications to the way
that an affected fund would calculate its public float. The Commission
recently adopted new Securities Act rule 139b to permit broker-dealers
to publish ``covered investment fund research reports,'' which include
reports covering affected funds.\96\ In that rulemaking the Commission
determined not to require broker-dealers to exclude shares held by the
fund's affiliates from the calculation of the fund's public float.\97\
Our approach to the public float calculation in rule 139b, however, was
designed to address operational challenges broker-dealers could
experience in obtaining affiliate shareholder information.\98\ Affected
funds should not experience the same operational difficulties in
calculating their own public float. Indeed, BDCs currently disclose
their public float net of affiliate holdings on Form 10-K, and
registered CEFs (as well as BDCs) that conduct offerings under rule
415(a)(1)(x) currently must determine their public float net of
affiliate holdings to evaluate their eligibility to use that rule.
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\96\ See infra Part II.E.2.
\97\ In new rule 139b, consistent with this proposal, we
generally provided that issuers covered in research reports
published under the rule must have the same level of public float
required for research reports on operating companies.
\98\ See Covered Investment Fund Research Reports, Securities
Act Release No. 10580 (Nov. 30, 2018) [83 FR 26788 (Dec. 13, 2018)]
(``CIFRR Adopting Release'').
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Not all affected funds will have public float or the level of
public float required to be a WKSI or to file a short-form registration
statement. For example, unlisted funds, including interval funds, will
generally not have public float. However, the same is true for
operating companies. For example there are many unlisted real estate
investment trusts that do not have a public float and cannot qualify as
a WKSI.\99\ An unlisted affected fund, like an unlisted operating
company, could list its shares and qualify as a WKSI or use a short-
form registration statement if it had the requisite public float and
met the other requirements. We request comment in this release on
extending the benefits of particular reforms to affected funds that
would not qualify because they do not have the requisite public
float.\100\
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\99\ The determination of public float is based on a public
trading market, such as an exchange or certain over-the-counter
markets. See Securities Offering Reform Adopting Release, supra
footnote 5, at n.50.
\100\ See, e.g., supra footnotes 35-37 and accompanying text;
requests for comment in supra Part II.B.2.a (requesting comment on
whether we should make any changes to the registration process for
interval funds that do not list their securities on an exchange and
do not have public float).
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We request comment generally on the proposed amendments to the WKSI
and ineligible issuer definitions, including:
Would these proposed amendments to the WKSI definition
provide parity to affected funds? Why or why not? Are there other
revisions that we should make to the definition to achieve that
objective?
Are the proposed amendments to the definition of
ineligible issuer appropriate, and would they help give effect to the
current anti-fraud prong of the ineligible issuer definition in the
context of affected funds, in light of funds' management structure? If
not, what approach would better give effect to the anti-fraud prong in
the context of affected funds? Are the proposed amendments clear, and
would issuers understand what it means for an investment adviser,
including any sub-adviser, to have aided or abetted or caused the
issuer to have violated the anti-fraud provisions of the federal
securities laws? If not, how should we change, or provide guidance on,
the proposed provision? For example, should we clarify how the proposed
ineligible issuer definition would apply to a fund where the investment
adviser, including any sub-adviser, aided, abetted, or caused the fund
to have violated certain anti-fraud provisions within the three-year
look-back period that the proposed definition specifies, and then the
fund selected a new investment adviser within this same period?
The activities of affected funds, unlike those of
operating companies, are substantively regulated under the Investment
Company Act. For example, certain provisions of the Investment Company
Act directly govern the operations of investment companies, such as
prohibitions on management self-dealing,\101\ breaches of fiduciary
duty,\102\ or changes in an investment company's business or investment
policies without shareholder approval.\103\ Neither the current
ineligible issuer definition in rule 405 nor our proposed amendments to
the definition would cover substantive provisions of the Investment
Company Act that do not involve a violation of the anti-fraud
provisions of the federal securities laws. Should we expand the
definition of ineligible issuer to include violations of non-antifraud
provisions of
[[Page 14461]]
the Investment Company Act? If so, which provisions of the Investment
Company Act? For example, should an affected fund be ineligible if it
is the subject of a judicial or administrative decree involving
violations of the self-dealing provisions of section 17 or 57 of the
Investment Company Act, or such a decree involving violations of the
asset coverage requirements of section 18 or 61 of the Investment
Company Act?
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\101\ See section 17 of the Investment Company Act [15 U.S.C.
80a-17].
\102\ See section 36 of the Investment Company Act [15 U.S.C.
80a-35].
\103\ See section 13 of the Investment Company Act [15 U.S.C.
80a-13].
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Should we adopt a different level of public float for an
affected fund to qualify as a WKSI (or to file a short-form
registration statement on Form N-2), or a different metric in lieu of
an affected fund's public float? If so, which level or metric and why?
Should we, for example, provide for a different metric for
interval funds, whose shares are generally not listed on an exchange,
or for other unlisted affected funds? If so, which metric and why? For
example, would it be appropriate to allow these funds to use their net
asset values in lieu of or in addition to public float? Do interval
funds or other unlisted affected funds with net asset values of $700
million or more (or $75 million or more) have a similar degree of
market following and scrutiny as listed issuers with comparable amounts
of public float? Are there other metrics tailored to affected funds
that would indicate a similar degree of market following and scrutiny
as listed issuers with comparable amounts of public float? Would it be
appropriate to provide more advantageous provisions for interval funds
or other types of affected funds relative to operating companies?
Should we adopt any differences in the way that an affected fund would
calculate its public float?
D. Final Prospectus Delivery Reforms
We propose to apply the alternative delivery method for operating
company final prospectuses to affected funds. As a result, an affected
fund would be allowed 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'').\104\ 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 effective date 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 is a prospectus and may not be provided unless it meets
the requirements of section 10(a).\105\
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\104\ 15 U.S.C. 77j(a).
\105\ 15 U.S.C. 77e(b)(2).
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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.\106\ 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.\107\ Rule 172 applies only to final
prospectuses and not to other documents.\108\ Rule 173 requires a
notice 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.\109\
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\106\ 17 CFR 230.172; see also Securities Offering Reform
Adopting Release, supra footnote 5, at 44783.
\107\ See id. In the event that the issuer fails to file such a
prospectus in a timely manner, the issuer must file the prospectus
as soon as practicable thereafter. 17 CFR 230.172(c)(3); see also
Securities Offering Reform Adopting Release, supra footnote 5, at
44784 (summarizing the effect of this ``cure'' provision).
\108\ Id. at 44784.
\109\ 17 CFR 230.173. This notification enables investors to
``trace'' their purchases of securities for purposes of asserting
their rights under the liability provisions of the federal
securities laws. See Securities Offering Reform Adopting Release,
supra footnote 5, at 44784. Rule 173(d) provides that a purchaser
who receives a notification may request a copy of the final
prospectus. We are proposing a conforming change to current Item
34.6 of Form N-2, under which funds currently undertake to provide
an SAI upon request, to also require an affected fund to undertake
to provide a prospectus upon request. See proposed Item 34.8 of Form
N-2.
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Currently, affected funds are specifically excluded from the
issuers that may rely on these rules.\110\ The BDC Act directs us to
remove this exclusion for BDCs.\111\ To implement the BDC Act, and to
provide parity for registered CEFs consistent with the Registered CEF
Act, we propose to amend rules 172 and 173 to remove the exclusion for
offerings by affected funds.\112\
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\110\ See rule 172(d)(1)-(2) under the Securities Act [17 CFR
230.172(d)(1)-(2)]; rule 173(f)(2)-(3) under the Securities Act [17
CFR 230.173(f)(2)-(3)].
\111\ Section 803(b)(2)(L) of the BDC Act; see also section
509(a) of Registered CEF Act (requiring parity of securities
offering rules with operating companies for listed registered CEFs
and interval funds).
\112\ See proposed rule 172(d) under the Securities Act;
proposed rule 173(f) under the Securities Act.
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We request comment on the proposed revisions to the final
prospectus delivery rules.
Are the proposed revisions to rules 172 and 173
appropriately tailored to affected funds? Should we add additional
conditions to reliance on rule 172 for some or all affected funds? If
so, which ones and why? For example, should we limit the availability
of rule 172 only to affected funds that have timely filed all reports
and other materials required under the Exchange Act and/or Investment
Company Act for a certain period of time prior to reliance on the rule?
As another example, should we limit the availability of rule 172 only
to seasoned funds that file a short-form registration statement on Form
N-2, or to funds that qualify for WKSI status?
E. Communications Reforms
1. Offering Communications
The Securities Act restricts 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.\113\ These provisions,
which we refer to as 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.\114\ Accordingly, unless otherwise permitted:
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\113\ Unless otherwise noted, offering communications generally
refer to written communications. Rule 405 provides that ``[e]xcept
as otherwise specifically provided or the context otherwise
requires, a written communication is any communication that is
written, printed, a radio or television broadcast, or a graphic
communication as defined in [rule 405].'' 17 CFR 230.405.
\114\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44731.
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Before an issuer files a registration statement, all
offers, in whatever form, are prohibited; \115\
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\115\ See Securities Act section 5(c) [15 U.S.C. 77e(c)].
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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; \116\ and
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\116\ This is because after the filing of the registration
statement but before its effectiveness, offers made in writing
(including electronically), by radio, or by television are limited
to a ``statutory prospectus'' that conforms to the information
requirements of Securities Act section 10. See Securities Act
section 5(b)(1) [15 U.S.C. 77e(b)(1)] and Securities Act section 10
[15 U.S.C.77j].
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Even after the registration statement is declared
effective, offering participants still may make written offers only
through a statutory
[[Page 14462]]
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.\117\
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\117\ See Securities Act section 2(a)(10) [15 U.S.C. 77b(a)(10)]
and section 5(b)(1) [15 U.S.C. 77e(b)(1)].
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The Commission has previously adopted rules that provide operating
companies and other parties (such as underwriters) increased
flexibility in their communications as compared to the limitations
described above.\118\ The Commission adopted these rules, which we
refer to as the ``communications rules,'' because the Commission
believed that investors and the market could benefit from access to
greater communications under conditions that preserve important
investor protections. These communication rules, however, are generally
not available to affected funds, which are subject to a separate
framework governing communications with investors.\119\
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\118\ See, e.g., Securities Offering Reform Adopting Release,
supra footnote 5, at 44731. See also rules 134 [17 CFR 230.134], 138
[17 CFR 203.138], 139 [17 CFR 230.139], 156 [17 CFR 230.156], 163
[17 CFR 230.163], 163A [17 CFR 230.163A], 164 [17 CFR 230.164], 168
[17 CFR 230.168], 169 [17 CFR 230.169], and 433 [17 CFR 230.433].
\119\ See Securities Offering Reform Adopting Release, supra
footnote 5, at n.115 and accompanying text. Certain of the
communications rules expressly exclude registered investment
companies and BDCs from the types of issuers that may rely on them.
See, e.g., rules 134(g) [17 CFR 230.134(g)], 163(b)(3)(ii)-(iii) [17
CFR 230.163(b)(3)(ii)-(iii)], 163A(b)(4)(i)-(ii) [17 CFR
230.163A(b)(4)(i)-(ii)], 164(f) [17 CFR 230.164(f)], 168(d)(3) [17
CFR 230.168(d)(3)], and 169(d)(4) [17 CFR 230.169(d)(4)]. Other
communications rules, such as rule 139, do not expressly exclude
registered investment companies and BDCs but include conditions that
can make them unavailable for affected funds. See also CIFRR
Adopting Release, supra footnote 98 at 64183 (adopting new rule 139b
which covers a broker-dealers' distribution of research reports
concerning ``covered investment funds,'' which includes registered
investment companies and BDCs).
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The BDC Act directs us to allow BDCs to use the same communications
rules available to operating companies, generally by removing a BDC
from the list of issuers that are ineligible for the exemptions
provided by these rules.\120\ To implement the BDC Act, and to provide
parity for registered CEFs consistent with the Registered CEF Act, we
propose to remove the exclusions for affected funds from the following
rules and to make other conforming changes.\121\ These proposed
amendments would:
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\120\ See section 803(b)(2)(B)-(E) and 803(b)(2)(G)-(I) of the
BDC Act, supra footnote 8. See also section 509(a) of the Registered
CEF Act, supra footnote 11 (requiring parity of securities offering
rules with operating companies for listed registered CEFs and
interval funds).
\121\ See proposed rules 134(g), 163(b)(3), 163A(b)(4) 164(f),
168(d)(3), and 169(d)(4) (removing references to BDCs and limiting
the rules' exclusion of registered investment companies from the
safe harbor to exclude registered funds other than registered CEFs).
See also conforming amendments to proposed rule 168 (proposing
to add to paragraphs (b)(1) and (2) references to the Investment
Company Act to parallel current references to the Exchange Act to
provide that forward-looking information and factual business
information may be included in materials filed under the Investment
Company Act); proposed rule 433 (proposing to add to paragraphs
(a)(1)(i) and (iv) references to registration statements filed on
Form N-2 under proposed General Instruction A.2 to parallel current
references to Form S-3; proposing to add to paragraph (c)(1)(ii) a
reference to reports filed under section 30 of the Investment
Company as reports with which a free-writing prospectus may not
conflict). See also proposed rule 156(d), infra footnote 124.
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Permit affected funds to use certain communications
prescribed by rule 134 to publish factual information about the issuer
or the offering, including ``tombstone ads.'' \122\
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\122\ Rule 134 generally provides that the terms ``prospectus''
as defined in section 2(a)(10) of the Securities Act or ``free
writing prospectus'' as defined in Rule 405 shall not include a
communication limited to the statements required or permitted by the
rule, provided that the rule 134 communications are published or
transmitted to any person only after a registration statement has
been filed that includes a prospectus satisfying the requirement of
section 10 of the Securities Act, except as otherwise provided in
the rule.
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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.\123\
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\123\ Rule 163A provides that a communication that meets the
rule's conditions is not an ``offer'' for purposes of Securities Act
section 5(c). The Commission has explained that, because rule 163A
provides a safe harbor from the application of Securities Act
section 5(c), it necessarily applies only prior to the filing of a
registration statement. This exclusion will thus not apply to
issuers offering securities off a shelf registration statement on
file, whether or not effective, as the prohibition in section 5(c)
does not apply to the offering of the securities covered by such
shelf registration statement. See Securities Offering Reform
Adopting Release, supra footnote 5, at n.155.
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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.\124\ Rule 169 would
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.\125\ We also are proposing to amend rule 156 to state that
nothing in that rule may be construed to prevent an affected fund from
qualifying for an exemption under rules 168 or 169.\126\ The contents
of any rule 168 or 169 communication would remain subject to the anti-
fraud provisions of the federal securities laws.
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\124\ Rule 168 is a safe harbor from the definition of
``prospectus'' in Securities Act section 2(a)(10) and, therefore,
prevents the application of the prohibition in Securities Act
section 5(b)(1) on the use of a prospectus that is not a statutory
prospectus. Rule 168 also is a safe harbor from the prohibitions on
pre-filing ``offers'' in Securities Act section 5(c).
\125\ Rule 169 is also a safe harbor from the definition of
``prospectus'' in Securities Act section 2(a)(10).
\126\ See proposed rule 156(d); section 803(b)(2)(G) of the BDC
Act; section 509(a) of Registered CEF Act.
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Permit affected funds to rely on rules 164 and 433 to use
a ``free writing prospectus.'' \127\
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\127\ Rules 164 and 433 provide that a free writing prospectus
is a permitted prospectus for purposes of section 10(b) of the
Securities Act and can be used without violating section 5(b)(1) of
the Securities Act only after a registration statement related to
the offering has been filed. [17 CFR 230.164 and 17 CFR 230.433].
See also Securities Offering Reform Adopting Release, supra footnote
5, at 44744. Rule 433(a) further provides that a free writing
prospectus is a prospectus permitted under section 10(b) for
purposes of sections 2(a)(10) and 5(b)(2) of the Securities Act.
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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.\128\
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\128\ A WKSI can: (1) Rely on the bright-line time period
provided by rule 163A for communications made more than 30 days
before a registration statement is filed and that do not reference a
securities offering that is or will be the subject of a registration
statement; (2) subject to specified conditions, rely on the
exemption in rule 163 from the prohibition on offers before the
filing of a registration statement to engage in written or oral
communications, including use at any time of a free writing
prospectus, made by or on behalf of eligible WKSIs; (3) disseminate
regularly released factual and forward-looking information at any
time, including around the time of a registered offering, in
reliance on rule 168; (4) issue a broader category of routine
communications set forth in rule 134 regarding issuers, offerings,
and procedural matters, that are excluded from the definition of
``prospectus,'' and (5) use a free writing prospectus after a
registration statement is filed in reliance on rules 164 and 433.
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Investment company communications currently are subject to rule 482
under the Securities Act. Rule 482 communications, or ``ads,'' can only
be used by a fund that is selling or is proposing to sell its
securities pursuant to a filed registration statement.\129\ Some of the
communications rules we propose to amend, in contrast, permit an issuer
to communicate before it has filed a registration statement. In
addition, a rule 482 ad, like the free-writing prospectuses that we
propose to permit affected funds to use, is a prospectus subject to
prospectus liability under section 12 of the Securities Act. Some
[[Page 14463]]
communications rules we propose to extend to affected funds, however,
deem permissible communications not to be prospectuses, such as rule
134 communications. The proposed amendments to the communications rules
would therefore provide incremental flexibility to affected funds in
their communications. Funds would have additional flexibility to
communicate before filing a registration statement, and they would have
some additional flexibility in using communications that are not
subject to prospectus liability under section 12 of the Securities Act.
Affected funds would be permitted to take advantage of this additional
flexibility or to continue to rely on rule 482 and other rules
currently applicable to investment company communications.
---------------------------------------------------------------------------
\129\ 17 CFR 230.482; see also 17 CFR 230.497(i).
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We request comment on the proposed amendments to the communication
rules:
Are there other changes we should make to the
communication rules to permit affected fund communications under those
rules? Which changes and why?
Are there changes we should make, or guidance we should
provide, regarding the application of the conditions in the
communication rules to affected fund communications?
Are there any changes we should make to rule 482 regarding
the communications that affected funds can make using the rule? Which
provisions and why? Should we include any standardized performance
presentation requirements for affected funds in rule 482? If so, should
they differ in any way from open-end funds' performance presentation
requirements already required by rule 482? Rather than or in addition
to any changes to rule 482, should we amend the communications rules to
require that any affected fund communication, such as a free writing
prospectus, that contains performance information must present that
information in accordance with standardized presentation requirements?
If so, should these standardized presentation requirements be the same
as those that are included in rule 482, replicate the instructions to
Item 4.1.g set forth in Form N-2,\130\ or differ from either of these
sets of requirements in any way?
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\130\ See, e.g., Securities Act rule 139b(a)(3) [17 CFR
230.139b(a)(3)] requiring that the performance of certain covered
investment funds, including registered CEFs, to be presented in
accordance with certain standardized presentation requirements. Rule
139b requires that a registered CEF's performance be presented in
accordance with the instructions to Item 4.1.g of Form N-2. Id.
Other historical measures of fund performance are also permitted, so
long as the other measures are set out with no greater prominence.
Id.
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As discussed above, rules 163, 163A, 168, and 169 all
permit issuers to engage in specified communications prior to, or
during, the filing of a registration statement. Would affected funds
rely on these rules, as proposed to be amended, in practice? If so,
what types of communications would affected funds make in reliance on
these rules? Are there any additional changes to these rules that we
should make to tailor them to affected fund communications?
Rule 134 deems certain permitted communications not to be
prospectuses. Should we make any additional changes to tailor this rule
to affected fund communications? For example, should we explicitly
include the fund's investment adviser as permissible information to
disclose in paragraph (a) of rule 134? Should we expand rule 134(a)(3)
to include the business of affected funds, or is 134(a)(3)(iv)
sufficient? \131\ Why or why not? What other information specific to
affected funds should we permit that would be consistent with the
intent of rule 134 communications?
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\131\ Rule 134(a)(3) currently permits an issuer to provide a
brief indication of the general type of business it engages in, but
restricts that information according to the type of business
involved. The rule provides specific requirements for certain types
of companies (e.g., manufacturing companies), as well as a catch-all
provision in paragraph (a)(3)(iv) for companies in a business that
is not specifically enumerated.
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In 2003, the Commission removed certain investment-company
specific provisions from rule 134 on the basis that rule 134 was
unnecessary for investment company communications in light of the
amendments we adopted to rule 482 at that time.\132\ For example, prior
rule 134 permitted investment companies to provide a brief indication
of the general type of business of the issuer, but with specified
limitations tailored to investment companies.\133\ Should we restore
some or all of the pre-2003 investment company related provisions of
rule 134? Which provisions and why? When the Commission eliminated
these provisions in rule 134, it reasoned that the standard of
liability that attaches to a fund advertisement should not depend on
the content of the advertisement and that it did not believe exactly
the same content should be subject to different liability standards
depending on whether that content is included in a rule 134
advertisement or a rule 482 advertisement.\134\ How should we balance
these considerations in considering any further changes to rule 134?
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\132\ See Amendments to Investment Company Advertising Rules,
Securities Act Release No. 8294 (Oct. 3, 2003) [68 FR 57760 (Oct. 6,
2003)] (``Advertising Rules Amendments Adopting Release'').
\133\ See prior rule 134(a)(3)(iii).
\134\ See Advertising Rules Amendments Adopting Release, supra
footnote 132, at 57761-6262.
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Rules 164 and 433 allow issuers to communicate through a
free writing prospectus after an issuer files a registration statement.
What types of communications would an affected fund make in reliance on
rules 164 and 433? How, if at all, would they differ from
communications affected funds currently make under rule 482? Should we
provide for an anti-staleness provision similar to rule 482(g) \135\ of
the Securities Act with respect to any discussion of performance by
affected funds in a free writing prospectus? Why or why not?
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\135\ Rule 482(g) [17 CFR 230.482(g)] is an anti-staleness
provision providing in part that ``[a]ll performance data contained
in any advertisement must be as of the most recent practicable date
considering the type of investment company and the media through
which the data will be conveyed. . . .''
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2. Broker-Dealer Research Reports
The BDC Act also directs us to amend rules 138 and 139 to
specifically include a BDC as an issuer to which those rules apply, and
the Registered CEF Act directs us to allow certain registered CEFs 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.\136\ Rule 138 permits a broker-dealer
participating in a distribution of an issuer's common stock and similar
securities to publish or distribute research about that issuer's fixed
income securities, and vice versa, if it publishes or distributes that
research in the regular course of its business.\137\ 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 propose
to amend the rule's references to shelf registration statements filed
on Form S-3 to include a parallel reference to a
[[Page 14464]]
registration statement filed on Form N-2 under the proposed short-form
registration instruction.
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\136\ See section 803(b)(2)(F) of the BDC Act, supra footnote 8.
See also section 509(a) of the Registered CEF Act, supra footnote
11.
\137\ See 17 CFR 230.138. Specifically, a research report
published or distributed by a broker or dealer is not considered an
offer for sale or an offer to sell a security that is the subject of
an offering for purposes of section 2(a)(10) and 5(c) of the
Securities Act even if the broker or dealer participates in the
distribution of the issuer's securities, so long as the research
report relates to securities that are not equivalent, as defined by
the rule, to the securities being distributed. See rule 138(a). A
broker-dealer's publication or distribution of a research report in
reliance on rule 138 would therefore be deemed not to constitute an
offer that otherwise could be a non-conforming prospectus in
violation of section 5 of the Securities Act.
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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 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.\138\ This requirement is
designed to ensure that all reporting issuers are current in their
periodic reports at the time a broker-dealer relies on the
exemption.\139\ Because registered CEFs do not file the periodic
reports currently specified in rule 138, we propose to include parallel
references to the reports that registered CEFs are required to file,
i.e., reports on Forms N-CSR, N-Q,\140\ N-CEN, and N-PORT.\141\
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\138\ See rule 138(a)(2)(i) [17 CFR 230.138(a)(2)(i)].
\139\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44763 (amending rule 138 to require that all issuers
covered in a research report under rule 138, and not just those that
file on Forms S-3 or F-3, be current and timely in filing their
periodic reports).
\140\ See supra footnotes 41 and 44 (Form N-Q will be rescinded
on May 1, 2020). See also infra Part VIII (instruction 6 under Text
of Proposed Rules and Amendments).
\141\ Reports on Form N-PORT for each month will be filed with
the Commission on a quarterly basis. In addition, only information
reported for the third month of each fund's fiscal quarter on Form
N-PORT will be publicly available (60 days after the end of the
fiscal quarter). See N-PORT Modification Release, supra footnote 41.
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We are not, however, proposing any changes to rule 139. 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.
The Commission recently adopted new Securities Act rule 139b to
implement the Fair Access to Investment Research Act of 2017 (the
``FAIR Act'').\142\ 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.\143\
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\142\ See Fair Access to Investment Research Act of 2017, Public
Law 115-66, 131 Stat. 1196 (2017).We implemented the FAIR Act's
directives to amend rule 139 by adopting new rule 139b. See also
CIFRR Adopting Release, supra footnote 98.
\143\ 17 CFR 230.139b. See also CIFRR Adopting Release, supra
footnote 98, at 64183 (providing that under rule 139b, the term
``covered investment fund'' includes, among other things, registered
investment companies and BDCs).
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Rule 139b includes specific conditions mandated by Congress for
covered investment fund research reports.\144\ 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.\145\ We believe 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. Moreover, if we 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. We believe it is more appropriate to
provide a consistent approach for affected fund research reports under
rule 139b.
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\144\ See section 2(f)(2)(A) of the FAIR Act, supra footnote
142.
\145\ See Covered Investment Fund Research Reports, supra
footnote 98. See also section 2(f)(3) of the FAIR Act, supra
footnote 142.
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We request comment on the proposed amendments to the research
report rules:
Would the proposed amendments to rule 138 effectively
implement the BDC Act and the Registered CEF Act? Have we effectively
implemented the BDC Act and Registered CEF Act with respect to the
research report rules?
Do commenters agree that amendments to rule 139 are not
necessary or appropriate in light of rule 139b? Why or why not? If not,
how should we appropriately address affected funds in light of the
specific directives in the FAIR Act regarding covered investment fund
research reports? If we were to amend rule 139 to include either or
both of BDCs and registered CEFs, should we remove them from the scope
of ``covered investment funds'' as defined in rule 139b to avoid
exactly the same activity being subject to different standards based on
the rule that a broker-dealer chose to use?
F. Other Proposed Rule Amendments
1. Rule 418 Supplemental Information
Rule 418 provides that the Commission or its staff may request
supplemental information concerning the registrant, the registration
statement, the distribution of the securities, market activities, and
underwriters' activities. The rule provides a non-exhaustive list of
the types of items that registrants should be prepared to furnish to
the Commission or staff promptly upon request.\146\ The BDC Act
requires us to amend rule 418 to provide that a BDC that would
otherwise meet the eligibility requirements of Form S-3 is exempt from
rule 418(a)(3).\147\ Paragraph (a)(3) of rule 418 generally requires
registrants to be prepared to furnish recent engineering, management,
or similar reports or memoranda relating to broad aspects of the
business, operations, or products of the registrant. To implement the
BDC Act, and to provide parity for affected registered CEFs consistent
with the Registered CEF Act, we are proposing to amend rule 418(a)(3)
to provide that, in addition to registrants that are eligible to use
Form S-3, registrants that are eligible to file a short-form
registration statement on Form N-2 are excepted from the requirement to
furnish this information under rule 418.\148\
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\146\ Under rule 418, registrants furnish supplemental
information. They are not required to file the information with
their registration statement, and the supplemental information does
not become part of the registration statement. See 17 CFR
230.418(b). Supplemental information that is ``furnished'' rather
than ``filed'' does not subject a registrant to certain liabilities
under the federal securities laws. See, e.g., section 11 of the
Securities Act [15 U.S.C. 77k] (establishing liability for material
untrue statements or omissions in registration statements); see also
infra footnote 263.
\147\ Section 803(b)(2)(M) of the BDC Act.
\148\ Under section 31(b)(1) of the Investment Company Act, all
records that a registered investment company and certain majority-
owned subsidiaries are required to maintain and preserve under
section 31(a) shall be subject at any time and from time to time to
such reasonable periodic, special, and other examinations by the
Commission, or any member or representative thereof, as the
Commission may prescribe. For purposes of these examinations, any
subject person must make available to the Commission or its
representatives any copies or extracts from such records as may be
prepared without undue effort, expense, or delay as the Commission
or its representatives may reasonably request. See 15 U.S.C. 80a-
30(b). Section 64 of the Investment Company Act generally provides
that section 31 shall apply to a BDC to the same extent as if it
were a registered CEF. See 15 U.S.C. 80a-63. See also rule 31a-1
under the Investment Company Act [17 CFR 270.31a-1] (Commission
books and records rules); rule 31a-2 [17 CFR 270.31a-2] (same).
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2. Amendments to Incorporation by Reference Into Proxy Statements
Schedule 14A under the Exchange Act specifies the information that
a registrant must include in a proxy statement. Item 13 of Schedule 14A
generally requires a registrant to furnish financial statements and
other information for proxy statements containing specific
proposals.\149\ However, a registrant that meets the
[[Page 14465]]
requirements of Form S-3--as defined in Note E to the Schedule--
generally may incorporate this information by reference to previously-
filed documents without delivering those documents to security holders
with the proxy statement. The BDC Act directs us to amend Item 13(b)(1)
of Schedule 14A to include as an issuer to which Item 13(b)(1) applies
a BDC that would otherwise meet the requirements of Note E of the
Schedule.\150\ The Registered CEF Act requires us to provide certain
registered CEFs with the same flexibility under the proxy rules,
subject to conditions that we determine are appropriate, as is
available to other issuers that are required to file reports under
section 13 or section 15(d) of the Exchange Act.\151\
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\149\ Item 13 applies to proxy statements seeking security
holder approval to authorize, issue, modify, or exchange securities
as described in Items 11 or 12 of Schedule 14A.
\150\ Section 803(b)(2)(N) of the BDC Act.
\151\ Section 509(a) of the Registered CEF Act.
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We are proposing to amend Item 13(b)(1) and Note E to Schedule 14A
so that affected funds that meet the requirements of the proposed
short-form registration instruction would have the same treatment under
this item as registrants that meet the requirements of Form S-3.
Specifically, we are proposing to extend this item to registrants that
meet the requirements of the proposed short-form registration
instruction and to describe in Note E when a registrant will be deemed
to meet the requirements of this new instruction for these purposes.
The proposed description in Note E would track the existing description
of when a registrant meets the requirements of Form S-3 by, for
example, applying the same general transaction limitations to affected
funds that currently apply to registrants that meet the requirements of
Form S-3.\152\
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\152\ Note E states that a registrant meets the requirements of
Form S-3 for purposes of Item 13 of Schedule 14A if, among other
things, it meets certain of the transaction requirements identified
in General Instruction I.B or I.C of Form S-3, subject to certain
limitations with respect to transactions described in General
Instruction I.B.2 of Form S-3. For instance, a registrant relying on
the transaction requirements in General Instruction I.B.2 of Form S-
3 (e.g., a registrant that has issued at least $1 billion in non-
convertible securities, other than common equity, in registered
primary offerings for cash over the prior 3 years) would only
qualify for incorporation by reference under Item 13 of Schedule 14A
if the registrant is seeking shareholder approval to authorize,
issue, modify, or exchange non-convertible debt or preferred
securities meeting the requirements of General Instruction I.B.2.
Further, certain transaction requirements in General Instruction I.B
of Form S-3, including those in General Instruction I.B.3, I.B.4,
and I.B.6, are not covered by Note E. Based on affected funds'
current practices, we understand that affected funds rarely make the
types of proposals covered by Item 13 of Schedule 14A (i.e., to
issue, modify, or exchange its securities) and may be less likely
than operating companies to rely on the transaction requirements of
General Instruction I.B or I.C of Form S-3 that are subject to
limitations in Note E. However, to provide parity, we propose to
apply to affected funds the same standards that apply to operating
companies in our proposed amendments to Note E of Schedule 14A.
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We request comment on our proposed amendments to rule 418 and
Schedule 14A:
Do our proposed amendments to Schedule 14A provide
affected funds with comparable treatment to operating companies? If
not, why not? Are other modifications to our proxy rules needed to
treat affected funds in the same manner as other issuers that are
required to file reports under section 13 or section 15(d) of the
Exchange Act?
Should our proposed amendments to rule 418 extend to
registered CEFs, as we have proposed?
G. New Registration Fee Payment Method for Interval Funds
We are proposing a modernized approach to registration fee payment
that would require interval funds to pay securities registration fees
using the same method that mutual funds and ETFs use today. In general,
issuers today--including interval funds--are required under the
Securities Act to pay a registration fee to the Commission at the time
of filing a registration statement.\153\ This means that they pay
registration fees at the time they register the securities, regardless
of when (or if) they sell them.
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\153\ Section 6(b)(1) of the Securities Act [15 U.S.C.
77f(b)(1)].
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Today, WKSIs using automatic shelf registration statements have
additional flexibility to pay filing fees at or prior to the time of a
securities offering.\154\ As a result, these filers may defer payment
until a future takedown of shares off a shelf registration statement.
Affected funds that become WKSIs as a result of our proposed amendments
would also gain that flexibility, but other affected funds would
not.\155\ WKSIs are not the only types of issuers that currently can
pay registration fees after they file their registration statements.
The Investment Company Act provides that many registered investment
companies, such as mutual funds and ETFs, register an indefinite amount
of securities upon their registration statements' effectiveness.\156\
These funds pay registration fees based on their net issuance of
shares, no later than 90 days after the fund's fiscal year end.\157\
These issuers must 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.\158\
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\154\ See supra footnote 62; see also Securities Offering Reform
Adopting Release, supra footnote 5, at 44780. This arrangement is
commonly known as ``pay as you go.'' Id.
\155\ See supra Part II.C.
\156\ See section 24(f)(1) of the Investment Company Act [15
U.S.C. 80a-24(f)(1)].
\157\ See section 24(f)(2) of the Investment Company Act [15
U.S.C. 80a-24(f)(2)]. Specifically, these funds pay fees on a net
basis, based upon the sales price for securities sold during the
fiscal year and reduced based on the price of shares redeemed or
repurchased that year.
\158\ 17 CFR 274.24.
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Interval funds, like other affected funds, are not currently
permitted to pay registration fees on this same annual ``net'' basis,
and must pay the registration fee at the time of filing the
registration statement. However, we believe that interval funds would
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. In particular, interval funds--
like mutual funds and unlike other affected funds--routinely repurchase
shares at net asset value and are required to periodically offer to
repurchase their shares.\159\ When the Commission adopted rule 23c-3,
which permits the operation of interval funds, it noted that the rule
was intended to allow them to operate in certain ways that were
traditionally available only to open-end funds.\160\ We believe that
paying their registration fees in the same manner as open-end funds
would yield similar operational benefits that open-end funds enjoy
today (e.g., by computing registration fees due on an annual net
basis). Additionally, this approach would avoid the possibility that an
interval fund would inadvertently sell more shares than it had
registered and would not require the interval fund to periodically
register new shares. Accordingly, we propose to amend rules 23c-3 and
24f-2 so that interval funds would pay registration fees on this same
annual net basis.\161\
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\159\ An interval fund must have a fundamental policy regarding
its repurchase offers that can be changed only by a shareholder
vote. See 17 CFR 270.23c-3(b)(2)(i).
\160\ Registration Offers by Closed-End Management Investment
Companies, Investment Company Act Release No. 19399 (Apr. 7, 1993)
[58 FR 19330, 19330 (Apr. 14, 1993)].
\161\ Specifically, the amendments to rule 23c-3 would provide
that an interval fund would be deemed to have registered an
indefinite amount of securities under section 24(f) upon the
effective date of its registration statement. Proposed rule 23c-
3(e). We also propose to make a conforming amendment to rule 24f-2
so that interval funds would pay their registration fees on the same
annual net basis as mutual funds and other open-end funds do.
Proposed rule 24f-2(a). We preliminarily believe that these actions
are necessary or appropriate in the public interest and consistent
with the protection of investors. See section 28 of the Securities
Act [15 U.S.C. 77z-3]; section 6(c) of the Investment Company Act
[15 U.S.C. 80a-6(c)]. As discussed in detail below, we are also
proposing to modernize the computation and payment of registration
fees subject to section 24(f) by requiring that submissions on Form
24F-2 be made in a structured data format. See infra Part II.H.1.d.
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[[Page 14466]]
We request comment on these proposed amendments:
Should we amend our rules to deem an interval fund to have
registered an indefinite amount of securities upon effectiveness of its
registration statement, as proposed? Should we require interval funds
to pay registration fees on an annual net basis by filing on Form 24F-
2? Why or why not?
Should these changes be tailored to interval funds in any
way? Why or why not? If so, how?
Should we tailor Form 24F-2 to interval funds in any way?
Why or why not? If so, how?
Instead of requiring interval funds to pay registration
fees on an annual net basis as proposed, should we permit interval
funds that are not WKSIs to make registration fee payments on a pay-as-
you-go basis, as WKSIs are permitted to do today? Why or why not?
Should we permit additional categories of issuers to pay
registration statement fees on an annual net basis as under rule 24f-2
(or on a pay-as-you-go basis)? For example, should tender offer funds
be permitted to pay registration fees in this manner? Are funds that
have historically made periodic tender offers voluntarily--but for
which these offers are not a fundamental policy--sufficiently similar
to interval funds or open-end funds such that their paying registration
fees under rule 24f-2 would be appropriate? If we were to permit tender
offer funds to use this payment method, how would we define an eligible
tender offer fund?
Should interval funds be permitted to choose whether to
pay registration fees on either an annual net basis (or on a pay-as-
you-go basis) or in the current manner, at the time of registration?
Alternatively, should all interval funds be required to pay
registration fees on an annual net basis, as we propose and as open-end
funds are required to do today?
H. Disclosure and Reporting Parity Proposals
We are proposing amendments to our rules and forms intended to
tailor the disclosure and regulatory framework for affected funds in
light of our proposed amendments to the offering rules applicable to
them. Many of these proposed amendments are not expressly required by
the BDC Act or the Registered CEF Act but we believe would further the
respective Acts' goals of providing regulatory parity to affected funds
with otherwise similarly-situated issuers.\162\ Some of the proposed
amendments also reflect that, as the Registered CEF Act requires, we
have considered the availability of information to investors in
connection with the proposed amendments.\163\ As discussed in detail
below, these proposed amendments include structured data requirements;
new annual and current reporting requirements; amendments to provide
all affected funds additional flexibility to incorporate information by
reference; and proposed enhancements to the disclosures that registered
CEFs make to investors when the funds are not updating their
registration statements.
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\162\ For example, regulatory parity could mitigate any
competitive disparities between affected funds and other issuers. It
also could help investors in affected funds by providing them
investor protections that are currently provided to investors in
similarly-situated issuers. See, e.g., infra discussion in
paragraphs accompanying footnotes 209-215.
\163\ Section 509(a) of the Registered CEF Act (providing, in
part, that any action that the Commission takes pursuant to this
subsection shall consider the availability of information to
investors, including what disclosures constitute adequate
information to be designated as a ``well-known seasoned issuer'').
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1. Structured Data Requirements
We are proposing certain new structured data reporting requirements
for registered CEFs and BDCs. In particular, and as discussed in detail
below, we are proposing to require BDCs, like operating companies, to
submit financial statement information using Inline XBRL format; to
require that registered CEFs and BDCs 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; and to
require that filings on Form 24F-2 be submitted in Extensible Markup
Language (``XML'') format.
a. Inline XBRL Requirements for Financial Statements and Notes to
Financial Statements
In 2009, the Commission adopted rules requiring operating companies
to submit the information from the financial statements accompanying
their registration statements and periodic and current reports in a
structured, machine-readable format using XBRL format.\164\ These
requirements were intended to make financial information easier for
investors to analyze and to assist in automating regulatory filings and
business information processing.\165\ Last year, the Commission adopted
modifications to these requirements by requiring issuers to use Inline
XBRL format to reduce the time and effort associated with preparing
XBRL filings, simplify the review process for filers, and improve the
quality and usability of XBRL data for investors.\166\ The Commission
has also adopted structured data reporting requirements for most
registered investment companies, including, for example, prospectus
risk/return summary information for mutual funds and ETFs,\167\ which
are also required to submit this information using Inline XBRL
format.\168\ The Commission also adopted requirements for most
registered investment companies to file monthly reporting of portfolio
securities on a quarterly basis,\169\ as well as annual reporting of
certain ``census'' information,\170\ in a structured data format.\171\
Most recently the Commission proposed to require the use of Inline XBRL
for the submission of certain statutory prospectus disclosures for
variable annuity and variable life insurance contracts.\172\ BDCs,
however, are currently subject to neither the structured data reporting
requirements for operating companies
[[Page 14467]]
nor those for registered investment companies.\173\
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\164\ Interactive Data to Improve Financial Reporting,
Securities Act Release No. 9002 (Jan. 30, 2009) [74 FR 6776 (Feb.
10, 2009)] (``2009 Financial Statement Information Adopting
Release'') (requiring submission of an Interactive Data File to the
Commission in exhibits to such reports); see also Securities Act
Release No. 9002A (Apr. 1, 2009) [74 FR 15666 (Apr. 7, 2009)].
\165\ 2009 Financial Statement Information Adopting Release,
supra footnote 164, at 6776.
\166\ Inline XBRL Filing of Tagged Data, Securities Act Release
No. 10514 (June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 2018)]
(``Inline XBRL Adopting Release''). Inline XBRL allows filers to
embed XBRL data directly into an HTML document, eliminating the need
to tag a copy of the information in a separate XBRL exhibit. Inline
XBRL is both human-readable and machine-readable for purposes of
validation, aggregation, and analysis. Id. at 40851.
\167\ Interactive Data for Mutual Fund Risk/Return Summary,
Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748
(Feb. 19, 2009)].
\168\ See Inline XBRL Adopting Release, supra footnote 166.
\169\ Reporting Modernization Release, supra footnote 41
(requiring portfolio information on Form N-PORT); N-PORT
Modification Release, supra footnote 41 (modifying the filing
requirements for Form N-PORT); Money Market Fund Reform, Investment
Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060 (Mar. 4,
2010)] (requiring portfolio information on Form N-MFP).
\170\ Reporting Modernization Release, supra footnote 41, at
81870 (requiring ``census'' information on Form N-CEN).
\171\ We require reports on these forms to be filed in an XML
format that is not Inline XBRL.
\172\ Updated Disclosure Requirements and Summary Prospectus for
Variable Annuity and Variable Life Insurance Contracts, Investment
Company Act Release No. 33286 (Oct. 30, 2018) [83 FR 61730 (Nov. 30,
2018)] (``Variable Contract Summary Prospectus Proposing Release'').
\173\ Rule 30b-1 under the Investment Company Act [17 CFR
270.30b-1] (requiring certain registered investment companies, but
not BDCs, to file reports on Form N-PORT); rule 30a-1 under the
Investment Company Act [17 CFR 270.30a-1] (requiring certain
registered investment companies, but not BDCs, to file reports on
Form N-CEN); see also Reporting Modernization Release, supra
footnote 41, at 81876 (noting that BDCs are not subject to reporting
on Form N-PORT); 2009 Financial Statement Information Adopting
Release, supra footnote 164, at 6788 (noting that BDCs are not
subject to the XBRL financial statement information requirements).
Prior to the adoption of the XBRL requirements in the 2009
Financial Statement Information Adopting Release, which did not
apply to BDCs, the one commenter to address their exclusion from the
scope of the proposal had opined that the investment management
taxonomy was not yet sufficiently developed. See id.
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We 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. We
further believe that, like investors in operating companies and
investors in registered investment companies, BDC investors would--
either directly or indirectly through third-party analysis--benefit
from the availability of relevant information in a structured data
format.\174\ Accordingly, we propose to amend Item 601 of Regulation S-
K to remove the exclusion for BDCs from the Inline XBRL financial
statement tagging requirements.\175\ This would subject BDCs to the
Inline XBRL financial statement tagging requirements that apply to
operating companies, reducing the current disparity between the
accessibility of information BDCs provide to the market and the
accessibility of information that operating companies provide to the
market. Based on our staff's review of BDCs' disclosures and assessment
of the XBRL taxonomies' development since they were first adopted in
2009, we believe that relevant XBRL taxonomies are sufficiently well
developed for financial statement reporting by BDCs. We therefore
believe that applying these taxonomies to BDCs would impose smaller
reporting costs and would yield more useful data for investors,
Commission staff, and other data users than would requiring BDCs to
provide structured financial information by filing reports on Forms N-
PORT or N-CEN using a different technology.
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\174\ Having this information in a structured data format would
also enhance our staff's ability to review and analyze BDCs'
financial statements.
\175\ Compare proposed Item 601(b)(101)(i) of Regulation S-K [17
CFR 229.601(b)(101)(i)] (excludes registered investment companies
from financial statement tagging requirements) with current Item
601(b)(101)(i) of Regulation S-K [17 CFR 229.601(b)((101)(i)]
(excludes all registrants that prepare financial statements in
accordance with Article 6 of Regulation S-X [17 CFR 210.6-01 through
210.6-10]).
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We request comment on the proposed requirement for BDCs to tag
financial statement information using Inline XBRL format:
Should we require BDCs to tag financial statement
information in a structured data format? Why or why not? Is Inline XBRL
the appropriate format for BDC financial statement information? Why or
why not? If another structured data format would be more appropriate,
which one, and why?
Is it appropriate for BDCs to be subject to the same
Inline XBRL financial statement information requirements as operating
companies, or would it be more appropriate to require them to provide
structured data by filing reports on Form N-PORT or Form N-CEN? Why or
why not? Would the information that BDCs include in financial
statements and that would be tagged in Inline XBRL format under the
proposal be more important to BDC investors than the structured data
required by Forms N-PORT and N-CEN? Why or why not?
Should structured financial statement data reporting
requirements be tailored to BDCs? If so, how and why?
Should any subset of BDCs (for example, BDCs that would
not be eligible to file a short-form registration statement) be exempt
from the proposed structured financial statement data reporting
requirement? If so, what subset and why?
Do commenters agree that the relevant XBRL taxonomies are
sufficiently well developed for financial statement reporting by BDCs?
Why or why not? What, if any, additions should be made to one or more
of the XBRL taxonomies to enhance their suitability for BDC financial
statements?
b. New Check Boxes and Structured Data Format for Form N-2 Cover Page
Information
We are proposing to require all affected funds to tag the data
points that appear on the cover page of proposed Form N-2 using Inline
XBRL format.\176\ We currently require registrants 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.\177\ We believe extending
this requirement to mandatory tagging of the data points on the cover
page of Form N-2 would allow investors, other market participants, and
other data users to automate their use of this information. This would
enhance their ability to better identify, count, sort, aggregate,
compare, and analyze registrants and disclosures to the extent these
data points otherwise would be formatted only in HyperText Markup
Language (``HTML''). The cover page data points that we propose
affected funds to tag would include, for example, the company name, the
Act or Acts to which the registration statement relates, and checkboxes
relating to the effectiveness of the registration statement.
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\176\ See proposed General Instruction H.2.a of Form N-2;
proposed rule 405(b)(3) of Regulation S-T. We propose that all of
the data points that appear on the cover page of proposed Form N-2,
with the exception of the table including information about
calculation of the registration fee under the Securities Act, be
tagged in Inline XBRL format.
\177\ FAST Act Modernization and Simplification of Regulation S-
K, Securities Act Release No. 10425 (Oct. 11, 2017) [82 FR 50988,
51023 (Nov. 2, 2017)]; FAST Act Modernization and Simplification of
Regulation S-K, Securities Act Release No. 10618 (Mar. 20, 2019)
(``FAST Act Modernization Adopting Release'').
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In addition, we propose to amend Form N-2 to require a checkbox
indicating that the registration statement or post-effective amendment
filed by a WKSI will become effective upon filing with the Commission
under rule 462(e) under the Securities Act.\178\ The securities
offering reforms of 2005 included a parallel requirement for operating
companies' registration statements on Form S-3.\179\ A related checkbox
would indicate that the registration statement is an automatic shelf
registration statement filed by a WKSI to post-effectively register
additional securities or classes of securities under rule 413(b) under
the Securities Act.\180\ We also propose to require a checkbox
indicating a fund's reliance on the proposed short-form registration
instruction--electing a status that is similar to the use of Form S-3
(rather than Form S-1) in the operating company context. Investors,
Commission staff, and other data users can distinguish between
registration statements for operating companies based on whether they
are filed on Form S-1 or Form S-3. Because affected funds all file
their registration
[[Page 14468]]
statements on Form N-2, a checkbox is necessary to distinguish the type
of registration statement being filed. We are also proposing to require
checkboxes that would identify characteristics of the fund, including
whether it is (1) a registered CEF; (2) a BDC; (3) a registered CEF
that operates as an interval fund; (4) qualified to file a short-form
registration statement on Form N-2; (5) a WKSI; (6) an emerging growth
company; \181\ or (7) a registrant that has been registered or
regulated under the Investment Company Act for less than 12 calendar
months.\182\ The checkbox presentation of these characteristics on the
cover page will allow investors, Commission staff, and others to more
readily identify types of issuers and securities. These checkboxes
would be among the data points required to be tagged using Inline XBRL
format.
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\178\ See proposed cover page of Form N-2.
\179\ See Securities Offering Reform Adopting Release, supra
footnote 2, at 44789.
\180\ Rule 413(b) under the Securities Act, which allows a WKSI
to file a post-effective amendment to add additional securities or
additional classes of securities to an automatic shelf registration
statement already in effect, is limited to: (1) Securities of a
class different than those registered on the effective automatic
shelf registration statement identified as provided in rule 430B(a);
or (2) securities of a majority-owned subsidiary that are permitted
to be included in an automatic shelf registration statement,
provided that the subsidiary and the securities are identified as
provided in rule 430B and the subsidiary satisfies the signature
requirements of an issuer in the post-effective amendment.
\181\ See rule 12b-2 under the Exchange Act [17 CFR 240.12b-2]
(defining ``emerging growth company'').
\182\ We are also proposing to add several other checkboxes to
Form N-2 to clarify the purpose of the filing, including a checkbox
to indicate that the only securities being registered are being
offered pursuant to dividend or interest reinvestment plans, as well
as new checkboxes to indicate whether the Form is being filed as a
post-effective amendment filed pursuant to Rule 462(c) or Rule
462(d) under the Securities Act.
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Form N-2 registrants are required to include a table on the form's
cover page that includes information about calculation of the fund's
registration fee under the Securities Act. We believe that the
information in this table would not--unlike the other cover page
elements, including the proposed checkboxes--permit data users to
distinguish among Form N-2 registrants in a manner that is similar to
the way that that operating company registrants currently may be
distinguished by their filing form type. Therefore, we are not
proposing that affected funds be required to tag this cover page fee
table.
We request comment on the proposed Form N-2 cover page information
tagging requirement:
Should we require, as proposed, all information on the
cover page of Form N-2, except the table that includes information
about the calculation of the fund's registration fee, to be tagged
using Inline XBRL format? Are there any other cover page data points
that we should not require be tagged in Inline XBRL format? For
example, are there any data points where tagging in Inline XBRL format
would be duplicative with similar requirements, or where Inline XBRL
tagging would serve limited benefit in helping to identify, count,
sort, aggregate, compare, and analyze registrants? Should this
requirement be tailored in any way--for example, to particular types of
registrants that file on Form N-2 (such as those that are eligible to
file a short-form registration statement, and/or WKSIs)--and if so, how
and why? Should the proposed requirement apply to only to those data
points related to affected funds' use of the rules amended by this
proposal? Would the costs associated with tagging all of the cover page
data points be significantly greater than the costs of tagging only the
checkboxes related to use of the proposed short-form registration
instruction or the use of an automatic shelf registration? If so, why?
Is proposed General Instruction H.2 of Form N-2, in
conjunction with rule 405 of Regulation S-T as we propose to amend it,
sufficiently clear for registrants and other market participants to
understand the proposed requirement to tag Form N-2 cover page
information in Inline XBRL format? If not, how could we make the
requirement clearer?
Instead of requiring cover page data points to be tagged
using Inline XBRL format, should we require this data to be submitted
using another format, such as XML? Why or why not? If so, which
alternative format would be appropriate, and why? Would the
administrative costs vary between formats? If so, which format would be
more costly, and why? Would the benefits to users of the information
vary between formats? If so, which format would be more beneficial, and
why? Should more than one format be permitted? Should the specific
format be left unspecified? Would investors and others realize the
benefits of reporting in a structured data format if the specific
structured data format were unspecified? Why or why not?
Are there any changes we should make to the proposed
amendments to better ensure accurate and consistent tagging? If so,
which changes should we make and why?
c. Tagging of Prospectus Disclosure Items
We propose to require all affected funds to tag certain information
that is required to be included in an affected fund's prospectus using
Inline XBRL format.\183\ Like mutual funds and ETFs, all affected funds
would be required to submit to the Commission using Inline XBRL certain
information discussed below in registration statements or post-
effective amendments filed on Form N-2 \184\ and forms of prospectuses
filed pursuant to rule 424 under the Securities Act that include
information that varies from the registration statement.\185\ A
seasoned fund filing a short-form registration statement on Form N-2
also would be required to tag information appearing in Exchange Act
reports--such as those on Forms N-CSR, 10-K, or 8-K--if that
information is required to be tagged in the fund's prospectus.\186\
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\183\ See proposed General Instruction H.2 of Form N-2; proposed
amendments to rule 405 of Regulation S-T.
\184\ See proposed General Instruction H.2.a of Form N-2.
\185\ See proposed General Instruction H.2.b of Form N-2.
\186\ See proposed General Instruction H.2.c of Form N-2.
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We are proposing that affected funds 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.\187\ We
believe that these items--which provide important information about a
fund's key features, costs, and risks--would be best suited to being
tagged in a structured format and be of greatest utility for investors
and other data users that seek structured data to analyze and compare
funds.
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\187\ See proposed General Instructions H.2.b and H.2.c of Form
N-2; see also 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. This information largely parallels similar information contained
in the Form N-1A risk/return summary. See Item 2 (Risk/Return
Summary: Investment Objectives/Goals), Item 3 (Risk/Return Summary:
Fee Table), and Item 4 (Risk/Return Summary: Investments, Risks and
Performance) of Form N-1A.
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We would require affected funds to tag the Fee Table, which
provides detailed information about the fund's costs. We believe that
tagging could facilitate analysis of fund costs, and allow investors
and other data users to compare the costs of a particular affected fund
with the costs of other funds or other investment products, such as
mutual funds. We are also proposing to require affected funds to tag
the Senior Securities Table, which requires registrants to include
information about each of its classes of senior securities, including
bank loans. This will facilitate analyses of outstanding senior
securities that may bear on the likelihood, frequency, and size of
distributions from the fund to its investors. We propose to require
tagging of Investment Objectives and Policies, which provides
information about the fund's principal portfolio emphasis. We are also
proposing to require tagging of Risk Factors to 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. We propose to require the tagging of Share Price
[[Page 14469]]
Information, as 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.\188\ We would also require affected funds to
tag Capital Stock, Long-Term Debt, and Other Securities to better
inform common shareholders how their rights, expenses, and risks are
affected when the fund issues other types or classes of securities.
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\188\ See infra footnote 207 and accompanying text.
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Similar to mutual funds and ETFs under the recently adopted Inline
XBRL regime,\189\ we would require affected funds to submit
``Interactive Data Files'' (i.e., machine-readable computer code that
presents information in XBRL format) as follows:
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\189\ See Inline XBRL Adopting Release, supra footnote 166.
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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; \190\
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\190\ Proposed General Instruction H.2.a of Form N-2; cf.
General Instruction C.3.(g)(i)(B) of Form N-1A.
In the corresponding instruction in Form N-1A, the timing of the
submission of the Interactive Data File varies based on whether the
fund is filing a registration statement or post-effective amendment
pursuant to rule 485(a) under the Securities Act, or a post-
effective amendment pursuant to rule 485(b) under the Act. If the
fund is filing pursuant to rule 485(a), it must submit the
Interactive Data File as an amendment to the registration statement
to which it relates, on or before the date that the registration
statement or post-effective amendment that contains the related
information becomes effective. See General Instruction C.3.(g)(i)(A)
of Form N-1A. If the fund is filing pursuant to rule 485(b) (where
the post-effective amendment may become effective immediately upon
filing), the fund may submit the Interactive Data File either
together with the post-effective amendment filing, or in the same
manner as it would with a rule 485(a) filing. See General
Instruction C.3.(g)(i)(B) of Form N-1A. Because rule 485 is not
applicable to affected funds, and because practices may differ as to
automatic effectiveness of affected funds' registration statements
and post-effective amendments, the proposed Form N-2 instruction
(like General Instruction C.3.(g)(i)(B) of Form N-1A) permits an
affected fund to submit an Interactive Data file either concurrently
with the registration statement or post-effective amendment filing,
or as 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.
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for any prospectus filed pursuant to rule 424, Interactive
Data Files must be submitted concurrently with the filing; \191\ and
---------------------------------------------------------------------------
\191\ Proposed General Instruction H.2.b to Form N-2; cf.
General Instruction C.3.(g)(ii) of Form N-1A.
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for any Exchange Act report that a seasoned fund filing a
short-form registration statement on Form N-2 would have to tag, as
discussed above, Interactive Data files must be submitted concurrently
with the filing.\192\
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\192\ Proposed General Instruction H.2.c to Form N-2.
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We believe this approach will facilitate the 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, yielding substantial benefits. For data aggregators
responding to demand for the data, the availability of the required
disclosures in the Inline XBRL format concurrent with filing or before
the date of effectiveness would allow them to quickly process and share
the data and related analysis with investors. Therefore, consistent
with the approach in the recently adopted Inline XBRL rules for mutual
funds and ETFs, we are not proposing to provide affected funds a filing
period to submit Interactive Data Files. Affected funds could request
temporary and continuing hardship exemptions for the inability to
timely file electronically the Interactive Data File.\193\
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\193\ See rule 201 of Regulation S-T (temporary hardship
exemption) and rule 202 of Regulation S-T (continuing hardship
exemption).
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We request comment generally on the proposed amendments to require
the use of Inline XBRL format for certain Form N-2 disclosure items,
and specifically on the following issues:
Should we make the submission of structured data in the
Inline XBRL format mandatory for affected funds, as proposed? Should
the requirements for affected funds generally mirror the recently-
adopted Inline XBRL requirements for mutual funds and ETFs, as
proposed? Should we take a different or more tailored approach for
affected funds, and if so, what should that be?
Should we also require a seasoned fund filing a short-form
registration statement on Form N-2 to tag information appearing in
Exchange Act reports, such as those on Forms N-CSR, 10-Q, 10-K, or 8-K,
if that information is required to be tagged in the fund's prospectus?
Why or why not?
Is proposed General Instruction H.2 of Form N-2, in
conjunction with rule 405 of Regulation S-T as we propose to amend it,
sufficiently clear for registrants and other market participants to
understand the proposed requirement to tag certain Form N-2 disclosure
items in Inline XBRL format? Is this proposed requirement equally clear
in its requirements to tag initial registration statements, post-
effective amendments, forms of prospectuses, and (for seasoned funds
that file a short-form registration statement on Form N-2) certain
information that appears in Exchange Act reports? If not, how could we
make the requirements more clear?
Would affected funds encounter any technical or other
difficulties associated with the proposed requirement to tag certain
information that appears in forms of prospectus or Exchange Act
reports, and if so, how could we resolve such difficulties? For
example, should we amend any of the Commission forms that affected
funds use to file Exchange Act reports to facilitate the proposed
tagging requirement? If so, how?
As proposed, should affected funds be required to use
Inline XBRL format to tag each of the following sections of the
prospectus: Fee Table; Senior Securities Table; Investment Objectives
and Policies; Risk Factors; Share Price Data; and Capital Stock, Long-
Term Debt, and Other Securities? Should other or different information
that affected funds disclose on Form N-2 be required to be tagged using
Inline XBRL? For example, should we require tagging of information
about asset coverage ratios?
Should any category of affected fund (for example,
affected funds that would not be eligible to file a short-form
registration statement) be exempt from the proposed Inline XBRL
requirements? If so, which ones, and why?
To what extent do investors and other market participants
find information that is available in a structured format useful for
analytical purposes? Is information that is narrative, rather than
numerical, useful as an analytical tool?
Should the failure by an affected fund to submit a
required Interactive Data File affect the registrant's ability to file
post-effective amendments to its registration statement, as is the case
currently for mutual funds and ETFs? Why or why not? Should it
similarly affect an affected fund's ability to update its registration
statement with information incorporated by reference from an Exchange
Act report?
We are proposing to require BDCs to submit the information
from their financial statements using Inline XBRL format.\194\ We also
are proposing that all affected funds--BDCs and registered CEFs--tag
certain prospectus disclosure items using Inline XBRL. Should we also
require registered CEFs to submit
[[Page 14470]]
the information from their financial statements to the Commission using
Inline XBRL format? If so, should we require registered CEFs to tag all
of this information, or just information that is not required by Forms
N-PORT or N-CEN, such as certain information from a fund's Statement of
Operations or Financial Highlights? \195\
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\194\ See supra Part H.1.a.
\195\ A fund's Statement of Operations and Financial Highlights
describes the amount and character of the income received (e.g.,
dividends, interest income, payment in kind (``PIK'')), which helps
investors understand whether a fund is likely to pay or cut a
dividend, and the amount and character of the distributions paid
(e.g., distributions from income, realized gains, return of
capital), which helps investors understand whether they are
receiving actual profits from the fund, or just receiving a portion
of their original investment. Similarly, a registered CEF must
identify affiliated investments and income from affiliates in its
Schedule of Investments, Statement of Assets & Liabilities, and
Statement of Operations. Investors that are focused on the potential
conflicts of interest that are inherent in affiliated transactions
may look more carefully at a fund that invests a significant amount
in an affiliate that only pays PIK. This could suggest that the fund
is investing in the entity because it is an affiliate, and not
because it is a good investment.
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d. Structured Data Format for Form 24F-2
Today, filings on Form 24F-2 are submitted via EDGAR in HTML or,
less commonly, American Standard Code for Information Interchange
(``ASCII'') format.\196\ Such submissions are human-readable but are
not susceptible to automated validation or aggregation. We believe use
of a structured data format 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. Automated validation processes could help issuers compute
registration fees accurately before submitting the filing. A structured
filing format could also facilitate pre-population of previously-filed
information. Therefore, we propose to amend the EDGAR Filer Manual to
require submission of filings on Form 24F-2 in a structured XML
format.\197\
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\196\ See General Instruction A.3 to Form 24F-2; rule
101(a)(1)(iv). We are also proposing to make a technical correction
in Form 24F-2 to refer to the applicable paragraph of rule 101 of
Regulation S-T. See proposed General Instruction A.3 to Form 24F-2
(correcting ``rule 101(a)(1)(i)'' to ``rule 101(a)(1)(iv)'').
\197\ As discussed in detail above, we are also proposing to
expand the group of issuers subject to filing on Form 24F-2 to
include certain affected funds. See supra Part II.G.
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We request comment on our proposal to require filings on Form 24F-2
to be submitted in a structured XML format:
Should we require, as proposed, that filings on Form 24F-2
be submitted in a structured format? Why or why not? Should the
required format, as proposed, be XML? Why or why not? If another format
would be more appropriate, which format and why?
Should the requirement to submit filings on Form 24F-2 in
a structured data format apply to certain 24F-2 filers and not to
others? If so, which ones and why?
Should the Commission make available a web-based fillable
form for preparing submissions on Form 24F-2? Why or why not? Would
such a tool be useful for filers? Would additional pre-filing
validation processes designed to reduce fee computation errors be
useful for filers?
2. Periodic Reporting Requirements
We are also proposing new annual report requirements. We expect
several of the reforms we are proposing in this release, such as those
relating to automatically effective shelf registration, forward
incorporation by reference, and final prospectus delivery, would
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 would forward incorporate all
periodic Exchange Act reports into its registration statement.\198\
This could 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. These funds' annual reports may take on greater prominence,
with investors looking to the annual reports for key information.\199\
Registered CEFs' shareholder reports may also take on greater
prominence for investors because, under the proposal, affected funds
would not be required to deliver final prospectuses but would still be
required to deliver shareholder reports at least semi-annually.\200\
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\198\ See proposed General Instruction F.3.b of Form N-2.
\199\ In 2005, the Commission observed that recent enhancements
to Exchange Act reporting enabled us to rely on those reports to a
greater degree in adopting our rules to reform the securities
offering process. Securities Offering Reform Adopting Release, supra
footnote 5, at 44726. As the Commission did then, we believe that
enhanced periodic reporting is an important corollary to reform of
the offering process under the Securities Act. See id.
\200\ Compare proposed 17 CFR 230.172 with 17 CFR 270.30e-1; see
also supra Part II.C.
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Accordingly, we are proposing to require 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.\201\ 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 believe that investors
should have no less current information than they do today about these
items when the fund is offering its shares. Finally, we are proposing
to require 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.
These proposals 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.\202\
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\201\ In general, these proposed requirements are expressed as a
cross-reference to the existing registration statement requirements
in Form N-2. See proposed Instructions 4.h(1)-4.h(4) to Item 24 of
Form N-2. We considered proposing that these requirements apply to
both annual and semi-annual reports to shareholders in the case of
registered CEFs. We determined to propose to require this disclosure
only in annual reports (and not also semi-annual reports) because
annual reports currently provide more comprehensive information than
semi-annual reports, and we therefore believe annual reports'
information would be better complemented by the proposed additional
disclosures.
\202\ See infra Parts II.H.1.a-II.H.2.d. We also propose to
amend Form N-2 to clarify that certain of its requirements for
annual reports also apply to BDCs. See proposed Instruction 10 to
Item 24 of Form N-2.
---------------------------------------------------------------------------
a. Fee and Expense Table, Share Price Data, and Senior Securities Table
We are proposing to require funds filing a short-form registration
statement on Form N-2 to include key information in their annual
reports that they currently disclose in their prospectuses in light of
the importance of this information and the increased prominence of
shareholder reports under our proposal. Specifically, we propose that
these funds include the following information in their annual reports:
\203\
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\203\ See proposed Instruction 4.h(2) to Item 24 of Form N-2
(fee and expense table); Proposed Instruction 4.h(3) to Item 24 of
Form N-2 (share price data); Proposed Instruction 4.h(1) to Item 24
of Form N-2 (senior securities table).
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[[Page 14471]]
Fee and Expense Table: Form N-2 currently 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.\204\ 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.\205\ 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.\206\
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\204\ Item 3.1 of Form N-2.
\205\ See Enhanced Disclosure and New Prospectus Delivery Option
for Registered Open-End Management Investment Companies, Investment
Company Release No. 28064 (Nov. 21, 2007) [72 FR 67790, 67794 (Nov.
30, 2007)].
\206\ See id.; Enhanced Disclosure and New Prospectus Delivery
Option for Registered Open-End Management Investment Companies,
Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR
4546, 4553 (Jan. 26, 2009)]; Request for Comment on Fund Retail
Investor Experience and Disclosure, Investment Company Act Release
No. 33113 (June 5, 2018) [83 FR 26891, 26901 (June 11, 2018)]
(``Investor Experience Request for Comment'').
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Share Price Data: Form N-2 currently 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 net asset value.\207\ 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.
---------------------------------------------------------------------------
\207\ Item 8.5 of Form N-2; see also proposed Instruction 4.h(3)
to Item 24 of Form N-2 (share price data).
---------------------------------------------------------------------------
Senior Securities Table: Form N-2 currently requires
registrants to include information about each of its classes of senior
securities, including bank loans.\208\ 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.
---------------------------------------------------------------------------
\208\ Item 4.3 of Form N-2. This information must be audited.
See Instruction 1 to Item 4.3 (applying Instruction 8 to Item 4.1 to
Item 4.3); Instruction 8 to Item 4.1 (requiring the information to
be audited).
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We request comment on our proposal that these funds include this
information in their annual reports:
Should we require this information to appear in these
affected funds' annual reports? Why or why not?
Should we also require these affected funds to provide
this information in their semi-annual and other periodic reports?
Should the required information be the same as the
information currently required in the registration statement? Should it
be tailored to the annual report? If so, how and why? For example,
should information on fees and expenses be backward-looking rather than
forward-looking?
We are proposing to require funds filing a short-form
registration statement on Form N-2 to include the key information
discussed above in their annual reports. Is the scope of affected funds
we have proposed to be subject to this requirement appropriate? Should
the scope be expanded or reduced? Why or why not? For example, should
all affected funds be subject to the fee and expense information
requirements, rather than only those that file a short-form
registration on the form?
Should we permit some or all of the required information
to be provided on a fund's website in lieu of including it in the
fund's annual report? Would a website disclosure requirement make more
frequently and timely disclosure practicable? For example, should we
permit a fund not to include the required premium and discount
information in its annual report if it provides the information on its
website on a daily basis? Would such information be more accessible to
investors and other data users than information included in an annual
report transmitted to shareholders, or less accessible?
b. Management's Discussion of Fund Performance
Currently, mutual funds and ETFs are required to include MDFP in
their annual reports to shareholders.\209\ That requirement was
intended to address our concern that existing disclosure requirements
did not provide investors with sufficient information to easily
evaluate investment results achieved by mutual funds, or to relate
those results to the mutual fund's investment objective.\210\ 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.\211\ 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.\212\ MDFP requires, among other
things, narrative disclosure about factors that materially affected the
fund's performance during the most recently completed fiscal year, as
well as the impact on a fund and its shareholders of policies and
practices that funds may use to maintain a certain level of
distributions.\213\ This narrative disclosure requirement is formulated
in an intentionally general way, reflecting our view that a flexible
approach would elicit more meaningful disclosure tailored to each
fund.\214\
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\209\ Item 27(b)(7) of Form N-1A. This requirement applies to
registered open-end management investment companies other than money
market funds.
\210\ Disclosure and Analysis of Mutual Fund Performance
Information; Portfolio Manager Disclosure, Investment Company Act
Release No. 17294 (Jan. 8, 1990) [55 FR 1460, 1462 (Jan. 16, 1990)]
(``MDFP Proposing Release'').
\211\ Shareholder Reports and Quarterly Portfolio Disclosure of
Registered Management Investment Companies, Investment Company Act
Release No. 26372 (Feb. 27, 2004) [69 FR 11243, 11254 (Mar. 9,
2004)] (``Quarterly Portfolio Disclosure Adopting Release''). When
this disclosure requirement was first adopted, the information could
be included in either the prospectus or the annual report, but in
2004 the Commission determined to require that it be included in the
annual report to aid investors in assessing a fund's performance
over the prior year and to complement other backward looking
information required in the annual report, such as financial
statements. Id.
\212\ MDFP Proposing Release, supra footnote 210, at 1462
(explaining that the MD&A disclosure requirement includes a
discussion of an operating company's liquidity, capital resources,
results of operations, and other information necessary to an
understanding of the company's financial condition, changes in
financial condition, and results of operations; further explaining
that it requires the management of an operating company to identify
and address those key variables and other qualitative and
quantitative factors which are peculiar to and necessary for an
understanding and evaluation of the company).
\213\ Id. at 1461; Item 27(b)(7) of Form N-1A.
\214\ MDFP Proposing Release, supra footnote 210, at 1462. The
narrative discussion must relate back, in part, specifically to the
fund's investment strategies and the techniques used by the fund's
investment adviser. See Item 27(b)(7)(i).
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Although the Commission has required mutual funds and ETFs to
include MDFP disclosure and BDCs, like operating companies, to include
MD&A disclosure for some time, Form N-2 does not currently include an
MD&A or MDFP requirement for registered CEFs. We 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.\215\ Moreover, we
believe that
[[Page 14472]]
MDFP disclosure requirements are more appropriately tailored to the
financial reporting of registered investment companies than MD&A
requirements. Therefore, we propose to amend Form N-2 to extend the
MDFP disclosure requirements to all registered CEFs. Specifically, we
propose to require, similar to Form N-1A, that registered CEFs:
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\215\ See Quarterly Portfolio Disclosure Adopting Release, supra
footnote 211, at 11254; Comment Letter of Investment Company
Institute (Oct. 24, 2018) on File No. S7-12-18 (recommending that
the Commission consider requiring registered CEFs to provide an MDFP
in shareholder reports); Comment Letter of A. Wellington (Sept. 3,
2018) on File No. S7-12-18 (noting that registered CEF shareholder
reports do not include MDFP and expressing concerns about registered
CEF disclosures).
---------------------------------------------------------------------------
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;\216\
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\216\ Proposed Instruction 4.g(1) to Item 24 of Form N-2. As
proposed, we would expressly permit the information presented to
include tables, charts, and other graphical depictions. Id. We
encourage such depictions to the extent they may be illuminating.
---------------------------------------------------------------------------
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; \217\ and
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\217\ Proposed Instruction 4.g.(2) to Item 24 of Form N-2. The
proposed requirement for Form N-2 differs from the requirement in
Form N-1A in that open-end fund values must be computed on the basis
of the fund's net asset value per share, while registered CEF values
would be required to be computed on the basis of market price per
share or on the basis of net asset value if their shares are not
listed. Compare Instruction 1(b) to Item 27(b)(7)(iv) of Form N-1A
with proposed Instruction 4.g.(2)(A)1 to Item 24 of Form N-2.
Because certain registered CEFs have received exemptive relief to
offer more than one share class, we are including an instruction
regarding class selection for purposes of the line graph
computation. See proposed Instruction 4.g.(2)(A)2 to Item 24 of Form
N-2.
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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 net asset value during the
last fiscal year, as well as the extent to which the registrant's
distribution policy resulted in distributions of capital.\218\
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\218\ Proposed Instruction 4.g(3) to Item 24 of Form N-2.
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We request comment on the proposed requirement for registered CEFs
to include a discussion of fund performance in their annual reports:
Should we require MDFP information to appear in a
registered CEF's annual report? Why or why not? If so, should we
further tailor the current MDFP requirements applicable to mutual funds
and ETFs for registered CEFs, beyond ways in which the proposal is
already tailored for registered CEFs?
Instead of requiring MDFP information for registered CEFs,
should we require such funds to disclose MD&A information like BDCs and
operating companies? If so, should an MD&A requirement be tailored for
registered CEFs? If so, how and why? Should the disclosure requirement
vary between funds that are internally managed and those that are
externally managed? For example, would an MD&A requirement be more
appropriate for internally managed funds and an MDFP requirement be
more appropriate for externally managed funds? Why or why not?
Alternatively, should we bring over any of the MD&A
requirements into the proposed MDFP requirement for registered CEFs, in
order to further the disclosure goals of MDFP? Would it be appropriate
to require or permit forward-looking disclosure, as is included in MD&A
disclosure (and if so, are there any related additional rules or rule
amendments we should adopt to facilitate this disclosure)? For example,
many investors invest in registered CEFs based on an expectation of
receiving shareholder distributions. In addition to the proposed
requirement that registered CEFs include in MDFP a discussion of
distributions to shareholders during the last fiscal year, would
investors benefit from a forward-looking discussion of anticipated
distributions? If we were to require certain MD&A requirements for
registered CEFs, should these requirements apply only to a certain
subset of registered CEFs, for example, those that most closely
resemble BDCs in terms of investment strategy? If so, what changes to
the proposed MDFP disclosure requirements should we make to achieve
this result? As another alternative, should we require registered CEFs
to provide either MD&A or MDFP disclosure, based on their view of the
presentation that would be most informative to investors?
Are there other ways in which we should modify the
proposed MDFP disclosure requirement for registered CEFs to better
elicit meaningful disclosure that would further the goals that the
Commission discussed when it originally adopted the MDFP requirement
for open-end funds? \219\ For example, in reviewing MDFP disclosure
provided by mutual funds and ETFs, our staff has observed instances in
which funds' MDFP disclosure was not well tailored to the relevant fund
and generally discussed economic trends without a meaningful discussion
of how those trends (or other factors) materially affected the fund's
performance during the period. Are there changes we can make to the
proposed MDFP disclosure requirements for registered CEFs to make more
clear that MDFP disclosure should discuss the factors that materially
affected the fund's performance during the period as opposed to more
general discussions of economic trends and fund performance? For
example, should we incorporate 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 engages in
high portfolio turnover and the effect of portfolio turnover on fund
performance? Are there changes we should make to the proposed average
annual total return table to provide additional or more useful
information to investors, for example, to require total return based on
per-share net asset value, in addition to (as is proposed) total return
based on current market price?
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\219\ See supra footnote 210 and accompanying text.
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As another alternative, should any of the proposed MDFP
requirements for registered CEFs also be required for BDCs to include
in their MD&A? For example, should we include the line graph currently
required in MDFP in the MD&A requirements applicable to BDCs?
Should registered CEFs be required to include the line
graph that mutual funds and ETFs are required to include in their MDFP
disclosure, as we have proposed? If so, should that requirement be
differently or further tailored for registered CEFs in any way? If so,
how and why?
The line graph that mutual funds and ETFs are required to
include in their MDFP disclosure, and which we would propose to require
of registered CEFs, compares the fund's performance to an ``appropriate
broad-based
[[Page 14473]]
securities market index.'' \220\ In adopting this requirement, the
Commission described such an index as ``one that provides investors
with a performance indicator of the overall applicable stock or bond
markets, as applicable,'' while also stating that a fund would have
``considerable flexibility in selecting a broad-based index that it
believes best reflects the market(s) in which it invests.'' \221\ Our
staff has observed varying practices with respect to the benchmarks
funds use. Some funds, for example, disclose their performance against
a benchmark index that may not provide a performance indicator of ``the
overall applicable stock or bond markets,'' and in some cases, is not a
``securities market index.'' \222\ Others disclose as their benchmark
index a combination of two or more broad-based securities market
indexes.\223\ We recently requested comment on benchmark indexes in our
Investor Experience Request for Comment, with some investors expressing
concerns about the effectiveness of the benchmarks certain funds use in
presenting their performance.\224\ As we continue to consider
improvements to the investor experience with fund disclosure,\225\ we
seek further comment on how benchmark indexes are used in connection
with performance presentations. If an index does not reflect the
performance of the overall applicable stock or bond markets, does it
provide an effective comparison for investors to understand the
performance of their fund relative to the market? If not, should we
provide additional limitations on an appropriate benchmark to
facilitate a more effective comparison? If so, what kinds of
limitations and why?
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\220\ Proposed Instruction 4(g)(2)(F) of Form N-2; cf.
Instruction 5 of Item 27(b)(7) of Form N-1A.
\221\ Disclosures of Mutual Fund Performance and Managers,
Investment Company Act Release No. 19832 (Apr. 6, 1993) [58 FR
19050, 19053 (Apr. 12, 1993)].
\222\ Our staff has observed that some funds, particularly those
that invest in several different asset classes, may select an
interest-rate index (e.g., LIBOR), not a securities market index,
against which to compare their performance.
\223\ Other funds disclose a ``blended index'' that combines the
components of two or more broad-based securities market indices
(e.g., 50% S&P 500, 50% Barclays US Aggregate Bond Index). Funds
with niche or highly-customized investment strategies may disclose a
customized or bespoke index that is used only by the fund in
question (or perhaps a small number of funds).
\224\ See Investor Experience Request for Comment, infra
footnote 206 (comments available at https://www.sec.gov/comments/s7-12-18/s71218.htm); Comment of Logan Fowler (Aug. 13, 2018)
(``Compare to a market measure I understand, and the asset class the
fund holds.''); Comment of Hector Ewing (Aug. 30, 2018) (``Compare
against a market measure I know, like the S&P 500, not some obscure
thing I never heard of.''); and Comment of Frank W. (``Compare all
equity funds to S&P 500 or compare all bond funds to Total Bond
Index. Compare funds to similar funds (in same category).'').
\225\ As described in the Commission's Fall 2018 Regulatory
Flexibility Act agenda, the Division of Investment Management is
considering recommending that the Commission propose rule and form
amendments to improve and modernize the current disclosure framework
of funds under the Investment Company Act to improve the investor
experience. The Commission's Fall 2018 Regulatory Flexibility Act
agenda is available at www.reginfo.gov.
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c. Financial Highlights
Currently, registered CEFs are required to include financial
highlights in their registration statement,\226\ as well as in each
annual report to shareholders.\227\ 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 net asset value to its ending net
asset value so that investors may understand the sources of
changes.\228\ It summarizes the financial statements.\229\ BDCs include
their full financial statements in their prospectus, and we currently
permit BDCs to omit financial highlights disclosure summarizing these
financial statements.\230\ We understand, however, that it is generally
market practice for BDCs to include financial highlights, and we
believe that investors would benefit from disclosure summarizing a
BDC's financial statements. In light of the importance of financial
highlights information and to provide consistent requirements for all
affected funds, we are proposing to require that BDCs, like other
affected funds, disclose this information in their registration
statements and annual reports.\231\
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\226\ Item 4.1 of Form N-2; but see General Instruction 1 to
Item 4.1 of Form N-2 (limiting the applicability of Item 4.1 in the
case of BDCs).
\227\ Instruction 4.b to Item 24 of Form N-2.
\228\ Registration Form for Closed-End Management Investment
Companies, Investment Company Act Release No. 19115 (Nov. 20, 1992)
[57 FR 56826, 56829 (Dec. 1, 1992)].
\229\ Registration Form for Closed-End Management Investment
Companies, Investment Company Act Release No. 17091 (July 28, 1989)
[54 FR 32993, 32997 (Aug. 11, 1989)].
\230\ General Instruction 1 to Item 4.
\231\ Proposed Deletion of Instruction 1 to Item 4 of Form N-2.
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In addition, we propose to make one conforming change to the
financial highlights requirements in Form N-2 to eliminate the
requirement that registered CEFs specify the average commission rate
paid.\232\ Although this information is currently required for
registered CEFs,\233\ the Commission previously eliminated a similar
requirement for open-end funds registered on Form N-1A.\234\ The
Commission reached this determination after receiving and considering
public comment arguing that these rates are technical information that
typical investors are unable to understand.\235\ We believe that the
same considerations meriting elimination of this information from Form
N-1A also apply to registered CEFs.
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\232\ See proposed Item 4.1 of Form N-2.
\233\ Item 4.1.1 of Form N-2; Instructions 18-19 to Item 4.1 of
Form N-2.
\234\ Item 13(a) of Form N-1A; Registration Form Used by Open-
End Management Investment Companies, Investment Company Act Release
No. 23064 (Mar. 13, 1998) [63 FR 13916, 13936 (Mar. 23, 1998)].
\235\ Id.
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We request comment on the proposed requirement for BDCs to disclose
financial highlights and the elimination of the requirement that
registered CEFs specify the average commission rate paid:
Should we require BDCs to disclose financial highlight
information? Why or why not?
BDCs currently disclose information under Item 301 of
Regulation S-K that has some similarities to the financial highlights
requirement. Would requiring disclosure of both sets of information
result in duplicative disclosure obligations? Why or why not? Should we
permit the Item 301 information and the financial highlights
information to be presented in a combined manner, or should we require
each set of information to be disclosed separately? Why?
Should the required financial highlight information be
tailored for BDCs in any way? If so, how and why?
Should we eliminate the average commission rate paid
requirement from Form N-2? Why or why not? Should registered CEFs be
distinguished from open-end funds in this respect?
[[Page 14474]]
d. Unresolved Staff Comments
As part of the Commission's 2005 securities offering reforms for
operating companies, the Commission required certain issuers affected
by that rulemaking to disclose outstanding staff comments that remain
unresolved for a substantial period of time and that the issuer
believes are material.\236\ The Commission stated at the time that
enhanced Exchange Act reporting provided a principal basis for those
rules. Specifically, the Commission emphasized that it is important for
issuers to timely resolve any staff comments on their Exchange Act
reports, but recognized that the new rules could eliminate some
incentives issuers may have to do so.\237\ Specifically, the Commission
required operating companies that are accelerated filers or WKSIs to
disclose, in their annual reports on Form 10-K or Form 20-F, written
comments staff made in connection with a review of Exchange Act reports
that the issuer believes are material, that were issued more than 180
days before the end of the fiscal year covered by the annual report,
and that remain unresolved as of the date of the filing of the Form 10-
K or Form 20-F report.\238\ This rulemaking, like the 2005 securities
offering reforms, may eliminate some incentives for certain affected
funds to timely resolve staff comments. Currently, for staff to declare
any annual update to the fund's registration statement effective,
affected funds generally must resolve all staff comments.\239\ Under
the proposed amendments, in contrast, affected funds filing a short-
form registration statement on Form N-2 would generally no longer need
to file annual post-effective amendments subject to staff review.\240\
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\236\ Securities Offering Reform Adopting Release, supra
footnote 5, at 44787.
\237\ Id.
\238\ Id.
\239\ See supra footnote 25 and accompanying text.
\240\ These funds would, however, generally be required to file
a new registration statement every three years. See supra footnote
19.
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We therefore propose to amend the annual report requirement in Form
N-2 to apply a similar requirement to affected funds filing a short-
form registration on the form.\241\ In addition to written comments on
current and periodic reports, we also propose to require these funds to
disclose unresolved written comments on their registration statement
that they believe are material.\242\ Affected funds filing a short-form
registration statement on Form N-2 will have flexibility in providing
required prospectus disclosure directly in the prospectus or in
Exchange Act reports incorporated by reference. Our proposal would
therefore require these funds to disclose material unresolved staff
comments on key required disclosures regardless of whether a fund
includes them in a shareholder report or directly in the fund's
registration statement. These disclosure requirements would provide an
incentive for affected funds to timely resolve staff comments, and
investors may value information about areas of disagreement that the
issuer believes are material.
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\241\ Proposed Instruction 4.h(4) to Item 24 of Form N-2.
\242\ Id.
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We request comment on the proposed requirement to disclose
unresolved staff comments:
Should we require disclosure of unresolved staff comments?
Why or why not? Are there more appropriate means to provide incentives
to timely resolve staff comments? Should we require disclosure of
unresolved staff comments in semi-annual reports as well?
Is the scope of registrants subject to the unresolved
staff comments disclosure requirement appropriate? Should the
requirement apply to additional registrants? If so, which ones, and
why? For example, should the requirement apply to all affected funds,
or a different subset of affected funds than proposed? Should the
requirement apply, for example, to registered CEFs that file post-
effective amendments to registration statements under paragraph (b) of
Securities Act rule 486? Similarly, should the requirement apply to
mutual funds and ETFs that file post-effective amendments under
paragraph (b) of Securities Act rule 485? Alternatively, should the
requirement apply to fewer affected funds? If so, which ones, and why?
Should the staff have a role in determining which
unresolved comments should be disclosed? Should we require disclosure
of all unresolved comments without regard to a materiality assessment
by the issuer?
Should we specifically require issuers to list each
outstanding comment in its disclosure by repeating the comment verbatim
as issued by the staff instead of, as proposed, requiring issuers to
disclose the substance of any unresolved comment? Should we permit
issuers to paraphrase or summarize the outstanding staff comments?
Is 180 days the right timeframe to resolve outstanding
staff comments? Is it too long or too short? Should the 180 days be
calculated from the date of the initial written comment letter from the
staff, regardless of comments received after that date that relate to
or arise from the original comments or issuer responses to the original
comments?
3. New Current Reporting Requirements for Affected Funds
Form 8-K under the Exchange Act generally requires reporting
companies subject to the periodic reporting requirements of the
Exchange Act, including BDCs, to publicly disclose certain specified
events and information on a current basis to provide investors and the
market with timely information about these events. In order to improve
information for investors and to provide parity among registered CEFs,
BDCs, and operating companies, we are proposing to require registered
CEFs to report information on Form 8-K.\243\ We also propose 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) tailor the existing
reporting requirements and instructions to affected funds.\244\
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\243\ Consistent with the scope of operating companies that
currently are required to file reports on Form 8-K, only registered
CEFs that are Exchange Act reporting companies under section 13(a)
or section 15(d) of the Exchange Act would be subject to Form 8-K
requirements under our proposal. See 17 CFR 240.13a-1; 17 CFR
240.13a-11; 17 CFR 240.15d-1; 17 CFR 240.15d-11.
\244\ In connection with this proposal, we are proposing to
amend Form 8-K as well as rule 13a-11 and rule 15d-11 under the
Exchange Act.
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a. Proposal To Require Form 8-K Reporting by Registered CEFs
Form 8-K identifies certain events that are of such importance to
investors that prompt disclosure is necessary. Companies may also use
Form 8-K to voluntarily disclose any other information that they
determine may be material or otherwise important to investors.\245\
Under the current regulatory framework, BDCs are required to furnish or
file reports on Form 8-K to provide current information about important
events. These events include, among others, new material definitive
agreements, quarterly earnings announcements and releases, new direct
financial obligations, changes in directors, sales of unregistered
equity securities, and submissions of matters to a vote of security
holders.\246\ Registered CEFs
[[Page 14475]]
generally are not required by our rules to report information on Form
8-K,\247\ although some do so voluntarily or under exchange rules.\248\
Exchange rules generally require certain disclosure to be made on Form
8-K or through another Regulation FD compliant method that is
reasonably designed to provide broad non-exclusionary distribution of
the information to the public.\249\ Approximately 73% of registered
CEFs are listed on an exchange and already subject to exchange rules
requiring prompt public disclosure of certain information.\250\
Registered CEFs may also furnish information on Form 8-K to satisfy
public disclosure requirements under Regulation FD.\251\
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\245\ See, e.g., Additional Form 8-K Disclosure Requirements and
Acceleration of Filing Date, Securities Act Release No. 8106 (June
17, 2002) [67 FR 42914, 42915 (June 25, 2002)]; Additional Form 8-K
Disclosure Requirements and Acceleration of Filing Date, Securities
Act Release No. 8400 (Mar. 16, 2004) [69 FR 15594, 15595 (Mar. 25,
2004)] (``2004 8-K Adopting Release'').
\246\ See Items 1.01 (Entry into a Material Definitive
Agreement), 2.02 (Results of Operations and Financial Condition),
2.03 (Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant), 3.02
(Unregistered Sales of Equity Securities), 5.02 (Departure of
Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers),
and 5.07 (Submission of Matters to a Vote of Security Holders).
Based on a review by the staff, BDCs file or furnish reports under
these items of Form 8-K more frequently than other mandatory
reporting items in the Form. BDCs also made many reports under Item
7.01 (Regulation FD Disclosure) and Item 8.01 (Other Events).
\247\ See rules 13a-11(b) and 15d-11(b) under the Exchange Act
[17 CFR 240.13a-11(b) and 17 CFR 240.15d-11(b)]. While registered
CEFs are required to use Form 8-K to file notice of a blackout
period under 17 CFR 245.104 (rule 104 of Regulation BTR), we have
recognized that this requirement would only apply to investment
companies in rare instances. See rules 13a-11(b)(1) and 15d-11(b)(1)
under the Exchange Act; Insider Trades During Pension Fund Blackout
Periods, Exchange Act Release No. 47225 (Jan. 22, 2003) [68 FR 4338,
4339 (Jan. 28, 2003)]; Insider Trades During Pension Fund Blackout
Periods, Exchange Act Release No. 46778 (Nov. 6, 2002) [67 FR 69430,
69432 (Nov. 15, 2002)] (explaining that because investment companies
typically do not have employees, they typically do not maintain
employee pension plans and, as a practical matter, there generally
would be no blackout periods that would trigger a Form 8-K reporting
requirement).
\248\ See, e.g., NYSE Listed Company Manual Sections 202.05 and
202.06 (providing the following examples of the types of information
that may need to be promptly disclosed to the public: annual and
quarterly earnings, dividend announcements, mergers, acquisitions,
tender offers, stock splits, major management changes, and any
substantive items of unusual or non-recurrent nature); Nasdaq Rule
5250(b)(1).
\249\ See, e.g., NYSE Listed Company Manual Section 202.06(A);
Nasdaq rule 5250(b)(1); rule 101(e) of Regulation FD [17 CFR
243.101(e)].
\250\ As of September 30, 2018, there were 516 listed registered
CEFs and 188 unlisted registered CEFs. See infra Part IV.A.1.
\251\ See rule 101(e) of Regulation FD [17 CFR 243.101(e)]; Item
7.01 of Form 8-K. Affected funds are generally subject to Regulation
FD. See rule 101(b) of Regulation FD [17 CFR 243.101(b)] (providing
that an issuer subject to Regulation FD is one that has a class of
securities registered under section 12 of the Exchange Act [15
U.S.C. 78l] or that is required to file reports under section 15(d)
of the Exchange Act [15 U.S.C. 78o(d)], including any closed-end
investment company, as defined in section 5(a)(2) of the Investment
Company Act [15 U.S.C. 80a-5(a)(2)]).
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In adopting the 2005 securities offering reforms, the Commission
stated that reforming the securities offering process was possible due,
in part, to the fact that operating companies disseminated information
to the market on an ongoing basis through Exchange Act reports,
including current reporting on Form 8-K.\252\ In addition, operating
companies must provide current information on Form 8-K to qualify as
WKSIs or seasoned issuers and gain the associated benefits (e.g.,
automatic shelf registration statements, forward incorporation by
reference).\253\ We are proposing to require registered CEFs to report
current information on Form 8-K to improve current information
available to registered CEF investors and in recognition of the role of
current reporting in the 2005 securities offering reforms that we are
proposing to extend to registered CEFs. We also believe that requiring
this reporting would address the current lack of parity between
registered CEFs and BDCs in terms of current reporting to investors and
the market.
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\252\ See 2005 Securities Offering Reform Adopting Release,
supra footnote 5, at 44726. See also id. at 44730 (declining to make
the benefits of being a reporting issuer, seasoned issuer, or well-
known seasoned issuer available to voluntary filers and stating that
``such issuers should be required to register under the Exchange
Act, and thus become subject to all of the results of registration
for all purposes, if they wish to avail themselves of'' these
benefits).
\253\ See General Instruction I.A.3 of Form S-3 (requiring, in
relevant part, that an operating company has filed all the material
required to be filed pursuant to section 13 or 15(d) of the Exchange
Act--which would include Form 8-K--for a period of time, and has
filed all such required reports in a timely manner for that period,
with the exception of specified Form 8-K items); rule 405 under the
Securities Act (requiring an issuer to meet these Form S-3
requirements to qualify as a WKSI).
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While we understand that registered CEFs presently may provide some
current disclosure through press releases, voluntary Form 8-K filings,
prospectus supplements, or post-effective amendments, we believe it
would be beneficial to standardize the current information that all
affected funds must disclose and to make this information accessible in
a central location on EDGAR.\254\ This approach would provide all
investors in affected funds with uniform information and reduce
potential informational disparities.
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\254\ Notably, registered CEFs would still be permitted to
publish current information in press releases or other published
documents or statements (``press releases''). If a press release
contains information that would meet some or all requirements of
Form 8-K and is published before a registered CEF would be required
to file a Form 8-K report under any relevant items, the registered
CEF could incorporate by reference information from the press
release into its Form 8-K report, provided the press release is
filed as an exhibit to the report. See General Instruction F of Form
8-K.
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We recognize that certain items in Form 8-K are substantively the
same as or similar to existing disclosure requirements for registered
CEFs, although the existing requirements provide less timely
disclosure. For example, registered CEFs are generally required to
provide the information required under Item 4.01 (Changes in
Registrant's Certifying Accountant) of Form 8-K in their semi-annual or
annual shareholder reports.\255\ Further, registered CEFs are required
to provide in their semi-annual or annual shareholder reports certain
information found in Item 5.07 of Form 8-K about matters submitted to a
vote of shareholders.\256\ Notably, Form 8-K would require disclosure
within 4 business days of the relevant event, while the existing regime
calls for disclosure on an annual or semi-annual basis. We believe it
would be appropriate to require registered CEFs to provide more timely
and current disclosure on these matters on Form 8-K. We are not
proposing to remove or otherwise modify current disclosure requirements
for registered CEFs that are similar to reportable events under Form 8-
K. We believe this approach should not significantly burden registered
CEFs since, absent significant changes, they should be able to use
their Form 8-K disclosure to more efficiently prepare the corresponding
disclosure in their shareholder reports.\257\ Moreover, we believe that
continuing to require the relevant disclosure in shareholder reports
may reduce potential disruptions to shareholders who are accustomed to
finding certain information in these reports, and who may not regularly
monitor for reports on Form 8-K, and should limit discrepancies between
different types of funds' shareholder reports.
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\255\ See Instructions 4.d and 5.d of Item 24 of Form N-2.
Operating companies are similarly required to provide this
information in their annual reports to security holders. See 17 CFR
240.14a-3(b)(4); 17 CFR 240.14c-3(a)(1).
\256\ See rule 30e-1(b) under the Investment Company Act [17 CFR
270.30e-1(b)]. We recognize that operating companies and BDCs are
not required to provide information about shareholder voting results
on Form 10-Q or Form 10-K. See Proxy Disclosure Enhancements,
Exchange Act Release No. 61175 (Dec. 16, 2009) [74 FR 68334 (Dec.
23, 2009)].
\257\ As discussed below, a registered CEF would not be required
to furnish or file a report on Form 8-K if relevant disclosure was
already provided in a shareholder report. See proposed amendments to
General Instruction B.3 of Form 8-K, discussed infra at footnotes
295-296 and accompanying text.
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[[Page 14476]]
We request comment on our proposal to apply Form 8-K reporting
requirements to registered CEFs: \258\
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\258\ We also request comment on the proposed compliance date
for the proposed amendments to Form 8-K in Part II.K infra.
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Should all registered CEFs be required to disclose current
information on Form 8-K? If not, why should certain or all registered
CEFs be permitted to make use of the registration, communications, and
offering amendments discussed in this proposal without providing
current information to the market, unlike operating companies and BDCs?
Should we require Form 8-K reporting only by listed registered CEFs or
by registered CEFs that qualify as WKSIs or that are eligible to file a
short-form registration statement? If so, why should certain types of
registered CEFs (e.g., unlisted registered CEFs) be treated differently
than similarly-situated BDCs or operating companies (e.g., unlisted
BDCs)? What would be the potential impacts on investors and the market
if we required different levels of information from different
categories of registered CEFs? If we do not require certain types of
registered CEFs to report on Form 8-K, should we also consider this
approach for the same category of BDCs? What would be the potential
impact on investors and the market of removing Form 8-K information for
the relevant BDCs?
Do investors and the market have a need for more current
disclosure about important events impacting registered CEFs? Why or why
not? Do informational needs vary between listed registered CEFs and
unlisted registered CEFs? For example, do investors and the market need
more current information about listed registered CEFs for purposes of
pricing shares? Are investors and the market less likely to need
current disclosure from registered CEFs that are engaged in a
continuous offering and provide investors and the market information
about important changes to their disclosure through prospectus
supplements or post-effective amendments?
Are there existing mechanisms that registered CEFs use to
disclose current information about important events to investors, other
than disclosures required by exchange rules as discussed above? For
example, to what extent do registered CEFs provide current information
about the types of important events covered by Form 8-K and our
proposed amendments through filings under rule 497, in press releases,
or on their websites? How timely and accessible are registered CEFs'
disclosures about important events under the current framework? How
does this framework impact the potential costs and benefits of
requiring registered CEFs to report information on Form 8-K?
Should we address potentially duplicative disclosure
requirements for registered CEFs under Form 8-K and existing rule and
form requirements? If so, how? For example, should we amend rule 30e-
1(b) under the Investment Company Act to exclude registered CEFs that
file information under Item 5.07 of Form 8-K (Submission of Matters to
a Vote of Security Holders) from the requirement to furnish information
about matters submitted to a shareholder vote in the fund's annual or
semi-annual shareholder report? Would investors be more likely to miss
information disclosed only on Form 8-K, and not also included in an
annual or semi-annual report to shareholders, because some investors
may be more likely to read a shareholder report rather than monitor for
8-K filings during the year?
Does a listed registered CEF's compliance with exchange
disclosure rules impact the potential costs and benefits of requiring
listed registered CEFs to report information on Form 8-K? If so, how?
What are the impacts, if any, of requiring registered CEFs
to make reports on Form 8-K but not subjecting other registered
investment companies to this requirement? \259\ Should we require that
other registered investment companies provide current disclosure on
Form 8-K or otherwise? Why or why not?
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\259\ We have not proposed requiring registered investment
companies that are not affected funds, such as registered open-end
funds, to report information on Form 8-K because these funds are not
eligible to take advantage of the other amendments to the
registration, communications, and offering rules we are proposing.
Further, the new Form 8-K items we are proposing are tailored to
affected funds and may not provide useful information for other
types of funds. For example, as described below, registered open-end
funds typically invest in more liquid investments for which there is
publicly-available information surrounding events that may impact
valuations, which makes Form 8-K disclosure about these funds'
material write-downs less important to investors. See infra Part
II.H.3.b.ii (discussing proposed Item 10.02 of Form 8-K).
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In addition to the requests for comment above, we request
general comment on feasible alternatives to our proposal to require
registered CEFs to report on Form 8-K that would minimize the reporting
burdens on funds while maintaining the anticipated benefits of the
reporting and disclosure. We also request comment on the utility of the
information proposed to be included in reports to the Commission,
investors, and the public in relation to the costs to funds of
providing the reports.
b. Proposed Form 8-K Reporting Items for Affected Funds
We are proposing amendments to Form 8-K as it relates to affected
funds to improve current reporting of important information by affected
funds to investors and the market. We believe it is appropriate to
propose certain new reporting items that would apply to all affected
funds to better tailor Form 8-K disclosure to these types of investment
companies. We believe these amendments enhance parity between affected
funds and operating companies that are able to take advantage of the
registration, communications, and offering rules in the 2005 securities
offering reforms with respect to the amount of current information
available to investors, consistent with the overall intent of the
Registered CEF and BDC Acts.
We believe many current reporting items are relevant to affected
funds and provide information that is important to investors and the
market. However, based on an analysis of BDC reporting on Form 8-K,
BDCs did not file any reports under 7 of the 23 mandatory reporting
items reflected in Item 1.01 through Item 5.08 over a 3-year review
period, and there was a relatively low volume of reporting on several
other items.\260\ While we recognize that Form 8-K is meant to capture
important events, many of which may occur at a low frequency, we
believe it would be beneficial to investors and the market to make
certain targeted amendments to Form 8-K as it applies to affected funds
to ensure that investors and the markets receive important current
information from affected funds. The additional reporting items we
propose are designed to recognize certain differences between events
that are relevant to affected funds and those that are relevant to
operating companies. We believe these additions should promote parity
between affected funds and operating companies with respect to the
market benefits of current disclosure about relevant important events.
This approach is similar to our approach to applying tailored Form 8-K
reporting requirements to asset-backed issuers.\261\
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\260\ See also infra footnotes 415-416 and accompanying text.
\261\ See section 6 of Form 8-K (identifying six discrete
reportable events that apply only to asset-backed securities);
Asset-Backed Securities, Exchange Act Release No. 50905 (Dec. 22,
2004) [70 FR 1506, 1508, 1577-80 (Jan. 7, 2005)] (establishing
separate Form 8-K reportable events for asset-backed securities in
recognition that many of the Commission's then-existing disclosure
and reporting requirements did not elicit relevant information for
most asset-backed securities transactions). Similar to asset-backed
issuers, affected funds differ from corporate issuers because, for
example, they typically do not have employees and they are generally
formed to provide investors with exposure to a pool of assets.
Unlike our approach to asset-backed issuers, we are not proposing a
General Instruction to Form 8-K to exclude affected funds from
certain reporting requirements. While we believe that certain items
will never or very rarely create reporting obligations for affected
funds, excluding affected funds from certain reporting requirements
may unduly complicate Form 8-K and may not provide tangible benefits
since affected funds are unlikely to be subject to such reporting
requirements regardless of whether we provide specific exclusions.
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[[Page 14477]]
Specifically, we are proposing to add new Section 10 to Form 8-K to
list two additional reportable events for affected funds. Under new
Section 10, an affected fund would be required to file a report on Form
8-K if the fund has: (1) A material change to its investment objectives
or policies; or (2) a material write-down in fair value of a
significant investment. The first item represents an event that does
not occur in operating companies and, thus, it has not previously been
considered for purposes of current reporting requirements on Form 8-K.
The second item is similar to the Form 8-K requirement that operating
companies report material impairments, but with necessary modifications
to tailor the disclosure requirements to affected funds and their use
of fair value accounting under generally accepted accounting principles
(``GAAP''). We believe these two events are important to investors and
that affected funds should be required to provide timely disclosure
when they occur. We believe that the proposed reportable events occur
infrequently and should not result in numerous, persistent reports on
Form 8-K by affected funds.
We request comment immediately below on this general approach and,
separately, discuss each new proposed Form 8-K item.
Should we add new reporting items to Form 8-K for affected
funds? Why or why not? Should reportable items be the same or different
for registered CEFs and BDCs?
Should we expressly exclude affected funds from being
required to report certain events covered by existing Form 8-K items,
similar to the approach we took for asset-backed issuers? Which items
should be covered by such an exclusion, and why? What are the potential
benefits and costs of this approach?
Beyond the proposed additional reporting items for
affected funds, are there other events that are of such importance to
investors that we should require affected funds to report these events
on Form 8-K? What are these events, and why are they important to
investors? What are the potential benefits and costs of requiring an
affected fund to furnish or file a report on Form 8-K for such events?
For example, are there events covered by rule 8b-16(b) under the
Investment Company Act, other than material changes to a fund's
investment objectives or policies, that an affected fund should be
required to report on Form 8-K? \262\ Are there other ways we should
modify Form 8-K to recognize differences between affected funds and
operating companies?
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\262\ See 17 CFR 270.8b-16(b).
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An affected fund would be required to file a Form 8-K for
both proposed reporting items in Section 10. Should we instead permit
an affected fund to furnish rather than file a Form 8-K report for any
of the proposed new reporting items? If so, which item, and why? \263\
Should affected funds be permitted to furnish reports under certain
items of Form 8-K that other issuers are required to file?
Alternatively, should affected funds be required to file information
that other issuers may furnish? Please explain any basis for treating
affected funds differently.
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\263\ A Form 8-K report that is ``furnished'' rather than
``filed'' is not subject to section 18 of the Exchange Act or
otherwise subject to the liabilities of that section, unless the
registrant specifically states that the information is to be
considered ``filed'' under the Exchange Act or incorporates it by
reference into a filing under the Securities Act or the Exchange
Act. See General Instruction B.2 of Form 8-K.
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i. Material Change to Investment Objectives or Policies
Information about an affected fund's investment objectives or
policies, such as the types of instruments and investment practices it
uses, is important to prospective investors and current shareholders to
help inform their investment decisions. Currently, affected funds
disclose information about a material change in their investment
objectives or policies through a post-effective amendment to a
registration statement (in the case of a fund that is selling its
securities in a delayed or continuous offering) or a periodic report.
For example, certain registered CEFs are not required to amend their
registration statements on an annual basis as long as their annual
reports to shareholders disclose, among other things, any material
changes to the fund's investment objectives or policies that have not
been approved by shareholders.\264\
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\264\ See rule 8b-16 under the Investment Company Act [17 CFR
270.8b-16].
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Given the importance of this information to investors, we are
proposing to require current disclosure about a material change in an
affected fund's investment objectives or policies.\265\ Under proposed
Item 10.01 of Form 8-K, an affected fund would be required to file a
Form 8-K report if the fund's investment adviser, including any sub-
adviser, has determined to implement a material change to the
registrant's investment objectives or policies, and such change has not
been, and will not be, submitted to shareholders for approval.\266\ A
reporting obligation would be triggered under this item once an
affected fund's adviser determines to implement a material change that
represents a new or different principal portfolio emphasis--including
the types of securities in which the fund invests or will invest, or
the significant investment practices or techniques that the fund
employs or intends to employ--from the fund's most recent disclosure of
its principal objectives or strategies.\267\
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\265\ For these purposes, investment objectives or policies
would mean the information specified in Item 8.2 of Form N-2. See
proposed Instruction 1 to Item 10.01 of Form 8-K.
\266\ A sub-adviser is typically responsible for the day-to-day
portfolio management of some or all assets of a fund, subject to
oversight by the fund's adviser and board of directors. We
understand that sub-advisory agreements already establish procedures
for a sub-adviser to communicate with the adviser or board about
matters related to a fund's investment objectives or policies to,
among other things, ensure that the fund's assets are being managed
consistently with its disclosed investment objectives or policies.
\267\ See proposed Instruction 2 to Item 10.01 of Form 8-K. The
most recent disclosure would be the later of the most recent version
of the fund's prospectus (i.e., that included in the fund's
effective registration statement or as modified through post-
effective amendments or prospectus supplements) or its most recent
periodic report. A BDC's most recent periodic report would be the
most recently filed report on Form 10-Q or Form 10-K, while a
registered CEF's most recent periodic report would be the most
recently filed annual or semi-annual report to shareholders under
rule 30b2-1 under the Investment Company Act.
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A report under proposed Item 10.01 would disclose the date the
adviser plans to implement the material change to the affected fund's
objectives or policies, as well as a description of the material
change. This description of the material change should help an investor
understand the change and how it relates to the fund's current
investment objectives and policies.\268\ Affected
[[Page 14478]]
funds also may disclose other information related to a material change
in investment objective or policy in a Form 8-K report filed under
proposed Item 10.01. For example, an affected fund could disclose
material changes in the fund's risk factors that are associated with
the material change to its investment objective or policy.\269\
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\268\ The Form 8-K report should not, for example, solely
discuss a new investment practice or technique without explaining
how it relates to or modifies the fund's most recent disclosure of
its investment objectives and policies.
\269\ Affected funds are otherwise required to disclose material
changes in risk factors in periodic or annual reports. See Item 1A
to Part II of Form 10-Q (requiring BDCs to disclose any material
change to risk factors previously disclosed in its annual report on
Form 10-K); rule 8b-16(b)(4) (requiring registered CEFs to disclose
any material change in the principal risk factors associated with
investment in the fund in its annual report to shareholders).
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Affected funds engaged in a delayed or continuous offering of their
securities are subject to other requirements to update the disclosure
in their registration statements. A fund would not be required to file
a Form 8-K report under proposed Item 10.01 if it provides
substantially the same information in a post-effective amendment.\270\
A fund that relies on the proposed short-form registration instruction
could, however, update its registration statement by filing a Form 8-K
report instead of a post-effective amendment.\271\ A registered CEF
relying on rule 8b-16(b) to avoid updating its registration statements
on an annual basis would continue to be required to disclose in its
annual report to shareholders any material change in its investment
objectives or policies.\272\
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\270\ See proposed Instruction 3 to Item 10.01 of Form 8-K.
\271\ See supra Part II.B.2.a. If the material change in the
fund's investment objectives or strategies involves facts or events
that, individually or in the aggregate, represent a fundamental
change in the information set forth in the fund's registration
statement and the fund discloses this change on Form 8-K in lieu of
filing a post-effective amendment, the date the fund filed the Form
8-K report would be a new effective date of its registration
statement for purposes of the last paragraph of section 11(a) of the
Securities Act. See rule 158(c)(3) under the Securities Act [17 CFR
230.158(c)(3)].
\272\ See supra Part II.H.3.a (discussing our determination to
not propose to remove or otherwise modify current disclosure
requirements for registered CEFs that are similar to reportable
events under Form 8-K). Additionally, we believe annual report
disclosure of all material changes to a fund's investment objectives
or policies that have occurred over the past year would continue to
benefit shareholders.
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We request comment on our proposal to require Form 8-K disclosure
if an affected fund's adviser has determined to make a material change
to the fund's investment objectives or policies:
Should a report under proposed Item 10.01 include
different information than what we have proposed? Are there additional
types of information that would be helpful to investors or the market?
For example, should affected funds be required to report under proposed
Item 10.01 any changes to principal risk factors that accompany a
material change to the fund's investment objectives or policies that
the fund discloses in such report? Why or why not?
Current disclosure on Form 8-K is generally required
within 4 business days after the relevant event occurs.\273\ Should we
modify the timeframe in which an affected fund must file a report under
proposed Item 10.01? If so, what is a more appropriate timeframe, and
why should the reporting timeframe be different for proposed Item 10.01
than the reporting timeframe for other items under Form 8-K? Rather
than require disclosure within 4 business days after an affected fund's
adviser has determined to implement a material change to the fund's
investment objectives or policies, should we require an affected fund
to file a report on Form 8-K concurrent with, or before, any material
change to the fund's investment objectives or policies? Would this
approach be administratively easier or more difficult for funds to
implement in practice? Would this approach raise front-running concerns
or impact the usefulness of information to investors or the market more
generally?
---------------------------------------------------------------------------
\273\ See General Instruction B.1 of Form 8-K.
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Is there a standard industry practice for approving a
material change to a fund's investment objectives or policies before it
is implemented? If so, is there a particular step in the approval
process that should trigger the obligation to file a Form 8-K report
under proposed Item 10.01? If there is not a standard industry
practice, how could we modify the proposal to achieve more consistent
reporting across affected funds? Are there differences between the
approval process for funds with a single adviser and funds with one or
more sub-advisers that we should take into account? \274\
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\274\ See supra footnote 266 (discussing sub-advisers).
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Instead of generally requiring current disclosure on Form
8-K before a material change to the fund's investment objectives or
policies is implemented, should we require Form 8-K disclosure after
the adviser has begun to implement the material change? If so, when
should we require disclosure? For example, should we require Form 8-K
disclosure when the fund's investment portfolio has changed by a
defined threshold (such as a 5% or 10% change in total assets invested
in a particular industry, asset type, geography, or credit quality)?
What are the advantages and disadvantages of this approach, including
the impact on investors of less timely disclosure?
Should we exempt registered CEFs from the requirement in
rule 8b-16 to report material changes to a fund's investment objectives
or policies in its annual report if they have already reported the
change on Form 8-K? Why or why not?
BDCs are required to disclose material changes to their
risk factors on a quarterly basis, while registered CEFs are generally
required to make this disclosure on an annual basis.\275\ Should
registered CEFs be required to provide updated disclosure about
material changes to risk factors on a more frequent basis, such as
semi-annually in their shareholder reports? Why or why not?
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\275\ See supra footnote 269.
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ii. Material Write-Downs
Item 2.06 of Form 8-K requires a registrant to report certain
information if it concludes that a material charge for impairment to
one or more of its assets is required under GAAP applicable to the
registrant. Because affected funds use fair value accounting to value
their investments, Item 2.06 does not apply to them.\276\ To provide
investors with consistent information and to promote parity with
operating companies, we are proposing a new Form 8-K reporting item
that is conceptually similar to Item 2.06, but tailored to the
accounting method used by affected funds. Specifically, proposed Item
10.02 would require reporting if an affected fund concludes that a
material write-down in fair value of a significant investment is
required under GAAP applicable to the affected fund. An affected fund
would have a reporting obligation under this item once a conclusion
that a material write-down is required is made in accordance with the
fund's valuation procedures.
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\276\ In defining ``value,'' section 2(a)(41) of the Investment
Company Act distinguishes between the market value of securities for
which market quotations are readily available and the fair value, as
determined in good faith by the board of directors, of other
securities and assets. See 15 U.S.C. 80a-2(a)(41). Fair value
accounting, as that term is used in GAAP, refers to the method
investment companies use to value all investments, regardless of the
availability of market quotations. Consistent with GAAP, we use fair
value in proposed Item 10.02 to refer to the method for valuing any
investment of an affected fund.
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We believe a material decline in the valuation of one or more
significant investments of an affected fund would be important to
investors. Such a decline would likely have a significant impact on the
value of an investment in
[[Page 14479]]
the fund. Further, unlike open-end funds, which must maintain
sufficiently liquid assets in order to provide daily redemptions (and
generally must limit their investments in illiquid securities to 15% of
the fund's assets),\277\ affected funds often invest more significantly
in less liquid investments where there is less publicly-available
information surrounding events that may impact valuations.\278\ We
recognize that affected funds--particularly registered CEFs--may hold a
range of investment types, including liquid securities that have
publicly-available pricing information. While investors may have less
need for current disclosure on Form 8-K regarding a material write-down
of an investment that has public pricing information, we propose to
require affected funds to report a material write-down of any
investment type, provided the investment is a significant size of the
fund's portfolio. Capturing all investment types would provide greater
and more uniform information to investors about potentially significant
changes to the value of their investment in an affected fund. We
propose to balance the broad scope of investment types that could
trigger a reporting obligation by limiting this reporting item to only
those investments that are significant in size.
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\277\ See rule 22e-4 under the Investment Company Act [17 CFR
270.22e-4]; Investment Company Liquidity Risk Management Programs,
Investment Company Act Release No. 32315 (Oct. 13, 2016) [81 FR
82142 (Nov. 18, 2016)].
\278\ For example, there is often little information publicly
available about private small and midsized businesses in which BDCs
often invest. While an investor has access to a BDC's schedule of
investments and the fair value of such investments on a quarterly
basis, the investor generally has little insight into the operations
of a portfolio company or events that may impact its value.
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Under proposed Item 10.02 of Form 8-K, an affected fund would be
required to report the date it concluded that a material write-down in
fair value was required and an estimate of the amount or range of
amounts of the material write down. Although affected funds may not
assess valuations of their investments on a continuous (i.e., daily or
weekly) basis and are generally only required to calculate their NAVs
at discrete times under the Investment Company Act (e.g., prior to
selling shares or in connection with their periodic reports), we
understand that affected funds typically monitor and review investment
valuations between their periodic reports, particularly if a
significant event occurs that is likely to impact the value of one or
more sizable investments. An affected fund would be required to report
on Form 8-K if it concludes that a material write-down of a significant
investment is required in connection with this process. We recognize
that a fund may write down the fair value of an investment for a
variety of reasons, including company-specific considerations or events
(such as bankruptcy) or macro-level events that cause a market decline
in a certain sector or type of security. An affected fund would not be
required to disclose the reasons it determined that a material write-
down of a significant investment is required.
With respect to the requirement to report an estimate of the amount
or range of amounts of the material write down, an affected fund would
not be required to disclose an estimate in its initial report on Form
8-K if it was unable to make a good faith estimate at the time it was
required to file a Form 8-K report. However, the affected fund would be
required to file an amended report on Form 8-K under this item within 4
business days after it makes a determination of the estimate or range
of estimates. This approach is similar to current reporting by
operating companies under Item 2.06 of Form 8-K. We believe that this
requirement would be more relevant for less liquid investments where
the affected fund has discretion under GAAP to determine fair value.
Instruction 1 to proposed Item 10.02 would clarify the meaning of a
``significant'' investment for these purposes.\279\ An investment would
be considered significant if the affected fund's and its other
subsidiaries' investments in a portfolio holding exceed 10% of the
total assets of the registrant and its consolidated subsidiaries.\280\
We are proposing that an investment be greater than 10% of the affected
fund's total assets to be significant for these purposes to focus on
material write-downs that may substantially affect a fund's NAV and,
thus, would be of greater interest to investors. A 10% threshold also
is consistent with our definition of acquisitions and dispositions that
involve a significant amount of assets for purposes of Item 2.01 of
Form 8-K.\281\ To determine whether a portfolio holding is significant,
an affected fund would be required to aggregate investments in the same
issuer.\282\ An affected fund would use the valuation of the portfolio
holding prior to the material write-down to determine whether such
holding exceeds 10% of total assets and, thus, is a significant
investment.
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\279\ Item 2.06 of Form 8-K requires an operating company to
report a material charge for impairment to one or more of its
assets, including, without limitation, impairments of securities or
goodwill. For purposes of affected funds, we believe it is
appropriate to limit the requirement to report material write-downs
to only those fund investments that are of a significant size
relative to the fund's total portfolio. These material write-downs
would be more likely to substantially affect a fund's NAV and would
be more relevant to investors.
\280\ Based on staff analysis, approximately 14% of affected
funds hold investments that are greater than 10% of total assets. We
anticipate that fewer funds would be required to file Form 8-K
reports under the proposed item since a reporting obligation is not
triggered unless a material write-down occurs.
\281\ See Instruction 4 to Item 2.01 of Form 8-K.
\282\ For example, if an affected fund held debt and equity
securities issued by Company A, it would need to consider the
percentage of total assets invested in Company A securities in the
aggregate to determine whether it had a significant investment under
proposed Item 10.02.
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Like Item 2.06 of Form 8-K, an affected fund would not have to file
a report under proposed Item 10.02 if the conclusion to materially
write down a significant investment is made in connection with the
preparation, review, or audit of financial statements required to be
included in the next periodic report under the Exchange Act, the
periodic report is filed on a timely basis, and such conclusion is
disclosed in the report.\283\
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\283\ See Instruction to Item 2.06 of Form 8-K; proposed
Instruction 3 to proposed Item 10.02 of Form 8-K. The relevant
periodic reports for registered CEFs would be annual and semi-annual
reports to shareholders on Form N-CSR, while the relevant periodic
reports for BDCs would be quarterly and annual reports on Form 10-Q
and Form 10-K.
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Rather than propose to require Form 8-K disclosure about a material
write-down of a significant investment, we considered proposing to
require an affected fund to disclose a significant decline in the value
of its investment portfolio as a whole. Specifically, we considered
requiring an affected fund to report on Form 8-K when its NAV declines
by more than 10% over a specified period. We recognize investors may
have an interest in significant NAV declines for affected funds in
which they invest since, like a material write-down, a significant
decline in NAV will likely impact the value of their investments and
may be useful to inform investment decisions.\284\ Additionally, a
requirement to report a significant decline in NAV would more broadly
apply to all affected funds, while the proposed material write-down
requirement only applies to affected funds that hold large investments
in a
[[Page 14480]]
single issuer.\285\ This broader scope could potentially enhance the
information available to investors.
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\284\ While shares of an affected fund do not necessarily trade
at NAV, information about an affected fund's NAV could help the
market to price an affected fund's shares in certain circumstances
and could help an investor otherwise make investment decisions,
including by being able to better assess the price of a fund's
shares.
\285\ See supra footnote 280.
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However, a requirement to report significant declines in NAV could
result in a large amount of Form 8-K reporting by affected funds in the
event of a general market downturn or, for funds invested in a
particular sector, a downturn in that sector. Moreover, investors may
already have access to readily-available public information (such as
news reports, disclosure of fund strategies and portfolio holdings, and
daily or weekly NAV information for some funds) that could reduce the
value of this reporting. For example, with respect to affected funds
that already publicly disclose their NAVs on a daily or weekly
basis,\286\ Form 8-K reporting about declines in these funds' NAVs
could be less timely than information that is already available to the
market. Since affected funds publish their NAVs at different
frequencies--from semi-annual to daily NAV reporting--there also is not
a clear baseline for measuring declines in NAV across all affected
funds. This variability likely would either result in inconsistent
reporting standards for affected funds (e.g., if the 10% decline was
measured from the most-recently published NAV) or reporting of stale
information (e.g., if the 10% decline was measured from the NAV a
registered CEF disclosed in its most recent semi-annual shareholder
report, even if it publishes a daily NAV). Given these concerns, we
preliminarily believe that the requirement to report material write-
downs of significant investments in proposed Item 10.02 would be more
likely to provide investors with timely, relevant, and consistent
information that they cannot otherwise discern from currently-available
public disclosures.
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\286\ For example, many listed registered CEFs publicly disclose
daily or weekly NAVs. See, e.g., Barron's Market Data Center for
Closed-End Funds, available at http://www.barrons.com/mdc/public/page/2_3040-CEFmain.html.
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We request comment on proposed Item 10.02 of Form 8-K, including
potential alternatives for providing investors and the market with
timely information about declines in the value of an affected fund's
portfolio:
Should a report under proposed Item 10.02 include
different information than what we have proposed? Are there additional
types of information that would be helpful to investors or the market?
Should we modify the timeframe in which an affected fund
must file a report under proposed Item 10.02? If so, what is a more
appropriate timeframe, and why should the reporting timeframe be
different for proposed Item 10.02 than the reporting timeframe for
other items under Form 8-K, particularly Item 2.06?
Should proposed Item 10.02 only require an affected fund
to report a material write-down of certain types of investments, such
as investments for which there are no readily available market
quotations or investments that do not have publicly-available pricing
information? For any investment types that should be excluded, please
discuss the potential impact on investors (e.g., whether investors have
existing sources of information to identify material declines in the
value of significant portfolio holdings of an affected fund) and
affected funds (e.g., the impact of the exclusion on an affected fund's
reporting burden under proposed Item 10.02).
Should we limit proposed Item 10.01 to certain types of
affected funds? For example, do affected funds that consistently
publish daily NAVs provide sufficient information to investors and the
market about the value of their portfolios such that information about
material write-downs would not be important?
Should we modify our proposed definition of a significant
investment to capture a smaller or larger investment size? If so, what
is a more appropriate definition of significant investment for purposes
of proposed Item 10.02, and why?
Should a reporting obligation be triggered under proposed
Item 10.02 when the affected fund concludes, in accordance with its
valuation procedures, that a material write-down is required under
GAAP, as proposed? Does this approach establish a sufficiently concrete
guideline for determining when a reporting obligation has been
triggered? If not, under what circumstances should an affected fund be
required to report about a material write-down determination?
Should the determination of a significant investment
account for a group of investments in the same issuer that are
significant in the aggregate? If not, why not? Should a fund also be
required to aggregate derivatives investments that provide exposure to
the same issuer or reference asset under certain circumstances? If so,
when? If an affected fund were required to aggregate derivatives
contracts, what values should it use? Because the market value of a
derivatives contract will generally be small and will not reflect the
market exposure provided by the contract, would it be more appropriate
for a fund to aggregate the value of the underlying reference asset
rather than the value of the derivatives contracts? Why or why not?
Should we allow an affected fund to not file a Form 8-K
report if the conclusion that a material write-down is required is made
in connection with the preparation, review, or audit of financial
statements required to be included in its next Exchange Act periodic
report, the periodic report is timely filed, and the conclusion is
disclosed in the report, as proposed? Why or why not?
Do affected funds need more guidance on how to calculate
whether a portfolio holding is a significant investment or on any other
aspects of proposed Item 10.02?
Instead of requiring affected funds to report material
write-downs of significant investments on Form 8-K, should we require
affected funds to use a different approach to provide information about
declines in the value of their portfolio investments? For example,
should we require affected funds to file Form 8-K reports when their
NAVs decline by a specified percent (such as more than 10%) over a
specified period? If so, what is the appropriate baseline for measuring
a decline in NAV since affected funds publish their NAVs at different
frequencies? For instance, should a NAV decline be measured against the
most recently published NAV or the NAV disclosed in the fund's most
recent periodic report? Is information about a NAV decline relevant for
all affected funds, or should this requirement be limited to a subset
of affected funds (e.g., those that do not publish a NAV on a daily
basis or those that invest in less liquid investments that lack
publicly-available pricing information)? How should such a Form 8-K
reporting requirement interact with the undertaking in Item 34.1 of
Form N-2? \287\ What information should we require in a Form 8-K report
about a significant decline in NAV (e.g., the amount of the NAV
decline, the date of the determination, and the associated impacts on
the fund or its investors)?
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\287\ This undertaking provides that an affected fund will amend
its prospectus and suspend its offering in the interim if subsequent
to the effective date of its registration statement, the NAV
declines by more than 10% from its NAV as of the effective date of
the registration statement. See Item 34.1 of Form N-2.
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iii. Impact on Eligibility Under the Proposed Short-Form Registration
Instruction of Form N-2 and Safe Harbor
While operating companies generally must timely file Exchange Act
reports to be eligible to use Form S-3, there is an
[[Page 14481]]
exception for failing to timely file reports under certain Form 8-K
items.\288\ Separately, companies that are required to report on Form
8-K have a limited safe harbor from Exchange Act section 10(b) and rule
10b-5 if they fail to file a report under many of the same Form 8-K
items.\289\ For parity, we propose to implement this same general
approach for affected funds.
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\288\ Form S-3 requires, among other things, that a registrant
has timely filed its required reports, other than reports required
solely pursuant to Items 1.01, 1.02, 1.04, 2.03, 2.04, 2.05, 2.06,
4.02(a), or 5.02(e) of Form 8-K. See General Instruction I.A.3(b) of
Form S-3.
\289\ See rules 13a-11(c) and 15d-11(c) under the Exchange Act
[17 CFR 240.13a-11(c) and 17 CFR 240.15d-11(c)] (providing a limited
safe harbor for failing to timely file a report required solely
pursuant to Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a),
5.02(e), or 6.03 of Form 8-K). Notably, the safe harbor only applies
to a failure to file a report on Form 8-K. It does not provide
protection from section 10(b) and rule 10b-5 where an affected fund
has a duty to disclose information for any reason apart from the
Form 8-K requirement. See 2004 8-K Adopting Release, supra footnote
245, at 15607. For example, the safe harbor would not protect a fund
that files a short-form registration statement from liability under
section 10(b) or rule 10b-5 (or other provisions of the federal
securities laws) if the fund was engaged in an offering and its
failure to file a Form 8-K report under an item covered by the safe
harbor would result in the fund having a material misstatement or
omission in its registration statement. See, e.g., section 10 of the
Exchange Act [15 U.S.C. 78j]; sections 11, 12(a)(2), and 17(a) of
the Securities Act [15 U.S.C. 77k, 77l(a)(2), and 77q(a)]; rule 10b-
5 under the Exchange Act [17 CFR 240.10b-5]; rule 159 under the
Securities Act [17 CFR 230.159].
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As a general matter, the Commission has excluded Form 8-K items
from the timeliness requirement of Form S-3 and provided a limited safe
harbor for Form 8-K items when they require management to quickly
assess the materiality of an event or to determine whether a disclosure
obligation has been triggered.\290\ Thus, we believe it would be
appropriate to allow affected funds to file short-form registration
statements even if they fail to timely file reports required solely
under proposed Items 10.01 or 10.02, in addition to the other Form 8-K
items identified in Form S-3.\291\ We also propose to extend the safe
harbor to proposed Items 10.01 and 10.02.
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\290\ The Commission also has considered whether a company's
sudden loss of eligibility to use Form S-3 under the circumstances
could cause a potentially significant negative consequence that is
disproportionate to an untimely Form 8-K filing. See 2004 8-K
Adopting Release, supra footnote 245, at 15606-07.
\291\ See proposed General Instruction A.2.a of Form N-2. Thus,
an affected fund's failure to timely file a report required solely
pursuant to Item 1.01, 1.02, 1.04, 2.03, 2.04, 2.05, 2.06, 4.02(a),
5.02(e), 10.01, or 10.02 would not affect the fund's ability to meet
the terms of General Instruction I.A.3(b) of Form S-3 for purposes
of the short-form registration instruction of Form N-2.
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Like operating companies that use Form S-3, an affected fund that
elects to file a short-form registration statement on Form N-2 would
need to be current in its Form 8-K filings with respect to all required
items at the actual time of a Form N-2 filing.\292\ In addition,
consistent with the approach for operating companies, the safe harbor
from section 10(b) and rule 10b-5 included in rules 13a-11 and 15d-11
would extend only until the due date of the affected fund's periodic
report for the relevant period in which the Form 8-K was not timely
filed.\293\ While we recognize that linking reporting compliance with
continued eligibility to file a short-form registration statement on
Form N-2 may result in loss of access to shelf registration, other
issuers have long faced similar consequences. We believe it would be
appropriate to extend the same treatment to affected funds to provide
parity with operating companies, consistent with the BDC Act and
Registered CEF Act, and in recognition of the important role of timely
Exchange Act reporting in the shelf registration system.\294\
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\292\ See General Instruction A.2.a of Form N-2; General
Instruction I.A.3(a) of Form S-3.
\293\ This is already the case for BDCs since they are required
to file periodic reports on Form 10-Q and Form 10-K. See Item 5 of
Form 10-Q and Item 9B of Form 10-K; 2004 Form 8-K Adopting Release,
supra footnote 245, at 15607. We are proposing to add new
Instruction 6.h to Item 24 of Form N-2 to require a registered CEF
to disclose in its next shareholder report any information that it
was required to disclose in a report on Form 8-K for the relevant
half-year period but did not disclose.
\294\ See supra Part II.B.2.a (discussing the importance of the
timely reporting requirement for purposes of Form S-3 and the
proposed Form N-2 short-form registration instruction).
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We request comment on the proposed impact of delinquent Form 8-K
filings on eligibility to file a short-form registration statement on
Form N-2 and our proposed safe harbor amendments, particularly with
respect to proposed Items 10.01 and 10.02:
Should an affected fund lose its eligibility to file a
short-form registration statement on Form N-2 or be disqualified from
the safe harbor from section 10(b) and rule 10b-5 if it fails to timely
report under proposed Items 10.01 or 10.02? If so, why should proposed
Item 10.02 be treated differently than Item 2.06 of Form 8-K?
Should affected funds be eligible to use the short-form
registration instruction if they fail to timely file Form 8-K reports
under other items, beyond those we have proposed? If so, which items,
and why should affected funds be treated differently than operating
companies for these purposes?
For purposes of the safe harbor, should a registered CEF
be required to disclose Form 8-K information that it has failed to
timely report on a more frequent basis than semi-annually, given that
BDCs and operating companies must disclose such information on a
quarterly basis? If so, how should we implement such a change since
registered CEFs are not subject to similar quarterly reporting
requirements?
c. Additional Amendments to Form 8-K for Affected Funds
We are proposing certain modifications to the General Instructions
in Form 8-K, as well as instructions relating to specific reporting
items, to make them more applicable to affected funds, particularly
registered CEFs. These modifications will only apply to affected funds.
With respect to the General Instructions to Form 8-K, we propose to
add a modified definition of ``previously reported'' in General
Instruction B.3 for registered CEFs. Currently, this instruction makes
it clear that registrants are not required to report on Form 8-K if
they have previously reported substantially the same information in a
statement under section 12 of the Exchange Act, a report under section
13 or 15(d), a definitive proxy statement or information statement
under section 14, or a registration statement under the Securities
Act.\295\ To recognize that registered CEFs also may report information
under the Investment Company Act, we propose to amend the instructions
to make it clear that registered CEFs are not required to make an
additional report on Form 8-K if they have previously reported an event
or transaction in a publicly-available filing described in rule 8b-2(i)
of the Investment Company Act.\296\ This will include certain reports
filed under section 30 and registration statements filed under section
8 of the Investment Company Act. Similarly, we propose to add a
reference to registration statements filed under the Investment
[[Page 14482]]
Company Act in General Instruction B.5.\297\
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\295\ See rule 12b-2 under the Exchange Act [17 CFR 240.12b-2]
(defining ``previously reported'').
\296\ See rule 8b-2(i) under the Investment Company Act [17 CFR
270.8b-2(i)] (defining ``previously reported'' to include a
registration statement filed under section 8 of the Investment
Company Act or under the Securities Act, a report filed under
section 30 of the Investment Company Act or section 13 or 15(d) of
the Exchange Act, a definitive proxy statement filed under section
20 of the Investment Company Act or section 14 of the Exchange Act,
or a prospectus filed under the Securities Act). This proposal would
not prevent a registered CEF from reporting on Form 8-K information
previously reported in a section 30 report for purposes of forward
incorporating such information into the registration statement by
reference.
\297\ Amended General Instruction B.5 would provide that, when
considering current reporting on Form 8-K, particularly under Item
7.01 (Regulation FD Disclosure) and Item 8.01 (Other Events),
registrants should have due regard for the accuracy, completeness,
and currency of information in registration statements filed under
the Securities Act and the Investment Company Act that incorporate
by reference information in Exchange Act reports, including reports
on Form 8-K.
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As for the amendments to existing reporting items, we are proposing
clarifications to the instructions for Items 2.02 and 3.02 of Form 8-K
to extend certain allowances to affected funds. With respect to Item
2.02 (Results of Operations and Financial Condition), Instruction 4 to
this Item currently states that a registrant is not required to report
information under the Item when it is disclosing its results of
operations and financial condition in a quarterly report on Form 10-Q
or an annual report on Form 10-K. Since registered CEFs do not report
information on these forms, we are proposing to provide the same
treatment to shareholder reports that registered CEFs file with the
Commission under rule 30b2-1 under the Investment Company Act.\298\
Similarly, Instruction 2 to Item 3.02 (Unregistered Sales of Equity
Securities) allows smaller reporting companies to sell a larger
percentage of unregistered securities (relative to the number of shares
outstanding of the relevant class of equity securities) than other
registrants before triggering a Form 8-K reporting obligation,\299\ but
small affected funds would be unable to rely on the current
provision.\300\ We propose to revise Instruction 2 to Item 3.02 to
allow small affected funds to use the same 5% threshold available to
smaller reporting companies.\301\
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\298\ Rule 30b2-1 requires registered management investment
companies to file on Form N-CSR any shareholder report required to
be transmitted to shareholders under rule 30e-1 and to file a copy
of every periodic or interim report or similar communication
containing financial statements that is transmitted to a class of
shareholders. See 17 CFR 270.30b2-1.
\299\ This threshold is less than 5% for smaller reporting
companies and less than 1% for other registrants.
\300\ Instruction 2 to Item 3.02 currently refers to smaller
reporting companies, as defined in Item 10(f)(1) of Regulation S-K.
This definition excludes issuers that are investment companies.
\301\ We are proposing that an affected fund would be treated
like a smaller reporting company for these purposes if it was an
investment company identified in 17 CFR 270.0-10 (rule 0-10 under
the Investment Company Act). An investment company is considered
small under rule 0-10 if the investment company, together with other
investment companies in the same group of related investment
companies, has net assets of $50 million or less as of the end of
its most recent fiscal year. See 17 CFR 270.0-10.
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We request comment on our additional proposed amendments to Form 8-
K:
For purposes of General Instruction B.3 of Form 8-K, are
there specific reports that a registered CEF makes under section 30 of
the Investment Company Act that we should exclude or include in the
definition of ``previously reported,'' such that a registered CEF would
or would not be required to report information on Form 8-K if it
previously reported substantially the same information in the relevant
report? For example, should the definition of ``previously reported''
include information reported on Form N-CEN and information publicly
reported on Form N-PORT, as proposed?
With respect to asset-backed securities, Item 1.03 of Form
8-K requires reporting if certain material parties to the asset-backed
security enter bankruptcy proceedings or receivership. Should an
affected fund be required to file a report on Form 8-K if its
investment adviser enters bankruptcy or receivership? Why or why not?
Is our proposed approach to modifying the definition of
``smaller reporting companies'' for affected funds appropriate? If not,
what category of affected funds should qualify as smaller reporting
companies for purposes of Item 3.02 of Form 8-K? For example, should we
use a standard similar to that in Item 10(f)(1) of Regulation S-K to
define a smaller reporting company?
Are there other amendments we should make to Form 8-K to
improve current reporting by affected funds or to give them comparable
treatment to operating companies required to report on Form 8-K?
d. Rule 103 of Regulation FD
Rule 100 of Regulation FD generally requires an issuer to make
either simultaneous or prompt public disclosure of any material
nonpublic information regarding the issuer or its securities that the
issuer or a person acting on its behalf has selectively disclosed to
certain parties.\302\ As recognized above, an issuer may make this
public disclosure by filing or furnishing information on Form 8-K.\303\
Rule 103(a) of Regulation FD provides that an issuer's failure to make
a public disclosure required solely by rule 100 of Regulation FD will
not affect whether, for purposes of eligibility to use Form S-3 and
certain other forms, an issuer is deemed to have filed all materials
required to be filed pursuant to section 13 or section 15(d) of the
Exchange Act (i.e., whether the issuer is ``seasoned'') or to have
filed such materials in a timely manner (i.e., whether the issuer is
``timely'').\304\ The BDC Act requires us to amend rule 103(a) to
provide that, with respect to BDCs, this section applies for purposes
of Form N-2.\305\ To implement the BDC Act, and to provide parity for
affected registered funds consistent with the Registered CEF Act, we
propose to amend rule 103(a) to add references to Form N-2. As a
result, for purposes of amended Form N-2, we would not consider an
affected fund to have failed to file materials it is required to file
pursuant to section 13 or section 15(d) of the Exchange Act, or to have
failed to file these materials in a timely manner, if the affected fund
fails to make public disclosure that is required solely by rule 100 of
Regulation FD. Thus, failure to make a public disclosure required
solely under rule 100 of Regulation FD would not impact an affected
fund's ability to file a short-form registration statement or qualify
as a WKSI.
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\302\ 17 CFR 243.100 (requiring simultaneous public disclosure
in the case of an intentional selective disclosure or prompt public
disclosure in the case of a non-intentional selective disclosure).
\303\ See supra footnote 251.
\304\ 17 CFR 243.103(a); Selective Disclosure and Insider
Trading, Exchange Act Release No. 43154 (Aug. 15, 2000) [65 FR
51716, 51725-26 (Aug. 24, 2000)].
\305\ See section 803(b)(2)(O) of the BDC Act.
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We request comment on our proposed amendment to rule 103 of
Regulation FD:
Do our proposed amendments to rule 103 of Regulation FD
provide affected funds with comparable treatment to operating
companies? If not, why not?
4. Online Availability of Information Incorporated by Reference
Above, we discuss our proposal to permit expanded incorporation by
reference for affected funds that choose to file a short-form
registration statement on Form N-2.\306\ We are, in addition, proposing
revisions to Form N-2's current General Instruction for Incorporation
by Reference, which permits all registered CEFs and BDCs (not just
those that would be eligible to file the proposed short-form
registration statement) to backward incorporate their financial
information into the prospectus or SAI. Specifically, we are proposing
to remove the requirement that a fund deliver to new investors
information that it has incorporated by reference into the prospectus
or SAI, and instead require the fund to make its prospectus, SAI, and
the incorporated materials readily available and
[[Page 14483]]
accessible on a website.\307\ Our proposal is designed to make readily
available to investors documents that are incorporated by reference,
and to facilitate the efficient use of incorporation by reference by
affected funds.\308\
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\306\ See supra footnote 47 and accompanying text.
\307\ Proposed General Instruction F.4.a of Form N-2 would
require a fund to post its prospectus, SAI, and any periodic and
current Exchange Act reports that are incorporated by reference on a
website maintained by or for the fund. Proposed General Instruction
F.4.b of Form N-2 would also require funds to provide to any person
to whom a prospectus or SAI is delivered any materials that were
incorporated by reference upon request, at no charge.
\308\ We would also conform certain incorporation by reference
provisions of Form N-2 to mirror parallel provisions in Form N-1A,
which has been more recently amended. See proposed General
Instruction F.2.a-c of Form N-2; cf. General Instruction D.1(a)-(c)
of Form N-1A.
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Although all registered CEFs and BDCs can ``backward incorporate''
certain financial information from previous Commission filings into
their registration statements, 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.\309\
For example, if the fund sells shares to a new investor, it must
deliver to them the prospectus, along with the financial statements (or
any other information) that is incorporated by reference into the
prospectus. We understand that this requirement creates particular
challenges for BDCs, which generally do not take advantage of the
backward incorporation permitted by Form N-2 because they are required
to include their financial statements in the prospectus.\310\ That
means that if a BDC incorporates its financial statements by reference
into the prospectus, every time it delivers a prospectus to an
investor, it must determine whether the investor is a new investor, and
if so, must also deliver any incorporated material. To avoid the
operational challenges associated with identifying and providing
different disclosure documents to new and existing investors, BDCs
instead generally set forth the required financial and related
information in the prospectus, which can double or even triple the
length of a BDC's prospectus. Registered CEFs, in contrast, are
required to include their financial statements in the SAI,\311\ which
is delivered only upon request. Because we understand that funds
typically receive very few requests for the SAI, registered CEFs,
unlike BDCs, are only minimally affected by the requirement to deliver
incorporated materials to new investors.
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\309\ See supra footnote 22. Current General Instruction F.3 of
Form N-2 requires the material incorporated by reference to be
provided with the prospectus and/or the SAI to each person to whom
the prospectus and/or the SAI is sent or given, unless the person
holds securities of the fund and otherwise has received a copy of
the material.
\310\ See Item 8.6.c and Instruction 1.b to Item 24 of current
Form N-2.
\311\ See Instruction 1.a to Item 24 of current Form N-2.
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This proposal is designed to make readily available to investors
documents that are incorporated by reference by requiring an affected
fund to make the incorporated materials, and the corresponding
prospectus and SAI, readily available and accessible on a website
maintained by or for the fund, as identified in the fund's prospectus
and SAI.\312\ Affected funds would also be required to provide
incorporated materials upon request free of charge. We do not believe
that this proposal would result in a substantial reduction in the
amount of information affected funds deliver to investors through the
mail or electronically because most affected funds would rely on rules
172 and 173, as we propose to amend them, to satisfy their prospectus
delivery obligations. An issuer that uses these rules would satisfy its
final prospectus delivery obligations by filing the prospectus with the
Commission rather than delivering the prospectus and any incorporated
materials to investors.\313\
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\312\ Proposed General Instruction F.4.a of Form N-2; cf.
General Instruction VII.F of Form S-1; Proposed General Instruction
F.4.b(5) of Form N-2; cf. Item 12(c)(1)(v) of Form S-1. We would
eliminate current General Instruction F.3, and move its requirement
directing a fund to state in the prospectus and SAI that it will
furnish, without charge, a copy of the incorporated materials on
request, to proposed General Instruction F.4.b.
\313\ See supra Part II.D.
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These proposed requirements mirror parallel requirements for
certain operating companies that incorporate by reference, and the
requirement to put a fund's prospectus and SAI on a website is
consistent with requirements for open-end funds that choose to use a
summary prospectus.\314\ In addition, many funds currently post their
annual and semi-annual reports and other fund information on their
websites.\315\ Given that the website posting of these types of
disclosure documents has become commonplace for many operating
companies and most funds, we believe it is reasonable to require an
affected fund that chooses to incorporate by reference to post its
prospectus and SAI online, along with any Exchange Act materials
incorporated into those documents,\316\ and that investors likely
expect to be able to access this information on fund websites. Retail
investors, in particular, may be more inclined to look to a fund's
website for its disclosure documents before turning to other sources
for information.\317\A retail investor also could request to receive
the materials directly.
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\314\ Cf. General Instruction VII.F of Form S-1; Securities Act
rule 498(e) [17 CFR 230.498(e)]. We also recently proposed rule
498A, which would, among other things, require variable annuity and
variable life insurance contracts that choose to use a summary
prospectus to post prospectus(es), SAIs, and certain Exchange Act
reports online. See Variable Contract Summary Prospectus Proposing
Release, supra footnote 172.
\315\ See also, e.g., Optional internet Availability of
Investment Company Shareholder Reports, Investment Company Act
Release No. 33115 (June 5, 2018) [83 FR 29158 (June 22, 2018)]
(providing funds the option of satisfying their obligations to
transmit shareholder reports by making such reports and other
materials accessible at a website address specified in a notice to
investors); Enhanced Disclosure and New Prospectus Delivery Option
for Registered Open End Management Investment Companies, Investment
Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26,
2009)] (requiring open-end funds that opt to deliver summary
prospectuses to investors to post prospectus and other disclosure
materials on their websites).
\316\ A fund must also deliver the incorporated materials upon
request, at no charge. See proposed General Instruction F.4.b of
Form N-2. Investors without internet access, or those that prefer
not to review incorporated materials on a website, could obtain
copies of the materials directly from the fund.
\317\ Investor testing that the Commission sponsored and
conducted in 2011 suggested that an investor looking for a fund's
annual report is most likely to seek it out on the fund's website,
rather than request it by mail or phone or by retrieving it from our
Electronic Data, Gathering, Analysis, and Retrieval System
(``EDGAR''). See Investment Company Reporting Modernization,
Investment Company Act Release No. 31610 (May 20, 2015) [80 FR
33590, 33626-27 (June 12, 2015)].
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Finally, we are proposing to streamline Form N-2's current
provisions regarding the disclosure requirements for incorporation by
reference, which are spread across several provisions in current
General Instruction F. We propose to replace these current instructions
with a new General Instruction F.4, which largely mirrors the
disclosure requirements in Item 12(c) of Form S-3. The new instruction
largely streamlines--but does not substantively change--the disclosure
requirements for incorporation by reference currently in Form N-2.\318\
The requirement to disclose the fund's website where the incorporated
information may be accessed is a new addition, and is related to the
proposed online
[[Page 14484]]
availability requirements for information that is incorporated by
reference.
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\318\ Compare proposed General Instruction F.4.b with current
General Instruction F.3 of Form N-2; cf. Item 12(c) of Form S-3. For
example, the proposed instruction, similar to Form N-2's current
instruction, would require a fund to state in the prospectus and SAI
that it will provide upon request a copy of the information that has
been incorporated by reference into the prospectus or SAI but not
delivered with the prospectus or SAI, and provide contact
information for any request for incorporated information.
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We request comment generally on these proposed revisions for
incorporation by reference, including:
Should we, as proposed, eliminate the requirement that
funds provide a copy of incorporated materials to new investors and
instead require funds to make the incorporated materials, prospectus,
and SAI available on a website? Why or why not?
Would this proposal negatively affect investors' ability
to receive incorporated information in light of the proposal to permit
affected funds to satisfy their final prospectus delivery obligations
by filing their prospectus with the Commission under rule 172? If so,
how? Would investors without internet access have difficulty requesting
the incorporated materials from the fund?
Form N-2 only permits an affected fund to backward
incorporate certain financial information into its prospectus or SAI.
We are not proposing to expand the scope of information that may be
backward incorporated into a fund's registration statement. Are there
other items in Form N-2 that we should also permit to be backward
incorporated by reference? If so, which ones and why?
Does our proposal to require affected funds that
incorporate by reference to post on a website their prospectuses, SAIs,
and periodic and current reports filed under the Exchange Act that are
incorporated by reference into the prospectus or SAI pose any
particular challenges for funds? Is there any reason why funds should
not be required to post this information on a website if they
incorporate the information by reference into their registration
statement? Are there other technological approaches that we should
consider to make available to investors the information that is
incorporated by reference?
The online posting requirement for incorporated materials,
as proposed, mirrors similar requirements in Form S-1. Should we be
more specific regarding the criteria for online posting, similar to the
requirements for open-end funds that use summary prospectuses? \319\
For example, should Form N-2 specify that the website maintained by or
for the fund must be publicly-available, free of charge? Similarly,
should we specify the format in which materials that are provided upon
request must be delivered (electronically or in paper)? In what format
do funds that receive requests for incorporated materials currently
deliver such documents?
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\319\ Rule 498(e) under the Securities Act [17 CFR 230.498(e)]
(mutual funds and ETFs); see also Variable Contract Summary
Prospectus Proposing Release, supra footnote 172 (proposing
Securities Act rule 498A(h) for variable contracts).
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Our proposed amendments to Form N-2's current provisions
regarding the disclosure requirements for incorporation by reference
are designed to streamline--but not substantively change--the
disclosure requirements for backward incorporation by reference
currently in Form N-2. Do the proposed amendments have this effect?
Are there any other changes we should make to the proposed
incorporation by reference regime?
5. Enhancements to Certain Registered CEFs' Annual Report Disclosure
As a general matter, registered investment companies are required
to update their registration statements annually.\320\ Registered CEFs
may take advantage of an exemption that permits them to forgo an annual
update provided that they disclose in their annual reports certain key
changes that have occurred during the prior year.\321\ For example, the
fund must disclose any material changes in its investment objectives or
policies that have not been approved by shareholders, and any material
changes in the principal risk factors associated with an investment in
the fund.\322\ We are concerned, however, that funds disclosing
important changes may not always provide enough context for investors
to understand the implications of those changes. For example, if a fund
does not provide sufficient context, a shareholder may 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
the fund's current investment strategy or principal risk factors.\323\
This may burden investors and frustrate the goal of providing
shareholders with important disclosures.
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\320\ Rule 8b-16 under the Investment Company Act requires all
registered management investment companies, including registered
CEFs, to update their registration statements with the Commission on
an annual basis.
\321\ Rule 8b-16(b).
\322\ The rule 8b-16 exemption is conditioned on disclosure in
the annual report of information that repeats or updates certain key
prospectus disclosures, specifically: (1) Information about the
fund's dividend reinvestment plan; (2) material changes in the
fund's investment objectives or policies that have not been approved
by shareholders; (3) any change concerning the fund's control
provisions that has not been approved by shareholders; (4) material
changes in the principal risk factors associated with an investment
in the fund; and (5) any portfolio manager changes. Except for
information about the fund's dividend reinvestment plan (which
requires a complete description of the plan), the fund must only
disclose changes that have occurred during the year covered by the
annual report.
\323\ See, e.g., Comment Letter from Amy Wellington (Sept. 3,
2018) (noting that there is no one location where a registered CEF
investor can find a fund's strategies, risks and fees; because the
annual report only discloses changes to the fund's strategies and
policies, investors must review the original prospectus and each
subsequent shareholder report to get all of the fund's information).
This comment letter was provided in response to our June 2018
Investor Experience Request for Comment, see infra footnote 206, in
which we sought input from individual investors on how to enhance
fund disclosures.
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To allow investors in funds relying on rule 8b-16 to more easily
identify and understand key information about their investments, we
propose to amend the rule to require funds to describe any changes in
enough detail to allow investors to understand each change and how it
may affect the fund. For example, to the extent a fund's principal
investment objectives and policies or principal risk factors have
changed, the fund should describe its investment objectives or
principal risk factors before and after the change. This would provide
context for the change and identify for the investor the fund's current
strategy or principal risk factors. We also propose to require funds to
preface such disclosures with a legend clarifying that the disclosures
provide only a summary of certain changes that have occurred in the
past year, and also state that the summary may not reflect all of the
changes that have occurred since the investor purchased the fund.\324\
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\324\ See proposed rule 8b-16(e) under the Investment Company
Act (requiring changes required by paragraphs (b)(2) through (b)(5)
of rule 8b-16 to be described in enough detail to allow investors to
understand each change and how it may affect the fund, and prefaced
with a legend stating that ``[t]he following information [in this
annual report] is a summary of certain changes since [date]. This
may not reflect all of the changes that have occurred since you
purchased [this fund].'').
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We request comment on this proposal:
Would requiring funds that rely on rule 8b-16 to describe
changes to the fund in enough detail to allow investors to understand
each change and how it may affect the fund, as proposed, improve the
quality and scope of the disclosures that investors in these funds
currently receive? To what extent are funds already doing this
voluntarily?
We also are proposing to require affected funds to report
on Form 8-K if the fund's investment adviser, including any sub-
adviser, has determined to implement a material change to the
registrant's investment objectives or policies, and such change has not
been, and will not be, submitted to shareholders for approval. How
would Form 8-K reports affect the benefits to
[[Page 14485]]
investors of receiving contextual information in annual reports?
Would a fund understand what level of detail the proposed
rule amendments would require it to disclose? Would a fund understand
what it means to describe how a change may affect the fund? Would any
additional clarification in the rule text or guidance be helpful?
What is the adequacy of information about registered CEFs
in the secondary market in general? Where can investors in a fund with
a stale prospectus look to find information about the fund's current
strategies and risks, or other key information? Do registered CEF
investors have access to sufficient information to make knowledgeable
investment decisions concerning their investments in these funds?
Should we require funds that rely on rule 8b-16 to update
their registration statements on a periodic basis, for example, every 3
years, as required for certain issuers with shelf registration
statements to bring the disclosures current? Alternatively, should we
require funds to summarize in their annual report certain key
information that would be required in a current prospectus that has
been annually updated? If so, what information should be required (for
example, only the disclosure items that are specified in rule 8b-16, or
certain other Form N-2 disclosure items)? Should we consider making any
other changes to rule 8b-16? If so, what changes and why?
I. Certain Staff No-Action Letters
Rule 486(b) permits interval funds to file certain post-effective
amendments to their registration statement that become effective
automatically, including an amendment to bring the financial statements
up to date under section 10(a)(3). The rule is designed to recognize
that interval funds may need continuously effective registration
statements and would benefit if certain filings could become effective
automatically.\325\ Our staff has stated that it would not recommend
that the Commission take any enforcement action under section 5(b) or
6(a) of the Securities Act against specific listed registered CEFs
conducting offerings under rule 415(a)(1)(x) on a case-by-case basis
regarding their use of rule 486(b).\326\
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\325\ See Post-Effective Amendments to Investment Company
Registration Statements, Securities Act Release No. 7083 (Aug. 17,
1994) [59 FR 43460 (Aug. 24, 1994)] (in adopting rule 486, we noted
that ``[t]he initial proposal of rule 486 recognized that closed-end
interval funds may need continuously effective registration
statements and would benefit if certain filings could become
effective automatically'').
\326\ See, e.g., Nuveen California Select Tax-Free Income
Portfolio, SEC Staff No-Action Letter (Nov. 21, 2017), PIMCO Dynamic
Income Fund, SEC Staff No-Action Letter (Dec. 12, 2017), Eagle Point
Credit Company, Inc., SEC Staff No-Action Letter (Feb. 14, 2018),
PIMCO Corporate & Income Opportunity Fund and PIMCO Income
Opportunity Fund, SEC Staff No-Action Letter (Sep. 13, 2018), and
DNP Select Income Fund, Inc., SEC Staff No-Action Letter (Oct. 4,
2018). Our staff has not provided these no-action assurances to any
BDC.
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The amendments we are proposing today are designed to address the
process by which affected funds, including listed registered CEFs
offering their securities under rule 415(a)(1)(x), may update their
registration statements. The amendments would provide a consistent
regulatory framework for all affected funds. Staff in the Division of
Investment Management are reviewing these no-action letters to
determine if they should be withdrawn in connection with any final
rules we adopt under this proposal.
We request comment on whether we should make any changes to rule
486(b) to address the concerns expressed by funds that sought no-action
assurances from the staff:
Should we, for example, permit all or a broader group of
registered CEFs or BDCs to rely on the rule? Why or why not?
To what extent would expanding the availability of rule
486(b) complement, or conversely, create any tension with, the
amendments we are proposing in this release? For example, if we
permitted all affected funds to rely on rule 486(b), would funds that
would be eligible to file a short-form registration statement on Form
N-2 choose to use rule 486(b) to update their registration statements,
or would they choose to file a short-form registration statement and
update it through Exchange Act reports incorporated by reference? Which
approach would be more efficient for funds and why? Would either
approach be more beneficial to investors? If so, which approach and
why? Would using rule 486(b) be more or less efficient for BDCs or
registered CEFs?
J. Conforming Changes to Form N-2
In addition to the proposed amendments to Form N-2 discussed
throughout this release that are meant to implement the statutory
mandates and tailor the disclosure and regulatory framework for
affected funds in light of the proposed amendments to the offering
rules, we also are proposing certain non-substantive changes to the
form. These additional proposed changes are designed to provide greater
consistency with similar or parallel provisions in Forms N-1A, S-1, and
S-3, all of which have been more recently amended than Form N-2. For
example, we are proposing stylistic changes, including the renumbering
of certain items, and the elimination of outdated references, such as
the instruction related to paper copies, which are generally no longer
filed, and the requirement to provide a table of contents in an
affected fund's SAI.\327\ We request comment on these proposed
amendments to Form N-2:
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\327\ We have also adopted certain changes to Form N-2 in the
FAST Act rulemaking. See FAST Act Modernization Adopting Release,
supra footnote 177. Those amendments, as part of a broader
initiative to modernize and simplify certain disclosure requirements
in Regulation S-K (and related rules and forms), revise certain
rules on incorporation by reference, and require all of the
information on the cover pages of some Exchange Act forms to be
tagged in Inline XBRL format.
---------------------------------------------------------------------------
Do commenters agree that the proposed amendments to Form
N-2 that are not discussed elsewhere in this release are appropriate?
Because some affected funds have received exemptive relief
to offer different share classes, our proposal to require registered
CEFs to include MDFP in their annual shareholder reports includes an
instruction requiring funds with multiple share classes to reflect the
performance for each class. Should we revise Form N-2 to clarify any
other disclosure requirements for multi-class funds?
Are there additional stylistic or similar changes we
should make to Form N-2 to provide greater consistency with similar or
parallel provisions in our other disclosure forms or otherwise to
improve Form N-2's readability? Which changes and why?
Should we make any technical changes or corrections to
Form N-2? For example, Instruction 1.a. to Item 8.6.c of Form N-2,
which requires BDCs to include financial statements in the prospectus,
directs BDCs to comply with provisions of Regulation S-X that apply to
registered investment companies. This includes a cross-reference to
rule 3-18 of Regulation S-X, which includes the financial statement
timing requirements for registered investment companies. Rule 3-12 of
Regulation S-X, however, specifically prescribes the age of financial
statements for Exchange Act reporting companies, like BDCs. BDCs, as a
matter of practice follow rule 3-12. Should we revise the instruction
to make clear that BDCs should follow the requirements in rule 3-12
(and not rule 3-18) for financial statement timing purposes? If not,
why not?
[[Page 14486]]
Should we make any other conforming changes to Form N-2?
For example, while registered CEFs are required to discuss the material
factors and conclusions that formed the basis for the board's approval
of any investment advisory contract in its shareholder reports,\328\
BDCs are not required to provide this disclosure.\329\ Should we create
such a requirement for BDCs? Why or why not? If yes, where and when
should BDCs provide the disclosure--in any Exchange Act report filed
within a certain period after board approval (e.g., 90 days), or only
in certain reports (e.g., Form 10-K)? Should the disclosure requirement
be set forth in Form N-2, or in the form requirements for any relevant
Exchange Act reports (i.e., Forms 10-Q or 10-K), or elsewhere?
---------------------------------------------------------------------------
\328\ See Instructions 6.e and 6.f of Item 24 of Form N-2; see
also Item 27(d)(6)(i) of Form N-1A (parallel provision for open-end
funds).
\329\ The relevant disclosure requirement is contained in a sub-
part of Instruction 6 of Item 24 of Form N-2, which specifically
concerns annual and semi-annual reports required by section 30(e) of
the Investment Company Act and rule 30e-1 thereunder. Because BDCs
do not file these reports, they are not subject to this instruction.
---------------------------------------------------------------------------
K. Compliance Date
We propose to provide a transition period after the publication of
a final rule in the Federal Register to give affected funds sufficient
time to comply with four of the proposed new requirements, as follows:
Form 8-K. All affected funds that would be eligible to
file a short-form registration statement would be required to comply
with the full scope of Form 8-K as proposed,\330\ including the new
Form 8-K items for affected funds, by the earlier of: (1) One year
after the publication of a final rule in the Federal Register, or (2)
the date a fund first files a short-form registration statement under
General Instruction A.2 of Form N-2. All other affected funds would be
required to comply 18 months after the date of the publication of a
final rule in the Federal Register.
---------------------------------------------------------------------------
\330\ See supra Part II.H.3.
---------------------------------------------------------------------------
MDFP. Any annual report that a registered CEF files one
year or more after the publication of a final rule in the Federal
Register would be required to include the proposed MDFP
disclosures.\331\
---------------------------------------------------------------------------
\331\ See supra Part II.H.2.b.
---------------------------------------------------------------------------
Structured Data Requirements. All affected funds subject
to the financial statement or prospectus structured data reporting
requirements that would be eligible to file a short-form registration
statement would be required to comply with those provisions no later
than 18 months after the date of publication of a final rule in the
Federal Register. All other affected funds subject to those
requirements would be required to comply 24 months after publication of
a final rule in the Federal Register. All filers on Form 24F-2 would be
required to comply with the proposed structured data format for this
form \332\ no later than 18 months after the publication of a final
rule in the Federal Register.
---------------------------------------------------------------------------
\332\ See supra Part II.H.1.d.
---------------------------------------------------------------------------
Rule 24f-2. The proposed amendments to rules 23c-3 and
24f-2 \333\ would become effective one year after the publication of a
final rule in the Federal Register.
---------------------------------------------------------------------------
\333\ See supra Part II.G.
---------------------------------------------------------------------------
We request comment on the proposed compliance dates, and
specifically on the following items:
Are the proposed compliance dates appropriate? If not, why
not? Is a longer or shorter period necessary to allow registrants to
comply with one or more of these particular amendments? If so, what
would be a recommended compliance date?
Do any other proposed amendments warrant an extended
compliance period? If so, which ones, why, and what would be an
appropriate compliance date? For example, should affected funds be
given a compliance period within which to transition from filing forms
of prospectuses that vary from the registration statement pursuant to
rule 497 to filing such forms pursuant to rule 424? Are there any
complexities about this change in the filing process that would justify
providing a compliance period? If so, what are those complexities, and
how long would affected funds need to adjust to this change?
Should we provide affected funds with a different
compliance date, or a transition period, before they are required to
comply with the full scope of the proposed new Form 8-K requirements?
If so, how long should the transition period be, and how should any
transition period be structured? For example, should all affected funds
be permitted to rely on an extended compliance date or any transition
period with respect to filing the new proposed reportable events, or
should such accommodations be available only to registered CEFs
(because, in contrast to BDCs, they generally have not previously been
required to report on Form 8-K)?
III. General Request for Comment
We request and encourage any interested person to submit comments
regarding the proposed rules and forms, specific issues discussed in
this release, and other matters that may have an effect on the proposed
rules and forms. With regard to any comments, we note that such
comments are of particular assistance to our rulemaking initiative if
accompanied by supporting data and analysis of the issues addressed in
those comments.
IV. Economic Analysis
We are proposing 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 proposed 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 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 proposed rules would provide incremental flexibility
to funds in their communications, which may increase the flow of
information to investors. As discussed in detail above, the proposed
rules would affect numerous distinct aspects of how our securities
offering and communications rules apply to affected funds. The proposed
rules would:
Streamline the registration process to allow eligible
affected funds to use a short-form registration statement to sell
securities ``off the shelf'' more quickly and efficiently in response
to market opportunities; \334\
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\334\ See supra Part II.B.
---------------------------------------------------------------------------
Allow affected funds to qualify as WKSIs under rule 405
under the Securities Act; \335\
---------------------------------------------------------------------------
\335\ See supra Part II.C.
---------------------------------------------------------------------------
Allow affected funds to satisfy final prospectus delivery
requirements using the same method as operating companies; \336\
---------------------------------------------------------------------------
\336\ See supra Part II.D.
---------------------------------------------------------------------------
Allow affected funds to use communications rules currently
available to operating companies, such
[[Page 14487]]
as the use of certain factual business information, forward-looking
information, a free writing prospectus, and broker-dealer research
reports; \337\ and
---------------------------------------------------------------------------
\337\ See supra Part II.E.
---------------------------------------------------------------------------
Modify certain aspects of affected funds' disclosure and
regulatory framework in light of the proposed amendments to the
offering rules applicable to them.\338\ These proposed 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 these reports; a new
requirement for registered CEFs to file reports on Form 8-K in parity
with operating companies and BDCs, including new Form 8-K items
tailored to registered CEFs and BDCs; and a proposal to require
interval funds to pay securities registration fees using the same
method that mutual funds and ETFs use today.
---------------------------------------------------------------------------
\338\ See supra Parts II.F-II.H.
---------------------------------------------------------------------------
A. Introduction and Baseline
We are sensitive to the economic effects that may result from the
rule proposal, 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, to 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 proposed rules, as well as the potential effects on
efficiency, competition, and capital formation. Many of the potential
economic effects of the proposed rules would stem from the statutory
mandates, while others would stem from the discretion we are
exercising. We discuss the potential economic effects of the proposed
amendments to implement the statutory mandates in Parts IV.B and IV.C.
We considered certain alternatives to our proposed approach to
implementing the statutory mandate, as discussed in Part IV.D. We are
also proposing 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 Part IV.E. We note that, where
possible, we have attempted to quantify the costs, benefits, and
effects on efficiency, competition, and capital formation expected to
result from the proposed 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
proposed rules is the current set of legal requirements and market
practices. The proposed rules likely would 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 proposed rules will depend on many factors, including the
number of affected funds that rely on the proposed rules. We recognize
that some affected funds would not satisfy the conditions in certain of
the proposed 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
proposed rules. The discussion below describes our understanding of the
markets and issuers that would be affected by the proposed rules.
1. Number of Affected Funds
The proposed rules would affect BDCs and registered CEFs. As of
September 30, 2018, there were 807 affected funds, including 103 BDCs
and 704 registered CEFs. To estimate the number of BDCs, we use data
from Form 10-K and 10-Q filings as of September 30, 2018, the latest
data available.\339\ We identify 49 listed BDCs and 54 unlisted BDCs.
The average net assets of the listed BDCs is approximately $729
million, and the average of their total assets is $1.3 billion. Based
on trading data as of June 30, 2018, 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 14 of those BDCs have public float
greater than $700 million (i.e., the WKSI public float threshold).\340\
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\339\ The estimated number of BDCs includes BDCs that have not
registered a securities offering on Form N-2. Certain of our
proposed amendments, such as the proposed requirement to tag certain
Form N-2 prospectus disclosure items in Inline XBRL, would only
apply to affected funds that have filed a registration statement on
Form N-2. As a result, our quantitative estimates of the costs and
paperwork burdens of these proposed amendments with respect to BDCs
may be over-estimates in certain respects.
\340\ The most recent available data (as of June 30, 2018) on
prices and shares outstanding, which are used to calculate the
public float, is taken from the Center for Research of Securities
Prices (``CRSP'') database. CRSP data on shares outstanding includes
all publicly held shares.
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We use data from Morningstar and SEC filings to estimate the number
of registered CEFs.\341\ We identify 516 registered CEFs that were
listed on an exchange as of September 30, 2018, including 1 interval
fund. There were 188 unlisted registered CEFs as of September 30, 2018,
including 56 interval funds. The average net assets of the listed
registered CEFs is approximately $539 million, while the average net
assets of the unlisted registered CEFs is approximately $461
million.\342\ Based on trading data as of June 30, 2018, 457 of the
listed registered CEFs have public float greater than $75 million, and
83 of those funds have public float greater than $700 million.\343\
Information about the types of offerings conducted by different
categories of affected funds for the period of January 1, 2014-December
31, 2018 is reflected in the below table.\344\
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\341\ The estimated number of registered CEFs includes
registered CEFs that have not registered a securities offering under
the Securities Act. Certain of our proposed amendments, such as the
proposed requirement that registered CEFs report on Form 8-K,
generally would not apply to these registered CEFs. See, e.g., supra
footnote 243. Thus, our quantitative estimates of the costs and
paperwork burdens of certain of the proposed amendments with respect
to registered CEFs may be over-estimates in certain respects.
\342\ The average of net assets of registered interval funds is
$448 million.
\343\ This includes the listed interval fund, which had public
float of approximately $76 million as of June 30, 2018. Data on
prices and shares outstanding, which are used to calculate the
public float, is taken from CRSP.
\344\ Data on registered offerings (initial public offerings,
equity offerings by seasoned issuers, convertible debt offerings,
and public debt offerings) for BDCs and listed registered CEFs are
taken from Securities Data Corporation's New Issues database
(Thomson Financial). Data on Regulation D offerings was collected
from all Form D filings (new filings and amendments) on EDGAR. Data
on registered offerings for unlisted registered CEFs was collected
from Form N-2 and Form N-CSR filings on EDGAR.
[[Page 14488]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Listed registered Unlisted registered
Types of offerings Offering statistics Listed BDCs Unlisted BDCs CEFs CEFs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Registered offerings............... Number of offerings... 114................... 24................... 31................... 144.
Total amount raised... $11.7 bil............. $1.7 bil............. $5.9 bil............. $21.4 bil.
Average (median) $102.8 mil ($65.5 mil) $7.8 mil ($7.2 mil).. $190.5 mil ($103.1 $177.3 mil ($31.0
offering amount. mil). mil).
Regulation D offerings............. Number of offerings... 13.................... 72................... ..................... 167.
Total amount raised... $720.8 mil............ $20.5 bil............ ..................... $6.4 bil.
Average (median) $55.4 mil ($32.7 mil). $284.3 mil ($76.3 ..................... $38.3 mil ($6.5 mil).
offering amount. mil).
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 above,
registered investment companies and BDCs are excluded from certain
offering and communication rules available to operating companies.
Affected funds 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.
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.
Affected funds, however, currently face certain challenges in using the
shelf registration system. These challenges are generally due to the
fact that, unlike operating companies, affected funds cannot: Forward
incorporate information from subsequently-filed Exchange Act reports
into their registration statements, rely on Securities Act rule 430B to
omit certain information from the ``base'' prospectus, or use the
process that operating companies use to file prospectus
supplements.\345\ For example, when an affected fund sells or ``takes
down'' securities from a shelf registration statement, like an
operating company, its registration statement must include all required
information, including any annual update of financial information that
section 10(a)(3) of the Securities Act requires. However, unlike an
operating company, an affected fund must provide any section 10(a)(3)
update to its registration statement by filing a post-effective
amendment, with associated expenses and potential delays related to the
fund's preparation of the amendment and our staff's review and comment
process. In contrast, an operating company filing on Form S-3 would
generally make the section 10(a)(3) update by timely filing its annual
report on Form 10-K containing the issuer's audited financial
statements for the most recently completed fiscal year. The financial
statements would be forward incorporated by reference into the
operating company's registration statement and, thus, the company would
avoid the need to file a post-effective amendment to comply with
section 10(a)(3).
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\345\ See supra Part II.B.1.
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Currently, affected funds' communications generally are subject to
rule 482 under the Securities Act.\346\ Affected funds can use these
communications only after a fund has filed a registration
statement.\347\ These communications are deemed to be prospectuses that
are subject to prospectus liability under section 12 of the Securities
Act. Rule 138, one of our rules governing research reports published by
broker-dealers, does not currently specifically exclude BDCs and
registered CEFs from research coverage. The rule's conditions are
designed for operating companies, however, and therefore can
effectively preclude broker-dealers from relying on the rule to publish
research reports on affected funds. Broker-dealers can, however,
publish research reports on affected funds under rule 139b or rule
482.\348\
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\346\ Affected funds also may engage in communications that are
not deemed a prospectus under section 2(a)(10) of the Securities Act
(e.g., communications that are accompanied or preceded by a
statutory prospectus). See 15 U.S.C. 77b(a)(10).
\347\ We recently issued a proposal that would allow issuers,
including affected funds, to engage in oral or written
communications with potential investors that are, or are reasonably
believed to be, qualified institutional buyers or institutional
accredited investors, either prior to or following the filing of a
registration statement, to determine whether such investors might
have an interest in a contemplated registered securities offering.
If this rule is adopted, affected funds would be permitted to engage
in certain communications with qualified institutional buyers and
institutional accredited investors outside the context of rule 482
or the communications rules we are proposing to extend to affected
funds in this release. See Solicitations of Interest Prior to a
Registered Public Offering, Securities Act Release No. 10607 (Feb.
19, 2019) [84 FR 6713 (Feb. 28, 2019)].
\348\ See supra Part II.E.2.
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As a general matter, affected funds are limited in their ability to
incorporate information into their registration statements by reference
and are required to deliver a final prospectus to investors. Form N-2
also requires affected funds to provide to new purchasers a copy of all
previously-filed materials that the fund incorporated by reference into
the prospectus and/or SAI. We understand that this requirement creates
particular challenges for BDCs, which generally do not take advantage
of the backward incorporation permitted by Form N-2. Instead, BDCs
generally include the required financial and related information in the
prospectus, which can double or even triple the length of a BDC's
prospectus. For example, the median page length of prospectuses filed
by listed BDCs is approximately 234 pages.\349\
---------------------------------------------------------------------------
\349\ This estimate is based on the most recent Form N-2 filings
of the 49 listed BDCs.
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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. In 2018, all
49 of the listed BDCs filed form 8-K reports, while only 38 of the 54
unlisted BDCs filed such reports. 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). In 2018, there were 75 registered CEFs that furnished or
filed Form 8-K reports either voluntarily or as a result of current
disclosure requirements under exchange rules. Of
[[Page 14489]]
these, 65 were listed registered CEFs and 10 were unlisted registered
CEFs.
B. Potential Benefits Resulting From the Proposed Implementation of the
Statutory Mandates
As discussed, the proposed 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 proposed rules would
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 certain communications during a registered offering.\350\
Additionally, as discussed below, we believe that the proposed rules
would 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
proposed rules would provide cost-saving options to affected fund
issuers and underwriters.
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\350\ See also infra Part IV.E (discussing benefits associated
with our discretionary rule amendments).
---------------------------------------------------------------------------
1. Improved Access to Capital and Lower Cost of Capital
We anticipate that the proposed rules would facilitate capital
formation and possibly lower the cost of capital by improving access to
the public capital markets for affected funds. The rules are 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 proposed rules will depend on
the characteristics of the affected funds, 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
proposed rules than unlisted BDCs and unlisted registered CEFs,
including unlisted interval funds. The proposed rules would 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 would benefit, albeit to a lesser degree,
from the other revisions to the offering process and our communications
rules.
The largest increase in capital formation and reduction in cost of
capital that the proposed rules could generate would come from allowing
affected funds to obtain WKSI status. Affected funds that qualify as
WKSIs would enjoy additional flexibility compared to affected funds
that are non-WKSIs.\351\ There are 97 affected funds (14 listed BDCs
and 83 listed registered CEFs) that meet the $700 million public float
criterion as of June 30, 2018.\352\ A WKSI's registration statement and
any subsequent amendments are automatically effective upon filing. This
flexibility would allow affected funds that qualify as WKSIs to
promptly tap favorable windows of opportunity 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, affected funds,
which typically trade at a discount to their NAV,\353\ that are WKSIs
would be able to act more quickly to raise capital when their shares
are trading at a premium,\354\ thus increasing the amount of capital
raised and enhancing capital formation.
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\351\ See supra Part II.C.
\352\ See supra Part IV.A.1.
\353\ See, e.g., Jonathan B. Berk and Richard Stanton,
Managerial Ability, Compensation, and the Closed-End Fund Discount,
Journal of Finance, Vol. 62, 529-556 (2007); Jeffrey Pontiff, Costly
Arbitrage: Evidence from Closed-End Funds, Quarterly Journal of
Economics, Vol. 111, 1135-1151 (1996); Charles M.C. Lee, Andrei
Shleifer, and Richard H. Thaler, Investor Sentiment and the Closed-
End Fund Puzzle, Journal of Finance, Vol. 46, 76-110 (1991).
\354\ See supra footnote 27 (discussing restrictions on affected
funds' ability to sell their shares at a price below NAV).
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Additionally, WKSIs are not required to pay any registration fees
at the time of the filing of the registration statement. They are only
required to pay the SEC filing fee at the time securities are taken
down and sold off the shelf. This would 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 proposed
rules may also lower the cost of capital because they would provide
significant flexibility to affected funds that are WKSIs and their
underwriters in marketing securities. The proposed communications rules
would allow these funds to communicate at any time regarding an
offering.
Given the important benefits that the WKSI status creates, 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, 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.\355\
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 negatively affect the
number of investment opportunities available to investors if it leads
to a reduction of the number of strategies funds employ. While barriers
to entry in the affected fund industry are relatively low, and 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. At present, we are not able to estimate the
effects of these competitive dynamics.
---------------------------------------------------------------------------
\355\ See, e.g., rule 17a-8 under the Investment Company Act [17
CFR 270.17a-8].
---------------------------------------------------------------------------
Other provisions of the proposed rules 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.\356\ For example, the proposed rules would generally allow
these funds to more efficiently use the shelf registration process if,
like operating companies, they meet the eligibility requirements of
Form S-3.\357\ As of June 30, 2018, there were 501 affected funds that
met the $75 million dollar public float criterion for primary offerings
under Form S-3 (which criterion would be incorporated
[[Page 14490]]
into the short-form registration instruction of Form N-2).\358\
Affected funds that qualify would bear fewer costs associated with
updating the information in their registration statements because
information in the fund's Exchange Act reports would be incorporated by
reference into the fund's registration statement. For example, we
estimate that eligible affected funds would file approximately 112
fewer post-effective amendments annually as a result of the proposal,
which would result in an annual aggregate cost reduction of
approximately $7,943,376 for these funds.\359\ 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 proposed
rules, eligible BDCs would no longer file these prospectus supplements
since their Exchange Act reports would 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 proposed rules.\360\ We anticipate that eligible
registered CEFs also would be able to make fewer prospectus supplement
filings under the proposed rules, although they likely would 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 at
present. While we believe that affected funds would likely file fewer
prospectus supplements under the proposed amendments, we are unable to
estimate any reduction in the number of prospectus supplements that
affected funds would file under the proposal, and any associated cost
savings for affected funds, due to certain counterbalancing factors.
For example, if the proposal 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 proposed amendments
and as we believe they might,\361\ they may file fewer prospectus
supplements. On average, we believe that affected funds would likely
file fewer prospectus supplements under the proposed amendments since
they would 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.
---------------------------------------------------------------------------
\356\ See supra Part II.B.
\357\ The short-form registration instruction refers to the
eligibility criteria in Form S-3, with additional references to
reporting requirements under the Investment Company Act.
\358\ See supra Part IV.A.1.
\359\ For purposes of the PRA, we estimate that this would
decrease the aggregate annual burden of Form N-2 by 11,984 hours and
would result in a reduction in the cost burden for Form N-2 by
$3,149,776. See infra footnote 448. We monetize the internal burden
of preparing post-effective amendments by multiplying the burden
hours by an estimated wage rate of $400 per hour (11,984 x $400 =
$4,793,600). The estimated wage figure is based on analysis in
previous rulemakings. The total annual cost is calculated by adding
the monetized internal burden ($4,793,600) to the cost of outside
professionals ($3,149,776).
\360\ This analysis assumes that a BDC would file a prospectus
supplement for each Form 10-Q filing (3 filings per year), Form 10-K
filing (1 filing per year), and Form 8-K filing (estimated to be 10
filings per year), for a total of 14 periodic and current reports
per year. See infra footnote 415 and associated text.
\361\ See supra Parts II.B.2.c and II.H.2.a.
---------------------------------------------------------------------------
In general, we believe affected funds that qualify for the short-
form registration instruction would experience cost savings associated
with making fewer filings and would be able to use a more efficient
process to update their prospectus disclosure. This would decrease the
costs of eligible funds' registered offerings and would 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
securities in shelf offerings also would be able to omit certain
information from their base prospectuses and use the same process as
operating companies to provide omitted information by filing a
prospectus supplement, which would generally make the shelf
registration process less costly for these funds as compared to the
baseline.
The proposed 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 proposed rule
would 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.\362\ We do not anticipate that these cost savings would 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 proposed amendment to rule 418
since they would no longer be required by that rule to furnish certain
information to the Commission or its staff promptly on request.\363\
---------------------------------------------------------------------------
\362\ See supra Part II.F.2.
\363\ See supra Part II.F.1.
---------------------------------------------------------------------------
The proposed rules would generate other benefits for affected funds
generally, regardless of whether they are WKSIs or seasoned funds. For
example, the proposal to require affected funds to follow the same
process that operating companies follow to file prospectuses in rule
424 would require that affected funds file prospectus supplements only
if substantive changes from or additions to a previously filed
prospectus are made, whereas currently they are required to file every
prospectus that varies from any previously filed prospectus under rule
497.\364\ 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 proposed 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
proposed rules would allow an affected fund to satisfy its obligation
to deliver a final prospectus by filing it with the Commission, thus
decreasing the cost of the offering.\365\ For example, the proposed
rules would permit affected funds to save on printing and mailing costs
for delivering the final prospectus in paper.\366\
---------------------------------------------------------------------------
\364\ See supra Part II.B.2.b.
\365\ See supra Part II.D.
\366\ Because a fund is not required to report the extent to
which it relies on Commission guidance, we lack information to
estimate the percentage of funds that solely or predominantly rely
on electronic delivery under existing Commission guidance. See,
e.g., Use of Electronic Media for Delivery Purposes, Investment
Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13,
1995)]. Affected funds that rely to a greater extent on electronic
delivery of final prospectuses under existing Commission guidance
may realize smaller net cost savings under the proposed rules.
---------------------------------------------------------------------------
The lower costs of registered offerings resulting from the proposed
rules would be beneficial to 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. In addition, the proposed
rules 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
[[Page 14491]]
of transactions,\367\ underwriters may have more expertise and
established procedures for the registered offerings of operating
companies, which are subject to the rules we propose to extend to
affected funds. In contrast, underwriters probably have less, or more
concentrated, expertise regarding the 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.
---------------------------------------------------------------------------
\367\ For example, in 2017 non-fund issuers raised approximately
$1.3 trillion in 1,846 registered debt offerings and $184 billion in
976 registered equity offerings. See Capital Raising in the U.S.: An
Analysis of the Market for Unregistered Securities Offerings, 2009-
2017, Division of Economic and Risk Analysis White Paper (Aug. 1,
2018), available at https://www.sec.gov/dera/staff-papers/white-papers/dera_white_paper_regulation_d_082018.
---------------------------------------------------------------------------
The proposed rules 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
proposed rules may also make certain affected funds more competitive
compared to affected funds that either cannot or choose not to rely on
these rules. Thus, the proposed rules would likely enhance competition
in the public capital markets. The increased competition for capital in
turn could lead to potentially better allocation of capital in the
market. The proposed rules 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.\368\ This difficulty in sourcing
more traditional financing constrains their ability to invest in
profitable projects and grow. To the extent that the proposed rules
improve capital raising opportunities for BDCs and registered CEFs 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.\369\
---------------------------------------------------------------------------
\368\ See, e.g., Alan Berger and Gregory Udell, The Economics of
Small Business Finance: The Roles of Private Equity and Debt Markets
in the Financial Growth Cycle, Journal of Banking and Finance, Vol.
22, 613-673 (1998); Meghana Ayyagari, Asli Demirg[uuml][ccedil]-
Kunt, and Vojislav Maksimovic, How Important are Financing
Constraints? The Role of Finance in the Business Environment, World
Bank Mimeo (2005); Crowdfunding, Securities Act Release No. 9974
(Oct. 30, 2015) [80 FR 71388 (Nov. 16, 2015)].
\369\ See, e.g., Torsten Beck, Asli Demirg[uuml][ccedil]-Kunt,
and Ross Levine, SMEs, Growth, and Poverty: Cross-Country Evidence,
Journal of Economic Growth, Vol. 10, 197-227 (2005);Ryan Decker,
John Haltiwanger, Ron Jarmin, and Javier Miranda, The Role of
Entrepreneurship in U.S. Job Creation and Economic Dynamism, Journal
of Economic Perspectives, July, 3-24 (2014).
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2. Facilitated Communication With Investors
The proposed rules would provide incremental flexibility to funds
in their communications, which may increase the flow of information to
investors.\370\ Currently, affected funds 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).
---------------------------------------------------------------------------
\370\ See supra Part II.E.
---------------------------------------------------------------------------
This standardization in the communications processes of affected
funds, by making them similar to those of operating companies, would
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 proposal, affected funds that would qualify as
WKSIs would be permitted to engage in the widest range of
communications, including free writing prospectuses about an offering
before a registration statement is filed. More generally, affected
funds would 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 proposed 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
rules would eliminate regulatory barriers to the dissemination of that
information, and the markets may provide incentives for issuers,
underwriters, and broker-dealers to produce additional information. We
also believe that the increased flexibility of affected funds in their
communications with investors under the free writing prospectus rules
would maintain appropriate investor protection, consistent with the
protections that apply to affected funds' communications under rule
482. For example, the proposed 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 proposed rules would 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 proposed amendments to rule 138 would 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 proposed rules 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.
C. Potential Costs Resulting From the Proposed Implementation of the
Statutory Mandates
1. Compliance Costs
We expect the rules we are proposing to implement the statutory
mandate could increase compliance costs for affected funds in certain
respects.\371\ We
[[Page 14492]]
are also cognizant of the fact that such an increase could be passed on
to funds' investors. A potential cost of the proposed rules is that
affected funds could incur increased filing or recordkeeping costs
associated with issuer free writing prospectuses,\372\ 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 communications
prior to filing a registration statement that are presently
prohibited), thus increasing the funds' filing and recordkeeping costs.
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.\373\ 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 would 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 proposed rules.
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\371\ See also infra Part IV.E (discussing compliance and other
costs associated with the proposed discretionary amendments).
\372\ See supra Part II.E.1; infra Part V.B.4 (estimating the
annual paperwork burden for free writing prospectuses under rules
163 and 433 for purposes of the PRA).
\373\ For purposes of the PRA, we estimate that, on average,
affected funds that are eligible to be WKSIs (estimated as 104
funds) would file two free writing prospectuses under the proposed
amendments to rule 163 each year. We estimate the total incremental
burden would be approximately 0.125 hours and $150 for the service
of outside professionals. See infra Part V.B.4. We monetize the
internal burden of preparing and filing a free writing prospectus by
multiplying the burden hours by an estimated wage rate of $400 per
hour (0.125 x $400 = $50). The estimated wage figure is based on
analysis in previous rulemakings. The total annual cost is
calculated by adding the monetized internal burden ($50) to the cost
of outside professionals ($150).
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Affected funds could also incur costs associated with adjusting
their internal procedures for filing prospectus supplements.\374\ Such
costs could stem from the need to augment funds' information technology
systems or train funds' employees, although, as recognized above,
affected funds likely would be able to file fewer prospectus
supplements under the proposal.
---------------------------------------------------------------------------
\374\ See supra Part II.B.2.b.
---------------------------------------------------------------------------
Parties that would be required to provide notices under rule
173,\375\ 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 would incur costs to
establish procedures for receiving and complying with requests for
final prospectuses. We believe that providing the notice to investors
would 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 Exchange Act rule 10b-
10.\376\ Accordingly, we estimate that the cost of complying with rule
173 would be approximately $0.05 per notice.\377\ We estimate the
annual cost of providing the notification would be approximately
$1,757,081.\378\ For the parties that are required to provide such
notices, these additional costs of complying with rule 173 would be
mitigated to a certain degree by the proposed elimination of the
requirement to supply a final prospectus to each investor.
---------------------------------------------------------------------------
\375\ See supra Part II.D.
\376\ See rule 10b-10 under the Exchange Act [17 CFR 240.10b-
10].
\377\ The Commission has estimated the cost per rule 173 notice
to be $0.05 for operating companies. See Securities Offering Reform
Adopting Release, supra footnote 5, at 44795. We assume the same
cost will apply to rule 173 notices provided to affected fund
investors.
\378\ For the purpose of the PRA, we estimate that there would
be 43,546 notices per year per affected fund. The annual cost of
providing rule 173 notification is calculated as the number of
affected funds (807) x the number of notices per year (43,546) x the
cost per notice ($0.05). See infra Part V.B.5.
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2. Other Costs
Under the proposed rules, affected funds that qualify as WKSIs
would be able to file 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 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 would 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) and rule 10b-5 under the Exchange Act), which may
ameliorate the potential costs associated with reduced staff
review.\379\
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\379\ Certain of our discretionary amendments may also
ameliorate these costs. See infra Part IV.E.3 (discussing the
benefits and costs of the proposed requirement to disclose material
staff comments) and Part IV.E.2 (discussing the benefits and costs
of the proposed structured data requirements).
---------------------------------------------------------------------------
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 proposal, 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 a multitude of information sources). We
do not have data to assess if, and to what extent, this proposed
revision would be burdensome to 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.\380\ We are also proposing to 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.\381\ 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.\382\ 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.\383\ In
[[Page 14493]]
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 would 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 due to
the proposed rules could be passed on to investors of affected funds.
---------------------------------------------------------------------------
\380\ See supra footnote 19.
\381\ See supra Part II.H.2.a.
\382\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44796.
\383\ The average institutional holding is estimated to be
approximately 30% for BDCs and 21% for registered CEFs. See CIFRR
Adopting Release, supra footnote 98, at 64199. The institutional
ownership of U.S. public equities was approximately 67% as of 2010.
See Marshall E. Blume and Donald B. Keim, Working Paper,
Institutional Investors and Stock Market Liquidity: Trends and
Relationships, The Wharton School, University of Pennsylvania (Aug.
21, 2012).
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The proposed rules would allow an affected fund to not deliver
final prospectuses to investors if the fund files the final prospectus
with the Commission. 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 would 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.\384\
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\384\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44782.
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D. Alternatives to Proposed 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 net asset value of a certain
size for funds whose shares are not traded on an exchange.\385\ 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 disclosures 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 operating companies. Further, we do not believe that
affected funds would be likely to have a level of market following at
lower levels of public float than operating companies that would
justify a lower public float threshold or alternative metric to qualify
as a WKSI or to use a short-form registration statement. 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 are engaged in continuous offerings.\386\
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\385\ See supra Part II.C.
\386\ See supra paragraph accompanying footnotes 34-37.
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Under the BDC Act and the Registered CEF Act, we could have
extended the proposed rules 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 proposed
rules that would otherwise be available to unlisted BDCs, such as the
cost-savings associated with the final prospectus delivery
reforms.\387\ This alternative also could have saved unlisted
registered CEFs certain compliance costs stemming from the proposed
rulemaking, such as the requirement to report on Form 8-K. However,
excluding unlisted registered CEFs from the proposed rules 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 proposing.
---------------------------------------------------------------------------
\387\ As previously recognized, unlisted registered CEFs would
not be eligible for certain of the proposed amendments. See supra
Part II.A.
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E. Discussion of Discretionary Choices
We discuss below the discretionary amendments that we are
proposing, in light of the proposed 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 proposals,
but in many cases, reliable, empirical evidence about the effects is
not readily available to the Commission. We do, however, request that
commenters provide us with any empirical evidence relating to these
various choices to the extent that they can.
1. New Registration Fee Payment Method for Interval Funds
We are proposing a modernized approach to registration fee payment
for interval funds that would require them to pay securities
registration fees using the same method that mutual funds and ETFs use
today. Specifically, the proposal would require interval 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.\388\ We believe this approach would make the registration
fee payment process for interval funds more efficient. For example, it
would avoid the possibility that an interval fund would inadvertently
sell more shares than it had registered and would not require the
interval fund to periodically register new shares.
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\388\ See supra Part II.G.
---------------------------------------------------------------------------
We believe the proposal could also benefit interval funds by
reducing their
[[Page 14494]]
initial registration fees. In the table below, we have attempted to
quantify the potential initial cost-savings for interval funds under
the proposed modernized approach to registration fee payment over a 3-
year period.\389\
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\389\ The estimates are based on data collected for interval
funds that were active as of June 30, 2018. We used their Form N-2
filings and Form N-CSR filings to identify current registration
fees, proceeds from shares issued, and cost of shares redeemed.
------------------------------------------------------------------------
Average
registration fee
Current average that would have
registration fee been paid under
(paid upon the proposal
filing) \390\ (paid at the end
of the fiscal
year) \391\
------------------------------------------------------------------------
Year 1............................ $31,501 $7,821
Year 2............................ ................. 6,550
Year 3............................ ................. 20,957
------------------------------------------------------------------------
Within 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 proposed regime, the fund would pay its
registration fees on a net basis once a year. Since the proposed rule
would allow interval funds to shift more of the fee payments to the
future, it would decrease their cost of offering securities. An
interval fund would, however, be required to annually file Form 24F-
2.\392\ We estimate the annual burden of filing Form 24F-2 for interval
funds would be $134 per fund.\393\
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\390\ 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. 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.
\391\ 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 redeemed)/$1,000,000] x $121.20. The $121.20 is the
fee rate (per million dollars) that funds pay to register shares for
fiscal year 2019. Then we calculate the average fees per year.
\392\ As discussed below, interval funds and other funds that
file on Form 24F-2 would be required to file the form in a
structured XML format under the proposed rules.
\393\ For PRA purposes, we estimate an annual burden per
respondent of filing Form 24F-2 of two hours. See infra Part V.B.7.
At an estimated wage rate of $67 per hour, the annual dollar cost
for filing Form 24F-2 is $132 (2 hours x $67 per hour). This
estimate does not account for burdens associated with filing Form
24F-2 in a structured XML format, which are discussed infra in Part
IV.E.2.
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As an alternative, we considered proposing to allow 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 net asset value 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 net asset value.
2. Structured Data Requirements
The proposed rules include new structured data reporting
requirements for affected funds. Under the proposal, all affected funds
would be required to tag in Inline XBRL format certain Form N-2
prospectus disclosure items. All affected funds also would be required
to tag the information on the cover page of Form N-2 using Inline XBRL
in accordance with the EDGAR Filer Manual. Finally, BDCs would be
required to tag financial statement information using Inline XBRL.
Under the proposal, affected funds would 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.\394\ 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 proposal to require BDCs to tag financial statement
information, unlike operating companies and registered investment
companies, BDCs currently are not required to report any structured
data.\395\ This proposed requirement would extend to BDCs a requirement
that currently applies to operating companies.
---------------------------------------------------------------------------
\394\ See supra Part II.H.1.c.
\395\ See supra Part II.H.1.a.
---------------------------------------------------------------------------
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, would provide important benefits
to investors seeking to access information about affected funds,
whether directly or through third-party information providers. By
providing a standardized, interactive, computer-based framework for
reporting, it could further facilitate more efficient 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 proposed 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. Smaller affected funds in particular may benefit more from
enhanced exposure to investors. If 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 third-party
information providers and data aggregators. Further, requiring affected
funds to tag certain prospectus disclosures using Inline XBRL would
facilitate monitoring of these funds by staff and market participants
more generally, which could, for example, increase investor protection
by enhancing staff's ability to monitor for regulatory compliance. This
could mitigate potential costs associated with other aspects of the
proposal, such as automatic shelf registration statements for WKSIs and
short-form registration statements for eligible funds, that could
affect investor protection.\396\
---------------------------------------------------------------------------
\396\ See supra Part IV.C.2 (discussing these costs).
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The proposed cover page tagging requirement would include new
[[Page 14495]]
checkboxes that would help identify whether a registration statement
is, for example, an automatic shelf registration statement or a short-
form registration statement.\397\ 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 in accordance with the
EDGAR Filer Manual. The proposed requirement to tag the Form N-2 cover
page in Inline XBRL is expected to benefit investors, the Commission,
and other data users. Investors would be able to automate their use of
the cover page information, including company name, the Act or Acts to
which the registration statement relates, and checkboxes relating to
the effectiveness of the registration statement. This would enhance
investors' ability to identify, count, sort, and analyze registrants
and disclosures to the extent these data points otherwise would be
formatted, for example, in HTML. The proposed checkboxes, which would
be required to be tagged in Inline XBRL format, would allow investors,
Commission staff, and other data users 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 data users 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.
---------------------------------------------------------------------------
\397\ See supra Part II.H.1.b.
---------------------------------------------------------------------------
Affected funds would 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 the outside service providers to pass along their costs to
filers. 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.\398\ Inline XBRL is a specification of XBRL that
allows filers to embed XBRL data directly into an HTML document,
eliminating the need to tag a copy of the information in a separate
XBRL exhibit,\399\ which can make XBRL preparation more efficient and
less costly. Costs of Inline XBRL preparation may depend on the
familiarity of the filer and/or its service provider with Inline XBRL.
Incremental costs of compliance with the proposed tagging requirement
would be lower for affected funds whose advisers already are required
to report information for other investment products they offer, such as
open-end funds, in XBRL. Additionally, in a separate rulemaking, we
have required BDCs to tag the cover pages of their 10-K, 10-Q, and 8-K
filings.\400\ Complying with those amendments would result in BDCs
having the ability to also tag the information on the cover page of
Form N-2, and at reduced incremental cost. Nevertheless, we recognize
that some registrants affected by the proposed requirement,
particularly filers with no Inline XBRL experience, likely would 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 initial fixed costs of complying with
the Inline XBRL requirement may be greater for smaller affected funds.
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 would 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. We
recognize that some ongoing fixed costs of complying with the Inline
XBRL requirement may be greater for smaller affected funds.
---------------------------------------------------------------------------
\398\ See, e.g., AICPA sees 45% drop in XBRL costs for small
companies, Aug. 15, 2018, Accounting Today (stating that, according
to an updated survey by AICPA and XBRL US, the cost of formatting
financial statements in XBRL for smaller reporting companies has
declined 45% since 2014 and that 68.6% of the companies paid $5,500
or less on an annual basis (as compared to 29.9% of companies in the
2014 survey) for fully outsourced creation and filing solutions for
their XBRL filings, while 11.8% of the companies surveyed paid
annual costs between $5,500 to as much as $8,000 for their full-
service outsourced solutions).
\399\ Inline XBRL Adopting Release, supra footnote 166, at
40851.
\400\ See supra footnote 177.
---------------------------------------------------------------------------
The costs of compliance with the proposed 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 would be approximately $152,324 per BDC
per year in the 3 years following the adoption of the proposed
rules.\401\ 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 would be approximately $7,191
per registered CEF per year in the 3 years following the adoption of
the proposed rules.\402\ We note that some recent surveys based on
operating companies suggest that these current PRA-based burden
estimates may be overstated with respect to operating companies, and
particularly smaller reporting companies.\403\ Below, we request
comment on whether our current PRA estimates continue to be
appropriate.
---------------------------------------------------------------------------
\401\ For BDCs, for the purposes of the PRA, we estimated the
average annual compliance costs in the 3 years following the
adoption of the rule to be 30,503 burden hours of in-house Inline
XBRL preparation and $3,488,200 in outside services. See infra Part
V.B.2. We monetize the burden of in-house Inline XBRL preparation by
multiplying the burden hours by an estimated wage rate of $400 per
hour (30,503 x $400 = $12,201,200). The estimated wage figure is
based on analysis in previous rulemakings. The average cost per BDC
is calculated by adding the monetized internal burden ($12,201,200)
to the cost of outside services ($3,488,200) and dividing by the
number of BDCs (103).
\402\ For registered CEFs, for the purposes of the PRA, we
estimated the average annual compliance costs in the 3 years
following the adoption of the rule to be 10,725 burden hours of in-
house Inline XBRL preparation and $772,200 in outside services. See
infra Part V.B.2. We monetize the burden of in-house Inline XBRL
preparation by multiplying the burden hours by an estimated wage
rate of $400 per hour (10,725 x $400 = $4,290,000). The estimated
wage figure is based on analysis in previous rulemakings. The
average cost per registered CEF is calculated by adding the
monetized internal burden ($4,290,000) to the cost of outside
services ($772,200) and dividing by the number of registered CEFs
(704).
\403\ See American Institute of CPAs, XBRL Costs for Small
Companies Have Declined 45%, According to AICPA Study (Aug. 18,
2018), available at https://www.aicpa.org/press/pressreleases/2018/xbrl-costs-have-declined-according-to-aicpa-study.html; CFA
Institute, The Cost of Structured Data: Myth vs. Reality, available
at https://www.cfainstitute.org/-/media/documents/survey/the-cost-of-structured-data-myth-vs-reality-august-2017.ashx.
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As an alternative, we could have proposed to allow but not require
affected funds to present cover page, financial statement, and
important prospectus disclosure items information in Inline XBRL.
Compared to the proposed rules, a fully voluntary Inline XBRL program
would lower costs for those filers that do not find Inline XBRL to be
cost efficient. We also could have
[[Page 14496]]
proposed 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. We also could have
proposed to permit more than one structured data format or leave 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 the affected funds in a standardized, structured,
machine-readable format, investors and other data users who wish to
instantly analyze, aggregate, and compare the data would be required to
incur the costs of paying a third-party provider to manually rekey the
data, review the data for data quality problems during the duplication
process, and disseminate the data to the users.\404\ Alternatively,
investors or data users unwilling to pay a third-party 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 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 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.
---------------------------------------------------------------------------
\404\ Some studies have shown that investors use XBRL files
often, even preferring them to non-XBRL files when both are
available. See Yu Cong, Hui Du, and Miklos A. Vasarhelyi, Are XBRL
Files Being Accessed? Evidence from the SEC EDGAR Log File Dataset,
Journal of Information Systems, Vol. 32-3, 23-29 (2018).
---------------------------------------------------------------------------
As another alternative, we could propose to require the disclosures
to be filed in another structured format, such as the non-Inline XBRL
or XML format. Compared to the proposed Inline XBRL requirement, the
use of the non-Inline XBRL format entails more duplication, 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 proposed requirement to use Inline
XBRL, the alternative of requiring the use of XML could result in lower
costs for filers. However, compared to the proposed 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, Commission staff, and other data users, we believe the
benefits from the use of Inline XBRL would outweigh its higher cost
compared to XML.\405\
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\405\ In contrast, the information provided in Form 24F-2 is
less complex and is generally only used by fund issuers and
Commission staff for purposes of calculating certain registered
investment companies' registration fees, so we have proposed to
require Form 24F-2 information in a structured XML format rather
than Inline XBRL.
---------------------------------------------------------------------------
As another alternative, we could have expanded the scope of
prospectus disclosure information required to be tagged in Inline XBRL
under the proposed rules. Compared to the proposed rules, this
alternative would improve the timeliness and usability of the required
disclosure information, but 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 required to be filed in Inline XBRL under the proposed
rules. As another alternative, we could have narrowed the scope of
prospectus disclosure information required to be tagged in Inline XBRL
under the proposed rules. Compared to the proposed rules, this
alternative could decrease the timeliness and usability of the required
disclosure information, but potentially reduce costs for registrants.
Overall, the prospectus disclosure information proposed to be filed in
Inline XBRL largely parallels the information that is required of
mutual funds and ETFs, and we believe it is likely to be of greatest
utility for investors and others that seek to use the information in a
structured format to assist with investment decisions regarding
affected funds.
We also are proposing to require registered investment companies
that file Form 24F-2 (including mutual funds and ETFs, as well as
interval funds under our proposed rules) to submit the form in a
structured XML format.\406\ We believe use of a structured data format
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. 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 $522 per fund.\407\
---------------------------------------------------------------------------
\406\ See supra Part II.H.1.d.
\407\ We assume that the burden of tagging Form 24F-2 in a
structured XML format would be 2 hours for each filing. See infra
Part V.B.7. At an estimated wage rate of $261 per hour, the dollar
cost for filing Form 24F-2 in a structured XML format is $522 (2
hours x $261 per hour) per fund.
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3. Periodic Reporting Requirements
We are proposing certain new annual report requirements for
affected funds that file a short-form registration statement on Form N-
2. These funds would be required to 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 unresolved staff comments.\408\
In addition, all BDCs would be required to include financial highlights
in their registration statements and annual reports.\409\ We also
propose to require all registered CEFs to provide management's
discussion of fund performance in their annual reports.\410\ Finally,
registered CEFs that rely on rule 8b-16 under the Investment Company
Act to avoid annually updating their registration statements would be
required to provide more expansive disclosure about certain key changes
in their annual reports.\411\ We believe these proposed requirements
would promote investor protection by making important information more
readily accessible to investors.
---------------------------------------------------------------------------
\408\ See supra Part II.H.2.a and Part II.H.2.d.
\409\ See supra Part II.H.2.c.
\410\ See supra Part II.H.2.b.
\411\ See supra Part II.H.5.
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With respect to affected funds filing short-form registration
statements on Form N-2, the proposed annual report requirements would
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 would be readily available in one
document instead of investors having the need to
[[Page 14497]]
compile it from several sources. As previously noted, 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 proposed annual report requirements
may increase the compliance costs for seasoned funds because new
information items would have to be added to the annual report. However,
because the annual report would 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 proposed to require 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 than we have proposed
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 proposed requirement to disclose unresolved staff comments in
the annual report is designed to mitigate the concern that other
aspects of the proposal may eliminate some incentives that certain
affected funds may have to resolve staff comments in a timely manner.
This requirement may, however, impose certain compliance costs to the
extent a seasoned fund does not timely resolve staff comments and hence
would be required to provide such disclosure. We do not believe these
disclosure costs would be significant because the information would 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 wanted 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).
With respect to the proposal to require BDCs to provide financial
highlights information, we believe that investors would benefit from
disclosure summarizing a BDC's financial statements. We believe the
costs associated with this proposed 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 proposal to require registered CEFs to include MDFP
disclosure would 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 would 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 proposed requirement would 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
$8,000 per registered CEF,\412\ although this cost would likely be
lower for affected funds that already provide MDFP-like disclosure.
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\412\ For the purpose of the PRA, we estimate that the proposed
amendments to require registered CEFs to provide MDFP in their
annual reports would result in an additional 20 burden hours for
registered CEFs. See infra Part V.B.3. We monetize the internal
burden by multiplying the burden hours by an estimated wage rate of
$400 per hour (20 x $400 = $8,000).
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We considered proposing 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 engages in high portfolio turnover and the
effect of portfolio turnover on fund performance. We also considered
proposing changes to the proposed average annual total return table to
provide additional or more useful information to investors, such as
requiring total return based on per-share net asset value, in addition
to (as is proposed) 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 propose them at this time.
Under the proposed amendments to rule 8b-16, registered CEFs
relying on the rule would be required to describe 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 489 registered CEFs relied on rule 8b-16 as
of December 31, 2018.\413\ These registered CEFs also would be required
to preface this disclosure 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 this new requirement would
allow investors in funds relying on rule 8b-16 to more easily identify
and understand key information about their investments. Because these
funds are already required to disclose the enumerated changes, the
proposed new requirement would likely add only a small incremental
compliance burden.
---------------------------------------------------------------------------
\413\ See infra footnote 584.
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4. New Current Reporting Requirements for Affected Funds
Currently, registered CEFs generally are not required to report
information on Form 8-K, although listed registered CEFs are subject to
exchange rules that require listed issuers to provide the market
current information in response to certain events. We are proposing to
require that registered CEFs comply with Form 8-K reporting
requirements. Notably, Form 8-K would require disclosure within 4
business days of the relevant event, while the existing regime for
registered CEFs calls for disclosure on an annual or semi-annual basis,
with exchange rules requiring some current disclosure from listed
registered CEFs.
We are also proposing amendments to Form 8-K to add certain new
reporting
[[Page 14498]]
items that would apply to both BDCs and registered CEFs to better
tailor Form 8-K disclosure to these types of investment companies. The
additional reporting items we propose are designed to recognize certain
differences between events that are relevant to affected funds and
those that are relevant to operating companies. The new reportable
events would be triggered if an affected fund has: (1) A material
change to its investment objectives or policies; or (2) a material
write-down in fair value of a significant investment.
We believe these amendments would improve current reporting of
important information by affected funds to investors and the market,
thus promoting investor protection. For example, the proposed
requirement to file a Form 8-K report when an affected fund materially
changes its investment objectives or policies would provide investors
with more timely information about significant changes to a fund's
investment strategies, which would allow investors to better assess
whether a new investment strategy is aligned with their individual
investment goals. Requiring Form 8-K reporting about material write-
downs of significant investments would give investors more current
information about events that are likely to significantly impact the
value of their investments, particularly with respect to affected
funds' less liquid holdings where there is a lack of market
transparency regarding potential valuation changes between funds'
periodic reports.
Additionally, while affected funds may provide certain current
information to investors or the market through press releases, and BDCs
must report under existing Form 8-K provisions, requiring all affected
funds to provide information on Form 8-K--including information that is
tailored to the business and structure of affected funds--would better
standardize the types of information that affected funds report and
would make current information about affected funds more readily
accessible in one place (EDGAR). Enhancing the amount of current
information about affected funds available to investors and the market
could facilitate more efficient pricing of affected funds' shares (to
the extent they do not trade at NAV) and could make it easier for an
affected fund to develop a market following, which could improve its
ability to attract new investors.
Requiring affected funds to provide new current reporting may
increase their compliance costs. For example, registered CEFs generally
are not required to report information on Form 8-K and currently may
not be subject to any disclosure requirements related to certain Form
8-K events. As discussed above, however, 75 registered CEFs reported
information on Form 8-K voluntarily in 2018, whether pursuant to
exchange rules or otherwise.\414\ Additionally, listed registered CEFs,
and any other registered CEFs that make voluntary disclosures on Form
8-K, may be able to leverage their experience with making certain
prompt, public disclosures to comply with Form 8-K requirements. Those
registered CEFs that are not exchange-listed, and that do not currently
report information on Form 8-K, would not have prior experience to
leverage, and thus the relative burdens associated with the proposed
Form 8-K requirements could be higher for these funds if their advisers
do not also advise other funds that file reports on Form 8-K.
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\414\ Only 10 of those 75 registered CEFs were unlisted
registered CEFs.
---------------------------------------------------------------------------
Also, we recognize that certain items in Form 8-K are substantively
the same as or similar to existing disclosure requirements for
registered CEFs, although the existing requirements provide less-timely
disclosure. This should reduce burdens to some extent since registered
CEFs are already familiar with providing such disclosure. However, we
recognize there are certain costs associated with potentially
duplicative disclosure requirements, although we believe these costs
should not be significant. These costs would be associated with
preparing the Form 8-K disclosure. We do not anticipate that the
proposed Form 8-K requirements would increase affected funds'
compliance costs associated with existing disclosure requirements. The
proposed requirements may, to some extent, reallocate certain of
affected funds' existing disclosure costs to preparing Form 8-K
disclosure since affected funds may be able to use the Form 8-K
disclosure to help prepare disclosures that they are currently required
to provide in annual or other periodic reports. Further, we believe it
would be beneficial to investors to retain existing shareholder report
disclosure requirements to reduce potential disruptions to shareholders
and limit discrepancies between different types of funds' shareholder
reports.
With regard to the new reportable events on Form 8-K that we are
proposing, all affected funds would have to monitor for and report
these new events on Form 8-K, which would likely increase compliance
costs, including costs associated with preparing and filing the new
Form 8-K disclosure. We believe that affected funds will be aware of
information regarding these events, as this information is important
for their operations, and thus it would not impose substantial costs
for them to supply it on Form 8-K. We also believe that these events,
along with those currently covered by Form 8-K, will occur relatively
infrequently. This should reduce the associated reporting burden. The
existing items on Form 8-K generally have not led to frequent reporting
obligations for BDCs. For example, over a 3-year period from June 1,
2015 to May 31, 2018, BDCs filed or furnished approximately 3,080
reports on Form 8-K, with an estimated average of 10 reports per BDC
per year.\415\ Of the 3,080 reports, approximately 931 were furnished
or filed under non-mandatory reporting items--Item 7.01 (Regulation FD
Disclosure) and Item 8.01 (Other Events).\416\ Further, over this 3-
year period, BDCs filed or furnished 25 or fewer reports under 15 of
the 23 mandatory reporting items applicable to non-ABS issuers. We
estimate the overall costs of reporting new information on Form 8-K to
be $19,553,600 per fund for registered CEFs \417\ and $206,000 per fund
for BDCs.\418\
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\415\ As noted above, as of December 31, 2018, there were 103
BDCs. If we assume there were 103 BDCs over the three-year period
and approximately 1,027 reports each year (3,080/3 = 1,027)
distributed evenly across each BDC, then each BDC would have filed
approximately 10 Form 8-K reports each year (1,027/103 = 10).
\416\ Some of these 931 reports were filed under Item 9.01
(Financial Statements and Exhibits), in addition to Item 7.01 or
Item 8.01.
\417\ For purposes of the PRA, we estimate the annual
incremental paperwork burden for CEFs to prepare and file the Form
8-K under the proposed amendments would be approximately 36,663
burden hours of internal time and a cost of approximately $4,888,400
for the services of outside professionals. See infra Part V.B.6. We
monetize the internal burden by multiplying the burden hours by an
estimated wage rate of $400 per hour (36,663 x $400 = $14,665,200).
\418\ For purposes of the PRA, we estimate the annual
incremental paperwork burden for BDCs to prepare and file the Form
8-K under the proposed amendments would be approximately 386.25
burden hours of internal time and a cost of approximately $51,500
for the services of outside professionals. See infra Part V.B.6. We
monetize the internal time by multiplying the burden hours by an
estimated wage rate of $400 per hour (386.25 x $400 = $154,500).
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Also, we are proposing to extend the safe harbor for failure to
report certain Form 8-K items to include the new proposed reporting
items for affected funds. Failure to report under these proposed items
also would not impact an affected fund's eligibility to file a short-
form registration statement on Form N-2. This should limit liability
concerns and the potential impact on an
[[Page 14499]]
affected fund's ability to raise capital associated with failing to
timely file a report under these items.
As an alternative, we could have not proposed to require current
reporting on Form 8-K by certain or all registered CEFs. For example,
we could have proposed to require Form 8-K reporting for only listed
registered CEFs, or only those registered CEFs that qualify as WKSIs or
are eligible to use a short-form registration statement. This approach
would reduce costs for certain registered CEFs, but it would also
create informational disparities among registered CEF investors and
disadvantage investors in unlisted registered CEFs. Unlisted registered
CEFs already may provide less transparency than listed registered CEFs
in certain respects given that unlisted registered CEFs are not
required to provide current information under exchange rules. Further,
if we excluded all registered CEFs from Form 8-K reporting, this
approach would disproportionately advantage registered CEFs as opposed
to BDCs and operating companies, particularly with respect to those
that are permitted to qualify as WKSIs or seasoned issuers.
We also could have proposed to require affected registered CEFs to
file Form 8-K, but not added any new items tailored to BDCs and
registered CEFs. Such an alternative may decrease the compliance costs
for affected funds, while at the same time addressing the current lack
of parity between registered CEFs and BDCs in terms of current
reporting to investors and the market. We believe, however, that the
proposed reporting items would enhance the information flow to
investors and the market by providing timely and important value-
relevant information. We also believe that it enhances parity between
affected funds and operating companies with respect to the amount of
current information available to investors since affected funds are
unlikely to report information under several existing Form 8-K items.
As a further alternative, we could have proposed to tailor the Form
8-K requirements to affected funds by identifying certain items these
funds would not be required to report. This approach could have reduced
costs to affected funds by expressly providing that they are not
required to monitor for or report certain events. However, while we
believe that certain items will never or very rarely create reporting
obligations for affected funds, excluding affected funds from certain
reporting requirements may unduly complicate Form 8-K and may not
provide tangible benefits since affected funds are unlikely to be
subject to such reporting requirements regardless of whether we provide
specific exclusions.
Finally, rather than propose to require affected funds to report
information about material write-downs of significant investments, we
could have proposed to require them to file Form 8-K reports when they
experience a significant decline in NAV. This approach would apply more
generally to all affected funds (rather than only those funds that hold
significant investments) and would likely result in more Form 8-K
reporting by affected funds, which could increase the flow of
information to investors that is relevant to their investment
decisions. While additional reporting could also increase costs to
affected funds, a decline in NAV could be easier for affected funds to
monitor and report. However, some affected funds already publicly
disclose their NAVs on a daily or weekly basis, which could result in
any associated Form 8-K reporting providing stale information. Since
affected funds disclose their NAVs at different frequencies--ranging
from daily to semi-annually--establishing a baseline for measuring a
decline in NAV would present certain difficulties and would likely
result in either inconsistent reporting standards across affected funds
or less-relevant reporting by certain funds.
5. Online Availability of Information Incorporated by Reference
We are proposing to modernize Form N-2's requirements for backward
incorporation by reference by all affected funds.\419\ Affected funds
would no longer be required to deliver to new investors information
that they have incorporated by reference. Instead, we are proposing
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.
---------------------------------------------------------------------------
\419\ See supra Part II.H.4.
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We believe that this new requirement would improve the
information's overall accessibility to investors. In particular, this
new requirement would 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.\420\ Affected funds would also be required to provide
incorporated materials upon request free of charge. In addition, the
proposed rule would 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.
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\420\ For example, results from a 2011 investor testing
sponsored by the Commission (available at www.sec.gov/comments/s7-08-15/s70815.shtml) suggest that an investor looking for a fund's
annual report is most likely to seek it out on the fund's website.
Additionally, a 2015 survey by the Investment Company Institute
(available at http://www.ici.org/research/stats/factbook) suggests
an increasing trend of U.S. households using the internet for
financial purposes.
---------------------------------------------------------------------------
We do not expect that this proposal would result in a substantial
reduction in the amount of the information affected funds deliver to
investors through the mail or electronically, because we expect that
most affected funds would rely on rules 172 and 173, as we propose to
amend them, 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.\421\
---------------------------------------------------------------------------
\421\ See supra Part II.D.
---------------------------------------------------------------------------
We do not believe this requirement would 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 proposed
website posting requirements to be $478 per fund.\422\
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\422\ For the purpose of the PRA, we estimate an average burden
to comply with the website posting requirements of 2 hours per fund.
See infra Part V.B.1. The expected compliance cost associated with
the proposed website posting requirements is calculated by
multiplying the 2-hour burden by the estimated hourly wage based on
published rates for webmasters ($239). See also Variable Contract
Summary Prospectus Proposing Release, supra footnote 172, at 61832.
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Affected funds may also incur printing and mailing costs under the
proposal if some investors request paper copies of the prospectus \423\
or of information that has been incorporated by reference into the
prospectus or SAI but not delivered with the prospectus or SAI.\424\ 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.\425\
We are similarly proposing a requirement to send prospectuses and
related information here, and we have no reason to assume significant
differences in the average lengths of the associated materials or the
frequency of
[[Page 14500]]
investor requests under this proposal. We estimate that the printing
and mailing costs associated with the proposed requirements would 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 proposal would be able to
use incorporation by reference more frequently.\426\ 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 would only
incrementally increase costs.
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\423\ See supra footnote 109.
\424\ See supra Part II.H.4.
\425\ See Variable Contract Summary Prospectus Proposing
Release, supra footnote 172, at 61812, 61832.
\426\ We do not have specific data regarding how often investors
may request copies of prospectuses or incorporated materials, how
many materials affected funds would incorporate by reference into
their prospectuses or SAIs, and how lengthy those materials would
be, so we request comment on this estimate.
---------------------------------------------------------------------------
Alternatively, we could have left Form N-2's backward incorporation
by reference requirements as-is 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, as proposed, would be
deemed to have delivered their disclosures upon filing with the
Commission instead of giving them to investors, the current backward
incorporation delivery requirement would not result in the delivery of
incorporated materials to their investors, thus making less accessible
the disclosure materials that might affect their investment decision.
F. Request for Comments
We request comment on the potential costs and benefits of the
proposed rules and whether the rules, if adopted, would promote
efficiency, competition, and capital formation or have an impact or
burden on competition. Commenters are requested to provide empirical
data, estimation methodologies, and other factual support for their
views, particularly as they relate to costs and benefits estimates. Our
specific questions follow.
We seek information that would help us quantify or
otherwise qualitatively assess the benefits of the proposed rules.
Please provide any data, studies, or other evidence that would allow us
to quantify some or all of the benefits. Are there any other benefits
from the proposed rules?
We seek information that would help us quantify compliance
and other costs resulting from the proposed rules. Please provide any
data, studies, or other evidence that would allow us to quantify some
or all of the costs. Are there any other potential costs of the
proposed rules?
Are our estimates of the compliance costs of requiring
affected funds to tag in Inline XBRL format certain information
reasonable? Is there a fixed component of the XBRL reporting? Are there
any other types of costs that should be considered? Are affected funds
more likely perform the tagging in-house or retain outside service
providers?
Are our estimates of the compliance costs of requiring
registered CEFs to include MDFP disclosure in their annual reports
reasonable? Are there any other types of costs that should be
considered?
Are our estimates of the compliance costs of requiring
registered CEFs to report information on Form 8-K, and requiring
affected funds to provide new current reporting on Form 8-K,
reasonable? Are there any other types of costs that should be
considered?
Are our estimates of the compliance costs of requiring
affected funds to make the incorporated materials and corresponding
prospectus and SAI readily available and accessible on a website
maintained by or for the fund reasonable? Are our estimates of the
compliance costs of requiring affected funds to deliver a copy of
information incorporated by reference into its prospectus or SAI to
investors upon request reasonable? Are there any other types of costs
that should be considered?
Are our estimates of the compliance costs of requiring
registered investment companies that file Form 24F-2 to file it in an
XML format reasonable? Are there any other types of costs that should
be considered?
Are there any other potential effects on competition,
efficiency, and capital formation that could result from the proposed
rules?
V. Paperwork Reduction Act Analysis
A. Background
Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (PRA).\427\ We are submitting the proposed
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:
---------------------------------------------------------------------------
\427\ 44 U.S.C. 3501 et seq.
\428\ Recently, we issued a release that, among other things,
proposed to retitle this information collection as ``Registered
Investment Company Interactive Data.'' See Variable Contract Summary
Prospectus Proposing Release, supra footnote 172. If adopted, the
proposed amendments to require BDCs to provide structured data would
be included in this information collection. In light of these
proposed amendments, we propose to rename this information
collection as ``Investment Company Interactive Data'' to reflect
that this information collection would be applicable to BDCs as well
as registered investment companies.
\429\ 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.
------------------------------------------------------------------------
OMB control
Title No.
------------------------------------------------------------------------
Form N-2................................................ 3235-0026
Mutual Fund Interactive Data \428\...................... 3235-0642
Rule 30e-1.............................................. 3235-0025
Form 10-K............................................... 3235-0063
Family of rules under section 8(b) of the Investment 3235-0176
Company Act of 1940 \429\..............................
Rule 163................................................ 3235-0619
Rule 433................................................ 3235-0617
Rule 173................................................ 3235-0618
Form 8-K................................................ 3235-0060
Form 24F-2.............................................. 3235-0456
------------------------------------------------------------------------
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 and current 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
proposed amendments, if adopted, would allow affected funds to use the
securities offering rules that are already available to operating
companies. In addition, the proposed rules would include amendments to
our rules and forms intended to tailor the disclosure and regulatory
framework to affected funds.
[[Page 14501]]
The Mutual Fund 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 items of Form N-1A 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 same items of
Form N-1A. The proposed amendments would 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.\430\ Although the proposed interactive data filing requirements
would be included in the proposed Form N-2 instructions, we are
separately reflecting the hour and cost burdens for these requirements
in the burden estimate for Mutual Fund Interactive Data and not in the
estimate for Form N-2.
---------------------------------------------------------------------------
\430\ We are also proposing new requirements for funds that file
on Form 24F-2 to submit the form in XML format. We account for the
burdens associated with this proposed requirement in infra Part
V.B.7.
---------------------------------------------------------------------------
The information collection requirements related to registration
statements and Exchange Act reports would be mandatory. In addition,
there would be no mandatory retention period for the information
disclosed, and the information gathered would be made publicly
available. The information collection requirements related to the
communications and prospectus delivery proposals would apply only to
affected funds and other offering participants choosing to rely on
them. There would 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 writing prospectuses that are broadly disseminated by another
offering participant, would have to be filed and would 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 would not have to be filed.
B. Summary of the Proposed Amendments and Impact on Information
Collections
We are proposing amendments to several rules and forms that would
modify the registration, communications, and offering processes for
affected funds under the Securities Act and Investment Company Act. The
proposals are designed to carry out the requirements of section 803 of
the BDC Act and section 509 of the Registered CEF Act. The proposed
amendments generally would allow affected funds to use the securities
offering rules that are already available to operating companies.
The proposed amendments would principally affect five aspects of
the application of our securities offering rules to affected funds.
First, the proposed amendments would 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 proposed amendments
would allow affected funds to qualify as WKSIs under rule 405 under the
Securities Act. Third, the proposed amendments would allow affected
funds to satisfy final prospectus delivery requirements using the same
method as operating companies. Fourth, the proposed amendments would
allow affected funds to use communications rules currently available to
operating companies, such as the use of certain factual business
information, forward-looking information, a ``free writing
prospectus,'' and broker-dealer research reports. Finally, the proposed
amendments would tailor affected funds' disclosure and regulatory
framework in light of the proposed amendments to the offering rules
applicable to them. These amendments include new structured data
requirements, new disclosure requirements for annual reports, a new
requirement for registered CEFs to file current reports on Form 8-K
(including new Form 8-K items tailored to registered CEFs and BDCs),
and a proposal to require 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 proposed amendments
would increase the burdens and costs for affected funds that would be
subject to the proposed amendments. We have estimated the average
number of hours an affected fund would 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. In addition, some affected funds may experience
costs in excess of our estimates, and some may experience less than the
estimated average costs.
1. Proposed 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 proposed amendments to Form N-2 would increase the existing
disclosure burdens of the form by requiring:
Affected funds to use new checkboxes 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; \431\
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\431\ See supra Part II.H.1.b; see also proposed checkboxes to
Form N-2.
---------------------------------------------------------------------------
BDCs to include financial highlights disclosure in their
registration statements, as registered CEFs are currently required to
do; \432\
---------------------------------------------------------------------------
\432\ See supra Part II.H.2.c; see also proposed amendments to
Instruction 1 to Item 4 of Form N-2.
---------------------------------------------------------------------------
Affected funds to provide new undertakings to be furnished
in registration statements being filed pursuant to rule 415; \433\ and
---------------------------------------------------------------------------
\433\ See supra footnote 53 and accompanying paragraph; see also
proposed Items 34.4-7 of Form N-2.
---------------------------------------------------------------------------
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.\434\
---------------------------------------------------------------------------
\434\ See supra Part II.H.4; see also proposed General
Instruction F.4.a of Form N-2.
---------------------------------------------------------------------------
At the same time, the proposed amendments to Form N-2 would
decrease existing burdens for the form by:
[[Page 14502]]
Permitting eligible affected funds to forward incorporate
by reference Exchange Act reports, which would reduce the need for such
funds to file a post-effective amendment or a prospectus supplement to
update information in the registration statement.\435\
---------------------------------------------------------------------------
\435\ See supra Part II.B.2.c; see also proposed General
Instruction F.3.b of Form N-2.
---------------------------------------------------------------------------
The Commission has previously estimated that there are 136 initial
registration statements and 30 post-effective amendments to initial
registration statements filed on Form N-2 annually.\436\ Under the
most-recently approved PRA estimates, we estimate that the hour burden
for preparing and filing an initial registration statement on Form N-2
is 515 hours, and the hour burden for preparing and filing a post-
effective amendment is 107 hours.\437\ Under these estimates, the
aggregate annual hour burden for preparing and filing initial
registration statements is therefore 70,040 hours (136 initial
registration statements x 515 hours), and the current estimated
aggregate annual hour burden for preparing and filing post-effective
amendments is 3,210 hours (30 post-effective amendments x 107 hours).
Thus, under these estimates, the current total annual hour burden for
Form N-2 is estimated to be 73,250 hours (70,040 hours + 3,210 hours).
In addition, under currently-approved PRA estimates, the aggregate
annual cost burden for Form N-2 is $4,668,396,\438\ and the average
annual cost burden is approximately $28,123 per fund.
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\436\ These estimates are based on the last time the form's
information collections were approved, pursuant to a submission for
a PRA extension in 2016.
\437\ The paperwork burdens for Form N-2 include the burdens of
preparing and filing prospectus supplements. While affected funds
may file fewer prospectus supplements under the proposed amendments,
we are uncertain as to the extent, if any, of the reduction in the
number of prospectus supplements that affected funds would file
under the proposals. See supra Part II.B.
\438\ This estimate includes the cost of outside counsel,
independent auditors and the services of other professionals
retained to assist in the preparation and filing of the form.
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Based on staff analysis of the number of initial Form N-2 filings
and post-effective amendments made during the three-year period from
January 1, 2016 through December 31, 2018, we adjusted the currently-
approved estimate of Form N-2 filings for purposes of this PRA
analysis. Based on the three-year average of this adjusted number of
Form N-2 filings, we currently estimate that there are 138 initial
registration statements and 302 post-effective amendments to initial
registration statements filed on Form N-2 annually.\439\
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\439\ Based on staff analysis of the number of Form N-2 filings,
the numbers of initial registration statement and post-effective
amendments filed on Form N-2 were as follows: 129 initial Form N-2s
and 290 post-effective amendments in calendar year 2016; 140 initial
Form N-2s and 320 post-effective amendments in calendar year 2017;
and 144 initial Form N-2s and 296 post-effective amendments in
calendar year 2018.
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We anticipate that the proposed amendments to Form N-2 would, on
net, decrease the information collection burdens of the form. Our
estimates of the hour and cost burdens of the proposed amendments are
based on several estimates and assumptions.
First, we estimated the paperwork burdens of the proposed
amendments that would increase the burdens of Form N-2. We expect that
the proposed new checkbox requirements and undertakings would
incrementally increase the paperwork burden on affected funds because
affected funds would be required only to indicate which, if any, of the
new checkboxes were applicable, and include the appropriate undertaking
if one is required. Accordingly, we estimate that the proposed
checkboxes and undertakings together would slightly increase the
incremental paperwork burden of the form by 0.5 hours for an aggregate
annual burden of 404 hours.\440\ The proposed amendment to require BDCs
to include financial highlights disclosure would also result in an
increase in the burdens associated with the form. However, we note that
BDCs currently provide this information in their Form N-2 filings.
Accordingly, we estimate the proposed financial highlights disclosure
requirement would incrementally increase the paperwork burden by 1.5
hours for an aggregate annual burden of 155 hours.\441\ We estimate
that the proposed amendment to require funds to make available online
its prospectus, SAI, and any Exchange Act reports that are incorporated
by reference into the fund's prospectus or SAI would incrementally
increase the paperwork burden of the form by 2 hours for an aggregate
annual burden of 1,614 hours.\442\ In determining this estimate, we
assumed that all eligible affected funds would take advantage of the
incorporation by reference proposals and that the burdens of website
posting of incorporated documents would be comparable to the burdens
estimated for similar document posting requirements.\443\ Based on
this, we estimate that these amendments would increase the aggregate
annual burden of Form N-2 by 2,173 hours,\444\ and would result in an
internal cost equivalent of $658,419.\445\
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\440\ We calculated this estimate as follows: 807 (103 BDCs +
704 registered CEFs) funds subject to the requirement x 0.5 hours.
For convenience, the estimated burden has been rounded to the
nearest whole number. Our estimate of costs and paperwork burdens
that BDCs could incur may be over-estimates. See supra footnote 339
and accompanying text.
\441\ We calculated this estimate as follows: 103 BDCs subject
to the requirement x 1.5 hours. For convenience, the estimated
burden has been rounded to the nearest whole number.
\442\ We calculated this estimate as follows: 807 (103 BDCs +
704 registered CEFs) funds subject to the requirement x 2 hours.
\443\ See, e.g., Variable Contract Summary Prospectus Proposing
Release, supra footnote 172.
\444\ We calculated this estimate as follows: 404 hours (see
supra footnote 440) + 155 hours (see supra footnote 441) + 1,614
hours (see supra footnote 442) = 2,173 hours.
\445\ The internal time cost equivalent of $658,419 is
calculated by multiplying the hour burden (2,173 hours) by the
estimated hourly wage of $303. The estimated wage figure is based on
published rates for Compliance Attorneys ($352), Senior Programmers
($319), and Webmasters ($239). These hourly figures are 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 to account for the effects of inflation. The estimated
wage rate was further based on the estimate that Compliance
Attorneys, Senior Programmers, and Webmasters would divide time
equally, resulting in a weighted wage rate of $303 (($352 + $319 +
$239)/3 = $303.33).
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We also estimated the paperwork burdens of the amendments that we
anticipate would decrease the burdens of Form N-2. As we noted above,
the proposal to permit the use of forward incorporation by reference
would reduce the need for affected funds eligible to use the proposed
short-form registration statement to file a post-effective amendment to
update the registration statement. This would result in the filing of
fewer post-effective amendments than under the current regulatory
regime. Based on the staff's examination of Form N-2 filings during the
three-year period from January 1, 2016 through December 31, 2018, we
estimate that approximately 544 (or 60%) of the post-effective
amendments filed during this period were made to update information in
the registration statement under the Securities Act.\446\ We estimate
that 62% of affected funds (501 out of 807) would be eligible to use
forward incorporation by reference under the proposed amendments.
Consequently, we assumed that based on the number of affected funds
that
[[Page 14503]]
would be eligible to forward incorporate under the proposed amendments,
the number of post-effective amendments filed annually to update the
registration statement under the Securities Act would be reduced by 62%
or approximately 112 filings annually.\447\ For purposes of the PRA, we
estimate that this would decrease the aggregate annual burden of Form
N-2 by 11,984 hours and would result in a reduction in the cost burden
for Form N-2 by $3,149,776.\448\
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\446\ (290 post-effective amendments in 2016 + 320 post-
effective amendments in 2017 + 296 post-effective amendments in 2018
= 906 post-effective amendments) x 60% = approximately 544 post-
effective amendments.
\447\ We calculated this estimate as follows: (544 post-
effective amendments to update information in the registration
statement under the Securities Act)/3 years = approximately 181
post-effective amendments per year) x 62% = approximately 112 post-
effective amendments per year.
\448\ We calculated these estimates as follows: 112 post-
effective amendments x 107 hours = 11,984 hours; 112 post-effective
amendments x $28,123 = $3,149,776.
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For purposes of the PRA, we estimate that the proposed amendments
to Form N-2 would result in a net reduction of the annual paperwork
burden by approximately 9,811 hours of internal personnel time \449\
and result in a reduction of the cost by approximately $2,491,357.\450\
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\449\ We calculated this estimate as follows: Estimate of
increased aggregate annual burden hours (+2,173 hours, see supra
footnote 444) plus estimate of decreased aggregate annual burden
hours (-11,984 hours, see supra footnote 448) = net decrease of
9,811 hours.
\450\ We calculated this estimate as follows: Estimate of
internal cost equivalent associated with proposed amendments to Form
N-2 ($658,419, see supra footnote 445) plus estimate of decreased
cost burden associated with proposed amendment to Form N-2
($3,149,776, see supra footnote 448) = net decrease of $2,491,357.
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2. Proposed Structured Data Reporting Requirements
We are proposing to amend Form N-2, as well as Regulation S-T,\451\
to require certain new structured data reporting requirements for
registered CEFs and BDCs. Specifically, the proposed amendments would:
\452\
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\451\ 17 CFR 232.10 et seq. [OMB Control No. 3235-0424] (which
specifies the requirements that govern the electronic submission of
documents). Specifically, we are proposing to amend rule 405 of
Regulation S-T. The additional collection of information burden that
will result from the proposed amendments to rule 405 of Regulation
S-T and to Form N-2, to require structured data reporting for
affected funds, are included in our burden estimates for the
``Investment Company Interactive Data'' collection of information,
and do not impose any separate burden aside from that described in
our discussion of the burden estimates for this collection of
information.
\452\ We are also proposing amendments to Form 24F-2 to require
submission of this filing in a structured XML format. We discuss the
PRA burdens of this proposal and other proposed amendments to the
form below. See infra Part V.B.7.
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Require BDCs to submit financial statement information
using Inline XBRL format; \453\
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\453\ See supra Part II.H.1.a; see also proposed amendments to
rule 405 of Regulation of S-T.
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Require all affected funds to include structured cover
page information in their registration statements on Form N-2 using
Inline XBRL, including the tagging of the proposed new checkboxes to
the cover page of Form N-2; \454\ and
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\454\ See supra Part II.H.1.b; see also proposed General
Instruction H.2.a to Form N-2.
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Require all affected funds to tag certain Form N-2
disclosure items using Inline XBRL.\455\
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\455\ See supra Part II.H.1.c; see also proposed General
Instruction H.2.a-c to Form N-2. The proposed amendments would
require the following prospectus disclosure items be tagged 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.
A seasoned fund filing a short-form registration statement on
Form N-2 also would be required to tag any information that is
incorporated by reference from an Exchange Act report, such as those
on Forms N-CSR, 10-K, or 8-K, in response to a disclosure item of
the registration statement that is required to be tagged. See supra
footnote 186 and accompanying text.
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Operating companies filing registration statements under the
Securities Act or reports under the Exchange Act are required to submit
the information from the financial statements accompanying their
registration statements and reports in Inline XBRL format. BDCs are
currently excluded from these Inline XBRL requirements. The Commission
previously estimated that operating companies submitting financial
information in Inline XBRL format file, on average, 4.5 responses per
year that contain interactive data, and that each response required 54
burden hours of internal time to prepare and cost $6,175 for outside
services.\456\ The proposed amendments would subject BDCs to the same
Inline XBRL reporting requirements. Therefore, we assume that BDCs
would on average file the same number of filings containing financial
statement information in Inline XBRL and would experience similar
burden hours and costs as do operating companies.
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\456\ See Inline XBRL Adopting Release, supra footnote 166, at
40869. A recent survey suggests that these current burden estimates
may be overstated with respect to smaller reporting companies. See
American Institute of CPAs, XBRL Costs for Small Companies Have
Declined 45%, According to AICPA Study (Aug. 18, 2018), available at
https://www.aicpa.org/press/pressreleases/2018/xbrl-costs-have-declined-according-to-aicpa-study.html. Below, we request comment on
whether our current PRA estimates continue to be appropriate.
---------------------------------------------------------------------------
The proposed amendments to require affected funds to tag certain
Form N-2 prospectus disclosure items using Inline XBRL largely parallel
similar information required by Form N-1A risk/return summary that must
be tagged in Inline XBRL format. We have previously estimated that
mutual funds and ETFs file 1.36 responses per year containing mutual
fund risk/return data in Inline XBRL format, and that the risk/return
XBRL requirements require funds to expend 10.5 hours of internal time
per response and cost $900 to purchase software and/or acquire the
services of consultants or filing agents.\457\ Consequently, we assumed
that the hour and cost burdens of the proposed requirements to tag
certain Form N-2 disclosure items would be similar to the hour and cost
burdens of risk/return summary XBRL requirements.
---------------------------------------------------------------------------
\457\ Id.
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We have also made several adjustments to our burden estimates to
reflect certain aspects of the proposed amendments that are distinct
from the previous burden estimates of Inline XBRL requirements. We
increased our estimate of the initial burden hours and costs of the
proposed amendments to reflect one-time compliance costs. Because BDCs
and registered CEFs have not previously been subject to Inline XBRL
requirements, we assumed that these funds would experience additional
burdens related to one-time costs associated with becoming familiarized
with Inline XBRL reporting. These costs would include, for example, the
acquisition of new software or the services of consultants, and the
training of staff. We also assumed that these one-time costs would
decline in the second and third year of compliance with the proposed
amendments, under the premise that these funds should become more
efficient at preparing submissions using Inline XBRL format as the
process becomes more routine. We assumed that the one-time cost would
result in a 50% incremental increase in the internal burdens and
external costs of the financial information and risk/return summary
XBRL requirements during the first year,\458\ and would subsequently
decline in the second and third years by 75% from the immediately-
preceding year.\459\ Accordingly, we estimate the
[[Page 14504]]
burdens for the proposed amendment to require BDCs to submit financial
the information in Inline XBRL format would be 65.81 hours of internal
time \460\ and cost $7,525.78 for outside services,\461\ and we
estimate the burdens for the proposed amendments to require affected
funds to tag certain information that is required to be included in an
affected fund's prospectus using Inline XBRL format would be 12.8 hours
in internal time \462\ and cost $1,096.88 for outside services.\463\
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\458\ Thus, for the proposed financial information XBRL
requirement, we estimate that in the first year the one-time cost
would be an additional 27 hours (54 x 0.5) and $3,087.5 in external
costs ($6,175 x 0.5). For the proposed prospectus information XBRL
requirements, we estimate the initial increase in burdens would be
5.25 hours (10.5 x 0.5) and $450 in external costs ($900 x 0.5).
\459\ Thus, we estimate that for the second year the one-time
hour burden and cost of the proposed financial information XBRL
requirement would be 6.75 hours (27 hours-(27 x 0.75 = 20.25 hours))
and $771.87 ($3,087.5-($3,087.5 x 0.75 = $2,315.63)). For the third
year, we estimate that these hour burdens and costs would be 1.69
hours (6.75 hours-(6.75 x 0.75 = 5.06 hours)) and $192.97 ($771.87-
($771.87 x 0.75 = $578.90)). Average yearly change in the initial
one-time cost of the proposed financial information XBRL requirement
would be (27 + 6.75 +1.69)/3 = 11.81 hours of internal in-house
time, and ($3,087.5 + $771.87 + $192.97)/3 = $1,350.78 in external
costs.
For the second year, we estimate the one-time hour burden and
cost of the proposed prospectus information XBRL requirements would
be 1.31 hours (5.25 hours-(5.25 hours x 0.75 = approximately 3.94
hours)) and $112.50 ($450-($450 x 0.75 = $337.5)). For the third
year, we estimate that these hour burdens and costs would be 0.33
hours (1.31 hours-(1.31 hours x 0.75 = 0.98 hours)) and $28.12 in
external costs ($112.50-($112.50 x 0.75 = $84.38))). Average yearly
change in the initial one-time cost of proposed prospectus
information XBRL requirements would be (5.25 +1.31 +0.33)/3 = 2.3
hours of internal in-house time, and ($450 + $112.50 + $28.12)/3 =
$196.87 in external costs.
\460\ This estimate was calculated as follows: 54 + 11.81 =
65.81 hours.
\461\ This estimate was calculated as follows: $6,175 + 1,350.78
= $7,525.78.
\462\ This estimate was calculated as follows: 10.5 + 2.3 = 12.8
hours.
\463\ This estimate was calculated as follows: $900 + 196.87 =
$1,096.87.
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We assumed that affected funds would submit a similar number of
responses as the number of submitted responses that we currently
estimate that contain mutual fund risk/return data in Inline XBRL.
Currently, the mutual fund risk/return summary interactive data is
required to be submitted with the Form N-1A (or a post-effective
amendment thereto), a post-effective amendment under rule 485(b) of the
Securities Act, or any form of prospectus filed under rule 497(c) or
497(e) of the Securities Act. The Commission previously estimated that
each mutual fund or ETF would submit one response containing Inline
XBRL interactive data as an exhibit to a registration statement or a
post-effective amendment thereto, and that 36% of these funds would
submit an additional response containing Inline XBRL interactive data
as an exhibit to a filing pursuant to rule 485(b) or rule 497. Under
the proposed amendments, affected funds would be required to submit in
Inline XBRL the specified Form N-2 disclosure items with their initial
registration statement (or a post-effective amendment thereto), as well
as any form of prospectus filed pursuant to rule 424(b) that reflects a
substantive change to the specified Form N-2 disclosure items. In the
case of a seasoned fund that files a short-form registration statement
that incorporates by reference the specified Form N-2 disclosure items
from an Exchange Act report, the interactive data would be required to
be submitted with that Exchange Act report. We estimate that affected
funds would similarly submit one response containing the Inline XBRL
interactive data as an exhibit to a registration statement on Form N-2,
a post-effective amendment thereto, or to an Exchange Act report, and
that 36% of the affected funds would submit an additional response
containing Inline XBRL interactive data as an exhibit to a filing
pursuant to rule 424.
We do not believe the cover page tagging proposal would result in
significant additional burdens for affected funds. We have estimated
that requiring operating companies to tag the cover pages of Forms 10-
K, 10-Q, 8-K, 20-F, and 40-F using Inline XBRL would result in an
incremental increase in the collection burdens by one hour.\464\
Accordingly, we similarly estimate that the proposed amendment to
require affected funds to tag Form N-2 cover page items would impose an
increased paperwork burden of one hour.\465\
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\464\ See FAST Act Modernization Adopting Release, supra
footnote 177.
\465\ We do not expect that this requirement would increase the
cost for outside services because the cost of tagging the cover page
by affected funds would be subsumed in the cost the submission of
the Form N-2 disclosure items in Inline XBRL.
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Based on these assumptions, we estimate the proposed amendments to
require the submission of financial statement information in XBRL
format would result in an aggregate yearly burden of approximately
30,503 hours of in-house personnel time \466\ and $3,488,199 in the
cost of services of outside professionals.\467\ We estimate that for
all affected funds the proposed amendments to require the submission of
specified Form N-2 disclosure items in Inline XBRL would result in an
aggregate yearly burden of approximately 14,048 hours of in-house
personnel time \468\ and $885,174 in the cost of services of outside
professionals.\469\ We estimate that the proposed amendment to require
the tagging of Form N-2 cover page items would result in an aggregate
yearly burden of approximately 807 hours of in-house personnel
time.\470\
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\466\ For BDCs we calculated our internal hour estimate as
follows: 103 BDCs x 65.81 hours x 4.5 responses per year =
approximately 30,502.94 burden hours per year. For convenience, the
estimated burden has been rounded to the nearest whole number.
\467\ 103 BDCs subject to the requirements x 4.5 responses per
year x $7,525.78 = $3,488,199.03.
\468\ We calculated this estimate as follows: 807 affected funds
x 12.8 hours x 1.36 responses per year = 14,048.26 burden hours per
year. For convenience, the estimated burden has been rounded to the
nearest whole number.
\469\ 807 affected funds x $1,096.87 = $885,174.09.
\470\ 807 affected funds x 1 hour = 807 hours.
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3. Proposed New Annual Reporting Requirements Under Rule 30e-1 and
Exchange Act Periodic Reporting Requirements for BDCs
Several of the offering reforms that we are proposing, 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.\471\ In light of this, we are
proposing new disclosure requirements for affected funds' annual
reports. Specifically, we are proposing to amend:
---------------------------------------------------------------------------
\471\ See supra Part II.H.2.
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Form N-2 to require affected funds using the proposed
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; \472\
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\472\ See supra Part II.H.2.a; see also proposed Instruction
4.h(ii) to Item 24 of Form N-2 (fee and expense table); Proposed
Instruction 4.h(iii) to Item 24 of Form N-2 (share price data);
Proposed Instruction 4.h(i) to Item 24 of Form N-2 (senior
securities table). In connection with this proposal, we are also
proposing to eliminate the requirement that affected funds disclose
the average commission rate paid in their financial highlights
disclosure.
---------------------------------------------------------------------------
Form N-2 to require registered CEFs to provide MDFP in
their annual reports; \473\ and
---------------------------------------------------------------------------
\473\ See supra Part II.H.2.b; see also proposed Instruction 4.g
to Item 24 of Form N-2.
---------------------------------------------------------------------------
Form N-2 to require BDCs to include financial highlights
in their annual reports on Form 10-K; \474\ and
---------------------------------------------------------------------------
\474\ See supra Part II.H.2.c; see also proposed revisions to
Instruction 1 to Item 4 of Form N-2. As discussed above, BDCs also
would be required to include financial highlights in their
registration statements on Form N-2. See supra Part V.B.1.
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Rule 8b-16 to require registered CEFs to describe certain
changes in enough detail to allow investors to understand each change
and how it may affect the fund.\475\
---------------------------------------------------------------------------
\475\ See supra Part II.H.5; see also proposed rule 8b-16(e).
---------------------------------------------------------------------------
The collection of information burdens under the proposed amendments
correspond to information collections
[[Page 14505]]
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. We
currently estimate that it takes approximately 88 hours and costs
$31,061 per registered investment company to comply with the collection
of information associated with rule 30e-1.\476\ For Form 10-K, we
currently estimate that it takes each operating company approximately
1,747 hours and costs approximately $233,044 to comply with the
collection of information associated with Form 10-K.\477\
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\476\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
a PRA extension in 2016. The estimated aggregate annual hour and
cost burden of rule 30e-1 is approximately 1,043,592 hours and
$368,352,399.
\477\ These estimates are based on the last time the form's
information collections were approved, pursuant to a submission for
a PRA extension in 2018. The estimated aggregate annual hour and
cost burden of Form 10-K is approximately 14,217,344 hours and
$1,896,280,869.
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We estimate that the proposed amendments to require affected funds
filing a short-form registration statement to disclose fee and expense
table, share price data, a senior securities table, and unresolved
staff comments would incrementally increase the compliance burden on
these funds. However, because current disclosure requirements of Form
N-2 already require affected funds to disclose the fee and expense
table, share price data, and a senior securities table--and because
disclosure of unresolved staff comments would simply be a restatement
of comments provided to these funds by the staff--we believe these
disclosures should not impose significant new burdens. Accordingly, we
estimate that the proposed amendments would incrementally increase the
paperwork burden associated with rule 30e-1 and Form 10-K by 3 hours
per affected fund that would be eligible to use the short-form
registration statement.
Regarding the proposed amendments to require registered CEFs
disclose in their annual reports MDFP and any material changes in their
investment objectives or policies that have not been approved by
shareholders, we believe these additional disclosures would increase
the paperwork burden associated with rule 30e-1 for registered CEFs.
For example, MDFP requires, among other things, narrative disclosure
about the factors that materially affected a fund's performance during
its most recently completed fiscal year, as well as the impact on the
fund and its shareholders of policies and practices that the fund may
use to maintain a certain level of distributions. We estimate that the
proposed amendment to require MDFP would incrementally increase the
paperwork burden associated with rule 30e-1 by 16 hours and that the
proposed amendment to require disclosure of any material changes in
investment objectives or policies that were not approved by
shareholders would incrementally increase the paperwork burden
associated with rule 30e-1 by 4 hours.
Regarding the proposed amendments to require BDCs to disclose
financial highlights information in their registration statements and
annual reports, we estimate that this proposed amendment would
incrementally increase in the paperwork burden associated with Form 10-
K. As we noted above in our PRA analysis of this proposed amendment on
Form N-2, BDCs currently provide this information. Accordingly, we
estimate the proposed amendment would incrementally increase the
paperwork burden associated with Form 10-K by 1.5 hours.
For purposes of the PRA, we estimate the proposed amendments would
result in 284 hours of additional total incremental burden under Form
10-K \478\ and 15,451 hours of total incremental burden under rule 30e-
1.\479\
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\478\ For BDCs we calculated the total incremental burden as
follows: (43 BDCs eligible to use the short-form registration
statement x 3 hours = 129 hours) + (103 BDCs x 1.5 hours = 154.5
hours) = 283.5 burden hours. For convenience, the estimated burden
has been rounded to the nearest whole number.
\479\ For registered CEFs we calculated the total incremental
burden as follows: (457 registered CEFs eligible to use the short-
form registration statement x 3 hours = 1,371 hours) + (704
registered CEFs required to disclose MDFP and material changes in
investment policies x 20 hours = 14,080 hours) = 15,451 burden
hours.
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In connection with our estimate of the total incremental burden of
the proposed amendments, we have allocated a portion of those burdens
as costs. Based on consultations with operating companies, law firms,
fund representatives and other persons who regularly assist funds in
preparing and filing reports with the Commission, the staff estimates
that 75% of the burden of preparing annual reports under rule 30e-1 and
on Form 10-K is undertaken by the fund internally and that 25% of the
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\ Accordingly, we estimate for purposes of the PRA
that the total incremental burden for Form 10-K under the proposed
amendments would be 213 hours for internal time (284 total incremental
burden hours x 0.75) and $28,400 (284 total incremental burden hours x
0.25 x $400) for the services of outside professionals. We further
estimate for purposes of the PRA that the total incremental burden for
rule 30e-1 would be 11,588 hours for internal time (15,451 total
incremental burden hours x 0.75) and $1,545,100 (15,451 total
incremental burden hours x 0.25 x $400) for the services of outside
professionals.
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\480\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This estimate is
based on discussions the staff has had with several law and
accounting firms to estimate an hourly rate of $400 as the cost to
operating companies and funds for the services of outside
professionals retained to assist in the preparation of these
filings.
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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 are proposing amendments to rules 163 and 433
that would permit affected funds to rely on these rules to use a free
writing prospectus.
We calculated our burden estimate for the proposed amendments to
rule 163 based on several assumptions. First, we assumed that the
burden of filing a free writing prospectus by an affected fund would be
the same 0.25 burden hours for filing the document as we estimate
operating companies incur.\481\ Second, we assumed that only a limited
number of affected funds that would qualify as a WKSI would rely on
rule 163 to use
[[Page 14506]]
free writing prospectuses.\482\ In connection with our estimate of the
burden hours of the proposed amendment to rule 163, we have allocated a
portion of those burdens as costs. We estimate that 25% of the burden
of preparing and filing a free writing prospectus pursuant to rule 163
is undertaken by the issuer internally and that 75% of the burden is
undertaken by outside professionals retained by the issuer at an
average cost of $400 per hour.\483\ Accordingly, we estimate that for
purposes of the PRA the total incremental burden for the proposed
amendments to rule 163 would be approximately 0.125 hours \484\ and
$150 for the services of outside professionals.\485\
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\481\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
a PRA extension in 2017.
\482\ 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 104 affected funds would
be eligible to be WKSIs. If current practices regarding the use of
free writing prospectus 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 proposed amendments to rule 163 each year.
\483\ The staff estimates an hourly cost of $400 per hour for
the service of outside professionals based on consultations with
several issuers and law firms and other persons who regularly assist
issuers in preparing and filing documents with the Commission.
\484\ We calculated this estimate as follows: (2 free writing
prospectuses filed per year x 0.25 hours per response) x 0.25
allocation of time = 0.125 hours.
\485\ We calculated this estimate as follows: (2 free writing
prospectuses filed per year x 0.25 hours per response) x 0.75
allocation of time x $400 = $150. This estimate includes the cost of
outside counsel, filing agents and the services of other
professionals retained to assist in the preparation and filing of
the document.
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With respect to the burdens of the proposed amendments to rule 433,
we assumed that the burden of filing a free writing prospectus by an
affected fund would be the same 1.28 burden hours for filing the
document as we estimate operating companies incur.\486\ Second, we
assumed that an affected fund would, on average, file a similar number
of free writing prospectuses under rule 433 per year that an operating
company files on average annually.\487\ For purposes of the PRA, we
estimate that affected funds would annually file approximately 4,360
free writing prospectuses under rule 433.\488\ However, the extent to
which affected funds would adopt the use of free writing prospectuses
under the proposed amendments to rule 433 is uncertain. Affected funds'
current communications under rule 482 of the Securities Act may be
similar to free writing prospectuses that could be used in reliance on
the proposed amendments to rule 433, and funds could continue to rely
on rule 482 to engage in post-filing communications if the Commission
were to adopt the proposed amendments to rule 433.\489\
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\486\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
a PRA extension in 2017. The burden hours for preparing and filing a
rule 433 free writing prospectus are greater than the burdens under
rule 163 because certain conditions to the use of a free writing
prospectus under rule 433 require the free writing prospectus to
contain more information than rule 163 requires.
\487\ 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.
\488\ We calculated this estimate as follows: 5.4 free writing
prospectuses x 807 affected funds = 4,360 free writing prospectuses
(rounded to the nearest whole number).
\489\ We note there that certain communications that are
currently treated as affected funds' rule 482 advertisements could
fall under the rule 138 safe harbor for research reports, as
proposed, or the free writing prospectus rules, rules 164 and 433,
as proposed. See supra Parts IV.B.2 and IV.C.1. This could result in
a reduction in the information collection burdens for rule 482 if
fewer materials are filed. In connection with the extension of a
currently approved collection for rule 482, the Commission will
adjust the burdens associated with these collections of information
to reflect these changes, as appropriate. At this time, we are
requesting comments regarding the overall burden estimates for the
proposed rules.
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Similar to our calculation of the burden estimates for rule 163, we
have also allocated a portion of our burden estimates for rule 433
burdens as costs. We estimate that 25% of the burden of preparing and
filing a free writing prospectus pursuant to rule 433 is undertaken by
the issuer internally and that 75% of the burden is undertaken by
outside professionals retained by the issuer at an average cost of $400
per hour. For purposes of the PRA, we estimate that the annual
paperwork burden for affected funds under the proposed amendments to
rule 433 would be approximately 1,395 hours \490\ of internal personnel
time and a cost of approximately $1,674,240 for the services of outside
professionals.\491\
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\490\ We calculated this estimate as follows: (4,360 free
writing prospectuses filed per year x 1.28 hours per response) x
0.25 allocation of time = 1,395 hours (rounded to the nearest whole
number).
\491\ We calculated this estimate as follows: (4,360 free
writing prospectuses filed per year x 1.28 hours per response) x
0.75 allocation of time x $400 = $1,674,240 (rounded to the nearest
whole number). This estimate includes the cost of outside counsel,
filing agents and the services of other professionals retained to
assist in the preparation and filing of the document.
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5. Prospectus Delivery Requirements
Rule 173 requires an issuer to, if applicable, provide 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.\492\ We are proposing to amend this rule to make it applicable to
affected funds.\493\
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\492\ 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. Rule 173 requires a notice
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.
\493\ See supra Part II.D.
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For purposes of the PRA, we estimate that the annual incremental
paperwork burden for affected funds under the proposed amendments to
rule 173 would be 586,865 burden hours.\494\ In deriving our estimate,
we assumed that: (1) There would be 807 affected funds that would
become subject to rule 173 under the proposed amendments; \495\ (2)
each of these affected funds would incur the same 0.0167 average burden
hours per response as we estimate operating companies subject to rule
173 do; and (3) each of these affected funds would provide, on average,
43,546 responses per year, as we estimate operating companies subject
to rule 173 do.\496\
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\494\ 807 affected funds subject to rule 173 x 43,546 responses
per affected fund x 0.0167 burden hours per response = approximately
586,865 burden hours per year. For convenience, the estimated burden
has been rounded to the nearest whole number.
\495\ See supra Part IV.A.1.
\496\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
a PRA extension in 2016.
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6. Proposed Form 8-K Reporting Requirements
We are proposing amendments to require registered CEFs to report
information on Form 8-K.\497\ We are also proposing to amend Form 8-K
to add two new reporting items for affected funds, and to revise
several existing reporting instructions to the form to tailor these
requirements to affected funds.\498\ Under the proposed new reporting
items, an affected fund would be required to file a report on Form 8-K
if the fund has: (1) A material change to its investment objectives or
policies; or (2) a material write-down in fair value of a significant
investment.
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\497\ See supra Part II.H.3.
\498\ Id.
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First, we estimated the average number of Form 8-K filings an
affected fund would make annually. Based on an analysis of Form 8-K
filings over a three-year period from June 1, 2015 to May 31, 2018, the
staff estimates that
[[Page 14507]]
BDCs file an average of 10 Form 8-Ks annually.\499\ We assumed that
registered CEFs would make, on average, the same number of Form 8-K
filings per year. Further, we estimate that the proposed new Form 8-K
reporting items for affected funds would, on average, result in
affected funds filing one more report on Form 8-K per year.
Accordingly, we estimate that registered CEFs would make, on average,
11 Form 8-K filings per year under the proposed amendments,\500\ and
BDCs would make, on average, 1 additional Form 8-K filing per year
under the proposed amendments. Thus, we estimate an additional 7,744
filings by registered CEFs and an additional 103 filings by BDCs per
year on Form 8-K under the proposed amendments, for an aggregate of
7,847 additional filings on Form 8-K.\501\
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\499\ See supra footnote 415.
\500\ While registered CEFs are currently required to use Form
8-K to file notice of a blackout period under rule 104 of Regulation
BTR, it is very rare for registered CEFs to trigger this existing
reporting requirement. It is similarly rare for BDCs to file notice
of a blackout period on Form 8-K. See supra footnote 247. Thus, we
have allocated all of the estimated 11 annual Form 8-K filings by
registered CEFs to the proposed amendments rather than existing
regulatory requirements.
\501\ 11 additional filings by a registered CEF x 704 registered
CEFs = 7,744 filings by registered CEFs. 1 additional filing by a
BDC x 103 BDCs = 103 filings by BDCs. 7,744 filings by registered
CEFs + 103 filings by BDCs = 7,847 filings total. Our estimate of
costs and paperwork burdens that registered CEFs could incur may be
over-estimates. See supra footnote 341.
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Second, we assumed that, on average, completing and filing a Form
8-K that would be required under the new disclosure items would require
the same amount of time completing and filing a Form 8-K under many of
the current disclosure items required by the form--approximately 5
hours.\502\ However, because registered CEFs are not currently required
to file Form 8-K reports, we adjusted the estimated average amount of
time it would take a registered CEF to prepare and file a Form 8-K. We
assumed that the first-year burden for registered CEFs would be greater
than that for subsequent years, as a portion of the burdens will
reflect one-time expenditures associated with complying with the new
reporting requirements, such as implementing new processes for the
preparation and collection of information, and training staff. We
adjusted the second- and third-year estimates to account for the fact
that the preparation and collection process should become more
routine.\503\
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\502\ This estimate is based on prior approved revisions to the
Form 8-K collection requirement in connection with final Commission
rules that adopted similar Form 8-K requirements.
\503\ We increased the first-year estimate by an additional
three hours to reflect these one-time expenditures. We assumed the
estimated burden increase in the second and third years would
decline by 75% from the immediately-preceding year, with an
estimated burden increase of 0.75 hours in the second year (3 hours-
(3 hours x 0.75)) and an estimated burden increase of 0.1875 hours
in the third year (0.75 hours-(0.75 hours x 0.75)). As a result, we
estimate a first-year burden of 8 hours, a second-year burden of
5.75 hours, and a third-year burden of 5.1875 hours.
---------------------------------------------------------------------------
Under these assumptions, we estimate that the average amount of
time it would take a registered CEF to prepare and file a Form 8-K
would be 6.3125 hours per filing.\504\
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\504\ For registered CEFs we calculated this estimate as
follows: (8 hours + 5.75 hours + 5.1875 hours)/3 = 6.3125 burden
hours per filing.
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For purposes of the PRA, we estimate the total annual incremental
burden of our proposed amendments to Form 8-K is 48,884 hours for
registered CEFs \505\ and 515 burden hours for BDCs,\506\ for a total
of 49,399 burden hours.\507\ For Form 8-K, we estimate that 75% of the
burden of preparation is carried by the company internally and that 25%
of the burden of preparation is carried by outside professionals, such
as outside counsel, independent auditors and filing agents retained by
the fund at an average cost of $400 per hour. Thus, the annual
incremental paperwork burden for registered CEFs to prepare and file
Form 8-K under the proposed amendments would be approximately 36,663
burden hours of internal time and a cost of approximately $4,888,400
for the services of outside professionals.\508\ We estimate that the
incremental paperwork burden for BDCs would be 386.25 hours of internal
time and a cost of approximately $51,500 for the services of outside
professionals.\509\ In total, we estimate that the incremental
paperwork burden for all affected funds to prepare and file Form 8-K
under the proposed amendments would be approximately 37,049.25 burden
hours of internal time \510\ and a cost of approximately $4,939,900 for
the services of outside professionals.\511\
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\505\ 7,744 filings by registered CEFs x 6.3125 burden hours =
48,884 total burden hours for registered CEFs.
\506\ 103 filings by BDCs x 5 burden hours = 515 total burden
hours for BDCs.
\507\ 48,884 total burden hours for registered CEFs + 515 total
burden hours for BDCs = 49,399 total burden hours for affected
funds.
\508\ 48,884 total burden hours for registered CEFs x 0.75 =
36,663 burden hours of internal time. 48,884 total burden hours for
registered CEFs x 0.25 x $400 = $4,888,400 for services of outside
professionals.
\509\ 515 total burden hours for BDCs x 0.75 = 386.25 burden
hours of internal time. 515 total burden hours for BDCs x 0.25 x
$400 = $51,500 for services of outside professionals.
\510\ 36,663 burden hours of internal time for registered CEFs +
386.25 burden hours of internal time for BDCs = 37,049.25 burden
hours of internal time for affected funds.
\511\ $4,888,400 for services of outside professionals for
registered CEFs + $51,500 for services of outside professionals for
BDCs = $4,939,900 for services of outside professionals for affected
funds.
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7. 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. We are proposing to amend rules 23c-3 and 24f-2 so that interval
funds would pay registration fees on the same annual basis using Form
24F-2. We are also proposing to require funds to submit reports on Form
24F-2 in a structured data format.
The Commission has previously estimated that approximately 6,120
funds file Form 24F-2 annually.\512\ The current estimated annual
internal hour burden per fund of filing Form 24F-2 is two hours of
clerical time, with an estimated total annual burden for all
respondents of 12,240 hours. At an estimated wage rate of $67 per hour,
the annual cost per respondent of this burden is estimated at $134, and
the total annual cost for all respondents is $820,080. We estimate that
an additional 57 funds would file Form 24F-2 annually under the
proposed amendments.\513\ In addition, we estimate that the requirement
to submit filings of Form 24F-2 in a structured data format would
increase the annual internal hour burden by two hours per respondent.
At an estimated wage rate of $261 per programmer hour, we estimate that
the annual cost per respondent of this additional burden is about $522
per year.\514\ Accordingly, we estimate that the annual internal hour
burden to file Form 24F-2 under the proposed amendments would be about
[[Page 14508]]
24,708 hours,\515\ at a corresponding internal cost of about $4.1
million.\516\
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\512\ This estimate is was previously submitted to OMB in
connection with the renewal of approval for the collection of
information required by Form 24F-2 in 2018.
\513\ See supra Part IV.A.1 (estimating that there were 57
interval funds as of September 30, 2018).
\514\ 2 hours additional burden per fund per year x $261 per
hour = $522 per fund per year.
\515\ (2 hours current burden per fund per year + 2 hours for
structured data format per fund per year) x (6,120 current funds +
57 interval funds) = 4 burden hours per fund per year x 6,177 funds
= 24,708 hours per year.
\516\ ((2 hours current burden per fund per year x $67 per hour)
+ (2 hours for structured data format per fund per year x $261 per
hour)) x 6,177 funds = ($134 per fund per year + $522 per fund per
year) x 6,177 funds = $656 per fund per year x 6,177 funds =
$4,052,112 per year.
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C. Request for Comments
We request comment on whether our estimates for burden hours and
any external costs as described above are reasonable. Consistent with
44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to:
(1) Evaluate whether the proposed collections of information are
necessary for the proper performance of the functions of the
Commission, including whether the information will have practical
utility; (2) evaluate the accuracy of the Commission's estimate of the
burden of the proposed collections of information; (3) determine
whether there are ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) determine whether there are
ways to minimize the burden of the collections of information on those
who are to respond, including through the use of automated collection
techniques or other forms of information technology.
In addition to these general requests for comment, we also request
comment specifically on the following issues:
Our analysis relies upon certain assumptions, as discussed
above. Do commenters agree with these assumptions, including
assumptions about burdens in the initial year of compliance compared to
subsequent years (for example, the estimated burden for a registered
CEF to prepare and file Form 8-K in the initial and subsequent years of
compliance under the proposed rules)?
Are the current burden estimates associated with the
requirement to submit financial statements and notes in an XBRL still
accurate? Have the burdens of preparing this information changed over
time, particularly for smaller reporting companies?
The agency has submitted the proposed collection of information to
OMB for approval. Persons wishing to submit comments on the collection
of information requirements of the proposed amendments should direct
them to the Office of Management and Budget, Attention Desk Officer for
the Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Washington, DC 20503, and should send a copy to
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-03-19. OMB is
required to make a decision concerning the collections of information
between 30 and 60 days after publication of this release. Requests for
materials submitted to OMB by the Commission with regard to these
collections of information should be in writing, refer to File No. S7-
03-19, and be submitted to the Securities and Exchange Commission,
Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.
VI. Initial Regulatory Flexibility Act Analysis
This Initial Regulatory Flexibility Analysis (``IRFA'') has been
prepared in accordance with section 3 of the Regulatory Flexibility Act
(``RFA'').\517\ It relates to proposed modifications to the
registration, communications, and offering processes for affected funds
under the Securities Act that would allow affected funds to use the
securities offering rules that are already available to operating
companies.
---------------------------------------------------------------------------
\517\ 5 U.S.C. 603.
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A. Reasons for and Objectives of the Proposed Actions
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.\518\ Pursuant to both Acts, we are proposing rule and form
amendments that would 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 proposing discretionary rule amendments to tailor the
disclosure and regulatory framework for affected funds, in light of the
proposed amendments to the offering rules applicable to them. The
reasons for, and objectives of, the proposed rules are further
discussed in more detail in Part II above.
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\518\ As discussed above, we propose to apply the proposed rules
to all registered CEFs (and BDCs), which certain conditions and
exceptions.
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B. Legal Basis
The Commission is proposing the rules and forms contained in this
document under the authority set forth in the Securities Act,
particularly Sections 6, 7, 8, 10, 19, 27A, and 28 thereof [15 U.S.C.
77a et seq.]; the Exchange Act, particularly Sections 2, 3(b), 9(a),
10, 12, 13, 14, 15, 17(a), 21E, 23(a), 35A, and 36 thereof [15 U.S.C.
78a et seq.]; the Investment Company Act, particularly Sections 6(c),
8, 20(a), 23, 24, 29, 30, 31, 37, and 38 thereof [15 U.S.C. 80a et
seq.]; the BDC Act, particularly Section 803(b) thereof [Pub. L. No.
115-141, title VIII]; and the Registered CEF Act, particularly Section
509(a) thereof [Pub. L. No. 115-174].
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.\519\ Commission staff estimates that, as of June
2018, 19 BDCs and 32 registered CEFs are small entities.\520\
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\519\ 17 CFR 270.0-10(a).
\520\ These estimates, reflecting the net assets of registered
CEFs and of BDCs, are based on staff review of Forms N-CEN and N-Q
filed with the Commission as of June 2018 and are based on the
definition of small entity under rule 0-10 of the Investment Company
Act [17 CFR 270.0-10]. Such funds would not necessarily be able to
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) or to be a WKSI (i.e.,
generally those affected funds with a public float of $700 million).
See supra Part II.B.2.a and II.C.
Based on data from Morningstar Direct as of June 2018, of the 19
BDCs that are small entities, 3 were traded on an exchange with
market capitalization below the $75 million public float threshold
for qualifying to file a short-form registration statement on Form
N-2. Likewise, of the 32 registered CEFs that qualified as small
entities, 3 traded on an exchange with market capitalizations below
this same $75 million threshold; while 2 were traded on the over-
the-counter (OTC) market with market capitalizations below $75
million.
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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 Sec. 240.17a-5(d),\521\ and it is not
affiliated with any person (other than a natural person) that is not a
small business or
[[Page 14509]]
small organization.\522\ Commission staff estimates that, as of
December 31, 2018, there are approximately 996 broker-dealers that may
be considered small entities.\523\ To the extent a small broker-dealer
participates in a securities offering or prepares research reports, it
may be affected by our proposals. Generally, we believe larger broker-
dealers engage in these activities, but we request comment on whether
and how these proposals would affect small broker-dealers.\524\ We also
request comment on the number of small entities that would be affected
by our proposal, including any available empirical data.
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\521\ See rule 0-10(c)(1) under the Exchange Act [17 CFR 240.0-
10(c)(1)]. Alternatively, if a broker-dealer is ``not required to
file such statements, a broker or dealer that had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the
last business day of the preceding fiscal year (or in the time that
it has been in business, if shorter).'' See id.
\522\ See rule 0-10(c)(2) under the Exchange Act [17 CFR 240.0-
10(c)(2)].
\523\ This estimate is derived from an analysis of data for the
period ending Dec. 31, 2018 obtained from Financial and Operational
Combined Uniform Single (FOCUS) Reports that broker-dealers
generally are required to file with the Commission and/or SROs
pursuant to rule 17a-5 under the Exchange Act [17 CFR 240.17a-5].
\524\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44797. See also CIFRR Adopting Release, supra
footnote 98, at 64219.
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D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The proposed amendments would create, amend, or eliminate current
requirements for affected funds and broker-dealers, including those
that are small entities discussed in Part VI.C above.\525\
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\525\ See also supra Part V (discussing the skills necessary to
perform the recordkeeping, reporting, and compliance requirements of
the proposed rules and form amendments, including those to be
performed internally by a fund, and those to be performed externally
by professionals). The PRA provides for the hours, costs, and skill
level associated with preparing disclosures, filing forms, and
retaining records in compliance with our proposed rules. These
skills would apply for compliance with the proposed rules by all
funds, large and small, and Commission staff further estimates that
small funds will incur approximately the same initial and ongoing
costs as large funds.
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1. Registration Process and Final Prospectus Delivery
The proposed amendments to the registration process for affected
funds would create a short-form registration statement on Form N-2 that
will function like a registration statement filed on Form S-3.\526\ An
affected fund eligible to file this short-form registration statement
could use it to register shelf offerings, including shelf registration
statements (filed by a WKSI) that become effective automatically.\527\
Such a fund also could satisfy Form N-2's disclosure requirement by
incorporating by reference information from the fund's Exchange Act
reports.\528\
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\526\ See supra Part II.B.2.a.
\527\ Id.
\528\ Id.
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In addition, we are proposing amendments to allow certain affected
funds eligible to register a primary offering under the proposed 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.\529\
Affected funds that choose to forward incorporate information by
reference into their registration statements, as proposed, would 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.\530\ A fund would be able to include
this additional information if the fund includes a statement in the
report identifying information that it has included for this
purpose.\531\
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\529\ See supra Part II.B.2.b.
\530\ See supra Part II.B.2.c.
\531\ Id.
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The proposed amendments to the WKSI definition in rule 405 would
also permit affected funds to qualify for enhanced offering and
communication benefits under our rules.\532\ 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.\533\ Qualifying as a WKSI would
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.\534\
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\532\ See supra Part II.C.
\533\ Id.
\534\ Id.
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Smaller affected funds would not be able to avail themselves of the
aspects of the proposed rule amendments streamlining the registration
process for affected funds or that make available the WKSI designation
to affected funds. The proposed 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.\535\
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.\536\ Likewise, the WKSI
provision of rule 405 contains a public float requirement of $700
million, as discussed above. Smaller funds would not generally meet the
public float thresholds to file a short-form registration statement or
qualify as a WKSI and therefore would not generally be subject to
either of these proposals.\537\ However, smaller affected funds may be
affected by these proposed amendments in other ways. For example,
smaller affected funds may be more likely to merge to obtain WKSI
status, and could experience competitive disadvantages over larger
funds that qualify as WKSIs or that file short-form registration
statements on Form N-2.\538\
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\535\ See supra footnote 33 and accompanying and preceding text.
\536\ See supra Parts II.B.2.a and IV.B.1; supra paragraph
accompanying footnote 33
\537\ See supra Part IV.B.1; see also supra footnote and
accompanying text.
\538\ See supra Part IV.B.1.
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We are also proposing to apply the delivery method for operating
company final prospectuses to affected funds. As a result, an affected
fund would be allowed to satisfy its final prospectus delivery
obligations by filing its final prospectus with the Commission.\539\
These proposed requirements would apply to all affected funds, both
large and small.\540\
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\539\ See supra Part II.D.
\540\ Affected funds using the new approach to prospectus
delivery would be required to provide 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
under the Securities Act. See supra footnote 109 and accompanying
text.
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2. Communication Rules
For smaller affected funds, we are not proposing any new
restrictions on communications. As discussed above, the proposed
amendments to Securities Act rules 134, 138, 139, 156, 163, 163A, 164,
168, 169, and 433 make available the use of certain types of
communications that were previously not available with respect to
affected funds.\541\ Except as otherwise discussed below, we believe
that there are no significant reporting, recordkeeping, or other
compliance requirements associated with the proposed amendments. As
such, except as otherwise discussed below, we believe that there are no
attendant costs and administrative burdens for small
[[Page 14510]]
affected funds associated with these proposed amendments.
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\541\ See supra Parts II.E, IV.B.2, IV.C.1, and V.B.4. The
proposed amendments to Securities Act rules 163 and 433 [17 CFR
230.163 and 230.433], regarding the use of a free writing
prospectus, would create new recordkeeping, filing, and compliance
requirements that are addressed further below.
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In addition, the communication rules themselves do not create any
new restrictions for small affected funds. Instead, small affected
funds now may be able to take advantage of new communications options
not previously afforded to them.\542\ We also note that rule 163, and
the proposed amendments thereto, apply only to WKSIs. Consequently, the
proposed amendments to rule 163 would not produce any benefit, or
create any burden, for small affected funds because they would likely
never qualify as WKSIs, as discussed above.\543\
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\542\ See supra Parts II.E, IV.B.2, IV.C.1, and V.B.4. These
include, for example, proposed amendments to rule 163A of the
Securities Act, which provides a bright-line rule permitting
communications more than 30 days before filing a registration
statement, and proposed amendments to rule 169 of the Securities
Act, which provides affected funds the ability to engage in regular
factual business communications.
\543\ See supra Part VI.D.1.
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To the extent that an affected fund uses a free writing prospectus
under the proposed rules, any affected fund--large or small--would
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.\544\ However, we believe that the
burden here would be negligible. Affected funds currently use rule 482
of the Securities Act to engage in communications similar to those that
would be permitted under the proposed 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'').\545\ The burden associated with the filing
requirements that the proposed amendments to rule 433 would entail
therefore would not be meaningfully different than the burden
associated with the filing requirement for rule 482 communications.
Rule 433, as proposed, would also create a recordkeeping requirement.
We do not believe that this requirement would create any significant
burden given that records of rule 482 communications must also be
retained for a period that would generally exceed that required under
rule 433.\546\ In addition, the recordkeeping requirement would apply
only to affected funds (both large and small) that elect to use rule
433, as proposed to be amended.
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\544\ See proposed rule 433(d) and (g) [17 CFR 230.433(d) and
(g)] (Paragraph (d) of the rule provides for the various conditions
and exclusions applicable to the general requirement of 433(d)(1)
that an issuer or offering participant file its free writing
prospectus. Paragraph (g) requires that if a free writing prospectus
is not filed pursuant to paragraph (d) or (f) of rule 433, issuers
and offering participants must retain all free writing prospectuses
that have been used, for three years following the initial bona fide
offering of the securities in question).
\545\ See rule 482 Note To Paragraph (H) [17 CFR 230.482(h)]
(Rule 482 requires that advertisements used in reliance on rule 482
are required to be filed in accordance with the requirements of rule
497, unless they are filed with FINRA). See supra footnote 544 and
Parts IV.C and V.B.4.; see also rule 497(a) and (i) [17 CFR
230.497(a) and (i)].
\546\ See rule 31a-2(a)(3) of the Investment Company Act [17 CFR
270.31a-2(a)(3)] (requiring every registered investment company to
preserve for no less than six years from the end of the fiscal year
last used, any advertisement, pamphlet, circular form letter, or
other sales literature addressed to or intended for distribution to
prospective investors). Securities Act rule 433(g) requires an
issuer and offering participants to retain all free writing
prospectuses that have been used, and that have not been filed
pursuant to paragraphs (d) or (f) of the rule, for three years
following the initial bona fide offering of the securities in
question. However, for a broker or dealer utilizing a free writing
prospectus, rule 433 defers to the recordkeeping requirements under
rule 17a-4 of the Exchange Act [17 CFR 240.17a-4] (requiring sales
literature to be retained for not less than three years).
---------------------------------------------------------------------------
The proposal also would affect broker-dealers participating in a
registered offering. Specifically, the proposed rules would 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 proposed amendments to rule 138 would affect both large and
small broker-dealers. These proposed amendments would 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 deemed to constitute an offer that otherwise
could be a non-conforming prospectus in violation of section 5 of the
Securities Act.\547\ Broker-dealers that once used rule 482 ads styled
as research reports, and that instead would rely on rule 138 as
proposed to be amended to publish or distribute similar communications,
would no longer be subject to any filing requirement for these
communications. Consequently, we expect that the proposed amendments to
rule 138 could result in fewer rule 482 communications being filed with
FINRA.\548\ This in turn could reduce filing-related administrative
costs for broker-dealers publishing or distributing research reports on
affected funds under the proposed amendments to rule 138. However,
large and small broker-dealers would not be affected differently by the
proposed amendments to rule 138.
---------------------------------------------------------------------------
\547\ See proposed rule 138.
\548\ See supra footnote 545 and FINRA rule 2210(c)(7)(F)
(requiring a broker-dealer to file with FINRA an investment company
prospectus published pursuant to Securities Act rule 482).
---------------------------------------------------------------------------
In addition, the proposed free writing prospectus rule amendments
would permit broker-dealers to engage in these communications on behalf
of the affected fund issuer.\549\ This would 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.\550\
However, certain of these broker-dealers are already required to file
communications made under rule 482.\551\ Broker-dealers that once used
rule 482 ads and instead will rely on proposed amended rule 433 to
publish or distribute similar communications, would no longer be
required to file these communications with FINRA. Consequently, the
proposed 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.\552\ However, those broker-dealers that have not previously
used rule 482 to publish or distribute the types of communications that
the proposed amendments to rule 433 would permit would newly be subject
to both the filing and recordkeeping requirements of rule 433.
---------------------------------------------------------------------------
\549\ See proposed rule 433(b) (Paragraph (b)(1) states that for
WKSIs and seasoned issuers, both an issuer or offering participant
may use a free writing prospectus, while paragraph (b)(2) states
that for non-reporting and unseasoned issuers, any person
participating in the offer or sale of the issuer's securities may
use a free writing prospectus. Although the term ``offering
participant'' is not defined, paragraph (h)(3) of rule 433 gives
some context to this term.).
\550\ See supra footnote 544.
\551\ See supra footnote 545.
\552\ See Part IV.C.1 and V.B.4 (noting that we are unable to
predict whether affected funds would engage in more communications
with investors as a result of the proposed rules). To the extent
affected funds or broker-dealers would use a free writing prospectus
for communications that currently occur under rule 482, we would
expect an increase in such filings of free writing prospectuses as
well as an increase in the number of rule 138 research reports, as
amended, and a decrease in the number of 482 ads filed with FINRA.
See supra footnote 489.
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3. New Registration Fee Payment Method for Interval Funds
As discussed above, we are proposing a modernized approach to
registration fee payment that would require interval funds to pay
securities registration fees using the same method that mutual funds
and ETFs use today.\553\
---------------------------------------------------------------------------
\553\ See supra Part II.G.
---------------------------------------------------------------------------
Interval funds, like other affected funds, are not currently
permitted to
[[Page 14511]]
pay registration fees on this same annual ``net'' basis, and must pay
the registration fee at the time of filing the registration
statement.\554\ However, we believe that interval funds would 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.\555\ We believe this proposal would
benefit small interval funds and larger interval funds equally, as the
proposal would make the registration fee payment process for all
interval funds more efficient as discussed above.\556\
---------------------------------------------------------------------------
\554\ Id.
\555\ Id.
\556\ Id.; see also Part IV.E.1.
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4. Disclosure and Reporting Requirements
We are also proposing amendments to our rules and forms intended to
tailor the disclosure and regulatory framework for affected funds in
light of our proposed amendments to the offering rules applicable to
them.\557\ These proposed amendments include: Structured data
requirements; new periodic and current reporting requirements;
amendments to provide affected funds additional flexibility to
incorporate information by reference; and proposed enhancements to the
disclosures that registered CEFs make to investors when the funds are
not updating their registration statements.\558\
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\557\ See supra Part II.H. Some of the proposed amendments
reflect our consideration of the availability of information to
investors, as required by the Registered CEF Act. Section 509(a) of
the Registered CEF Act.
\558\ See supra Parts II.H.1--II.H.5.
---------------------------------------------------------------------------
Structured Data Requirements
We are proposing to 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;
and to require that certain information required in an affected fund's
prospectus be tagged using Inline XBRL format; \559\ and to require
that filings on Form 24F-2 be submitted in XML format.\560\ Large and
small affected funds would both incur the burdens associated with these
proposed structured data requirements. Furthermore, as noted above, we
recognize that some registrants affected by the proposed requirement,
particularly filers with no Inline XBRL experience, likely would 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.\561\ However, we believe that smaller affected funds in
particular may benefit more from enhanced exposure to investors that
could result from these proposed requirements.\562\ If 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 third-party information providers and data aggregators.
---------------------------------------------------------------------------
\559\ See supra footnote 455 (noting that a seasoned fund filing
a short-form registration statement on Form N-2 also would be
required to tag information appearing in Exchange Act reports, such
as those on Forms N-CSR, 10-K, or 8-K, if that information is
required to be tagged in the fund's prospectus).
\560\ See supra Parts II.H.1 and IV.E.1.
\561\ See supra Part IV.E.2. But see supra footnote 398 (noting
that since 2014, costs incurred utilizing XBRL have significantly
reduced for smaller companies).
\562\ Id.
---------------------------------------------------------------------------
Periodic Reporting Requirements
We are also proposing to require 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.\563\ These proposed requirements
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.
---------------------------------------------------------------------------
\563\ See supra Parts II.H.2.b, II.H.2.c, and II.H.2.d.
---------------------------------------------------------------------------
The proposed amendments to require 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 would
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 proposed MDFP requirement. We believe
that this proposed requirement would benefit 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.\564\ This investor protection benefit
would be equally significant to investors in smaller affected funds as
well as larger affected funds.\565\
---------------------------------------------------------------------------
\564\ See supra Part IV.E.3.
\565\ See supra Part II.H.2.b and II.H.2.c; see also supra Part
V.B.3 (discussing the burden hours associated with complying with
the proposed disclosure requirements for both small and large
affected funds).
---------------------------------------------------------------------------
We similarly believe that the informational benefit of BDCs'
proposed inclusion of the financial highlights in their registration
statements should apply equally to investors in large and small BDCs,
and therefore we believe this proposed disclosure requirement is
appropriate for all BDCs. We also believe the costs associated with
this proposed 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.\566\
---------------------------------------------------------------------------
\566\ Id.; see also supra Parts V.B.1 and V.B.3.
---------------------------------------------------------------------------
Finally, with respect to the proposed requirement for affected
funds that file a short form registration statement on Form N-2 to
disclose material staff comments, this requirement would apply only to
those entities that qualify for the short-form registration statement,
which generally would not include smaller affected funds.\567\
---------------------------------------------------------------------------
\567\ See supra footnote 520.
---------------------------------------------------------------------------
New Current Reporting Requirements for Affected Funds
In order to improve information for investors and to provide parity
with BDCs and operating companies, we are also proposing to require all
registered CEFs that are reporting companies under section 13(a) or
section 15(d) of the Exchange Act to report certain specified events
and information on Form 8-K on a current basis, to provide investors
and the market with timely information about these events.\568\ We
believe that the proposed reportable events occur infrequently and thus
should not result in a significant burden on affected funds resulting
from the proposed Form 8-K requirements.\569\
---------------------------------------------------------------------------
\568\ See supra Parts II.H.3.a. and IV.E.4; see also supra
footnote 243.
\569\ See supra PartsII.H.3.b and IV.E.4. We note in Part IV.E.4
supra that existing items on Form 8-K generally have not led to
frequent reporting obligations for BDCs. In addition, we are
proposing to extend the safe harbor for failure to report certain
Form 8-K items to include the new proposed reporting items for
affected funds, which would limit liability concerns and the
potential impact on an affected fund's ability to raise capital
associated with failing to timely file a report under these items.
---------------------------------------------------------------------------
Additionally, certain items in Form 8-K are substantively the same
as or similar to existing disclosure requirements in the annual and
semi-
[[Page 14512]]
annual reports for registered CEFs. We do not believe that requiring
similar disclosure on Form 8-K and in a registered CEF's annual or
semi-annual reports should result in significant burdens for registered
CEFs (including small registered CEFs) since, absent significant
changes, they should be able to use their Form 8-K disclosure to more
efficiently prepare the corresponding disclosure in any shareholder
reports that follow funds' issuance of reports on Form 8-K.\570\
---------------------------------------------------------------------------
\570\ See id.; see also supra footnote 257.
---------------------------------------------------------------------------
We also propose to amend Form 8-K to add two new reporting items
for affected funds and tailor the existing reporting instructions to
affected funds.\571\ The additional reporting items we propose are
designed to recognize certain differences between events that are
relevant to affected funds and those that are relevant to operating
companies.\572\ An affected fund would be required to file a report on
Form 8-K if the fund has: (1) A material change to its investment
objectives or policies; or (2) a material write-down in fair value of a
significant investment. We believe it is appropriate to propose these
new reporting items, which would apply to all affected funds, large and
small, to better tailor Form 8-K disclosure to these types of
investment companies.\573\ We do not believe these new items would
create a significant burden.\574\ Form 8-K is meant to capture
important events, many of which may occur at a low frequency and should
not result in numerous, persistent reports on Form 8-K by affected
funds.\575\ These two events are designed to recognize certain events
that are important to affected fund investors, regardless of the size
of the affected fund, where current information about such events would
be beneficial to investors and the market.\576\
---------------------------------------------------------------------------
\571\ See supra Parts II.H.3.b and IV.E.4.
\572\ See supra Part II.H.3.b.
\573\ See supra Parts II.H.3.b and IV.E.4.
\574\ Id.
\575\ Id.
\576\ Id.
---------------------------------------------------------------------------
Online Availability of Information Incorporated by Reference
We are also proposing to modernize Form N-2's requirements for
backward incorporation by reference by all affected funds. Affected
funds would no longer be required to deliver to new investors
information that they have incorporated by reference.\577\ Instead, we
are proposing 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.\578\ We do not believe this requirement would
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.\579\ Nor do we think it would be
appropriate to treat large and small entities differently for purposes
of the proposed amendment. The proposed requirement would 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.\580\ The
proposed rule would also 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.\581\ We
believe that these investor protection benefits should be available
equally for investors in smaller and larger affected funds.
---------------------------------------------------------------------------
\577\ See supra Parts II.H.4 and IV.E.5.
\578\ Id.
\579\ See Part IV.E.5.
\580\ Id.
\581\ Id.
---------------------------------------------------------------------------
Proposed Enhancements to Certain Registered CEFs' Annual Report
Disclosure
Finally, the proposed amendments to rule 8b-16 of the Investment
Company Act would require funds relying on that rule to describe
material changes in their annual reports in enough detail to allow
investors to understand each change and how it may affect the
fund.\582\ The proposed amendments also would require funds to preface
such disclosures with a legend.\583\ The proposed amendments to rule
8b-16 would only affect that portion of registered CEFs that rely on
rule 8b-16.\584\ We do not think it would be appropriate to treat large
and small entities differently for purposes of the proposed amendments
to rule 8b-16, as this new requirement would allow investors in funds
relying on the rule to more easily identify and understand key
information about their investments.\585\ We believe that this investor
protection benefit should be available equally for investors in smaller
and larger affected funds. In addition, the proposed new requirement
would likely add only a small incremental compliance burden because
funds relying on rule 8b-16 are already required to disclose the
enumerated changes.\586\ The proposed amendments described in Part II.H
above would apply to affected funds that are small entities as well as
other affected funds unless noted otherwise.\587\
---------------------------------------------------------------------------
\582\ See supra Parts II.H.5 and IV.E.3.
\583\ Id.
\584\ See supra Part IV.E.3. Based on staff review of data
derived from Morningstar Direct for the period ending December 31,
2018, approximately 489 traded CEFs currently rely on rule 8b-16. Of
these, we estimate that 20 would be small issuers based on net
assets of $50 million or less.
\585\ See Part IV.E.3.
\586\ Id.
\587\ See also supra Parts IV.E, V.B.1, V.B.2, V.B.3, and V.B.6
(discussing the economic impact, and the estimated compliance costs
and burdens, of the proposed rule and form amendments described in
Part II.H).
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E. Duplicative, Overlapping, or Conflicting Federal Rules
Except as otherwise discussed below, the Commission has not
identified any federal rules that duplicate, overlap, or conflict with
the proposed rules. Both the BDC Act and Registered CEF Act direct the
Commission to allow BDCs and certain CEFs to take advantage of the
offerings and communications rules under the Securities Act and
Exchange Act to affected funds not previously available to them.
Consequently, the rules provide an alternative to other procedures and
processes currently available to affected funds.
As discussed in detail above, we are proposing to require funds
filing a short-form registration statement on Form N-2 to include key
information in their annual reports that they currently disclose in
their prospectuses.\588\ However, because the proposed requirement to
include key information in annual reports applies to seasoned affected
funds, there would be no impact on smaller affected funds.\589\
---------------------------------------------------------------------------
\588\ See supra Part II.H.2.
\589\ See supra footnotes 535-536 and accompanying paragraph.
---------------------------------------------------------------------------
The proposed amendments requiring registered CEFs that are Exchange
Act reporting companies under section 13(a) or section 15(d) of the
Exchange Act to now file Form 8-K also could entail some potential for
regulatory duplication.\590\ For example, registered CEFs are generally
required to provide the information required under Item 4.01 (Changes
in Registrant's Certifying Accountant) of Form 8-K in their semi-annual
or annual shareholder reports. Further, registered CEFs are required to
provide in their semi-annual or annual shareholder reports certain
information found in Item 5.07 of Form 8-K about matters submitted to a
vote of shareholders. Although certain items in Form 8-K are
substantively the same as or similar to existing disclosure
requirements for registered CEFs, the existing requirements provide
less
[[Page 14513]]
timely disclosure.\591\ As proposed, the Form 8-K requirements would
require registered CEFs to disclose certain items within 4 business
days of the relevant event, while the existing regime calls for similar
disclosure on an annual or semi-annual basis in shareholder
reports.\592\ We believe it would be appropriate to require registered
CEFs to provide more timely and current disclosure on these matters on
Form 8-K in order to ensure parity with the reporting requirements to
which operating companies and BDCs are subject. We believe this
approach should not result in significant burdens for registered CEFs
(including small registered CEFs) since, absent significant changes,
they should be able to use their Form 8-K disclosure to more
efficiently prepare the corresponding disclosure in any shareholder
reports that follow funds' issuance of reports on Form 8-K.\593\
---------------------------------------------------------------------------
\590\ See supra Part II.H.3.a and footnote 243.
\591\ See supra footnote 257 and accompanying paragraph.
\592\ Id.
\593\ See supra footnote 257 and accompanying text; see also
Part V.B.6 (estimating 704 registered CEFs as of September 2018, and
assuming all would file Form 8-K). We estimate that there are 32
registered CEFs that are small entities (see supra footnote 520).
The Staff further estimates that based on review of EDGAR filings as
February 2019 of the 32 registered CEFs, 17 are dually registered
under the Securities Act and Investment Company Act. Based on these
estimates, these 17 registered CEFs would be required to file 8-Ks
under our proposed amendments.
---------------------------------------------------------------------------
We do not anticipate that the proposed Form 8-K requirements would
increase the compliance costs of affected funds' existing disclosure
requirements, and they may, to some extent, reallocate certain of
affected funds' existing disclosure costs to preparing Form 8-K
disclosure since affected funds may be able to use the Form 8-K
disclosure to help prepare disclosure that they are currently required
to provide in annual or other periodic reports. Moreover, we believe
that continuing to require the relevant disclosure in shareholder
reports may reduce potential disruptions to shareholders who are
accustomed to finding certain information in these reports and should
limit discrepancies between different types of funds' shareholder
reports.
F. Significant Alternatives
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 proposed rules certain small entities that are
registered CEFs but that are not interval funds or listed registered
CEFs.\594\ Where our proposed amendments reflect an exercise of
discretion, we considered the following alternatives for small entities
in relation to our proposed amendments:
---------------------------------------------------------------------------
\594\ See supra Part II.A.
---------------------------------------------------------------------------
Exempting affected funds that are small entities from the
proposed 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 Proposed Approach to Implementing Statutory Mandates
In accordance with the BDC Act and Registered CEF Act, we are
proposing to modify the restrictions regarding offerings and
communications permitted around the time of a Securities Act registered
offering. The proposed flexibility would be greatest for larger and
seasoned affected funds, but would 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 net asset value of a certain size for funds whose
shares are not traded on an exchange or through the use of
``performance'' rather than ``design'' standards.\595\ 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.
---------------------------------------------------------------------------
\595\ See supra Part II.C.
---------------------------------------------------------------------------
We also considered extending the proposed rules only to BDCs,
listed registered CEFs, and interval funds.\596\ However, excluding
unlisted registered CEFs from the proposed rules could create
unnecessary competitive disparities between unlisted registered CEFs
(which would potentially include smaller funds) and unlisted BDCs and
would not provide investors in unlisted registered CEFs with the
benefits of the new investor protections we are proposing.\597\
---------------------------------------------------------------------------
\596\ See supra Part IV.D.
\597\ Id.
---------------------------------------------------------------------------
2. Alternative Approaches to Discretionary Choices
New Registration Fee Payment Method for Interval Funds
We considered, but are not proposing, allowing a wider range of
affected funds, such as registered CEFs that are tender offer funds, to
rely on rule 24f-2.\598\ 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 propose this alternative approach because interval
funds have structural similarities to mutual funds and ETFs that other
affected funds do not.\599\
---------------------------------------------------------------------------
\598\ See supra Part IV.E.1.
\599\ See id.
---------------------------------------------------------------------------
Structured Data Requirements
As an alternative, we could have proposed 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.\600\ This would have lessened the burden associated with the
proposed 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 for all affected funds.\601\ This in
turn would reduce data users' ability to meaningfully analyze,
aggregate, and compare data.
---------------------------------------------------------------------------
\600\ See supra Part V.B.2.
\601\ See id.
---------------------------------------------------------------------------
However, we are proposing an extended compliance period for the
proposed new XBRL reporting requirements for affected funds that would
not be eligible to file a short-form registration statement. This
extended compliance period--which would apply to affected funds that do
not meet the transaction requirement to qualify to file a short-form
registration statement on
[[Page 14514]]
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
proposed rule discussed above--should enable small entities to defer
the burden of additional cost associated with the proposed 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
proposed periodic reporting requirements, and for the proposed
requirements to make information incorporated by reference available on
a website, for small entities.\602\ 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
proposed 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 proposed periodic
reporting requirements that apply to large and small affected funds--
for example, the proposed MDFP requirement for registered CEFs and the
proposed inclusion of BDCs' financial highlights in their registration
statement--should apply equally to investors in large and small
affected funds.\603\ We also believe that the investor protection
benefits stemming from the proposed 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 proposed rule applies equally to large and small
affected funds.\604\
---------------------------------------------------------------------------
\602\ See supra Part IV.E.3.
\603\ See supra Part VI.D.4.
\604\ See id.
---------------------------------------------------------------------------
New Current Reporting Requirements for Affected Funds
With respect to our proposed amendments to current reports on Form
8-K, we do not believe that small affected fund issuers would have to
report more frequently than other issuers. We therefore believe that
different reporting requirements or timetables for small entities would
interfere with achieving the primary goal of making information about
important events promptly available to investors and the public
securities markets.\605\ Similarly, clarifying, simplifying or
consolidating compliance or reporting requirements would potentially
create different requirements for smaller funds as compared to larger
ones. Such a framework would interfere with the Commission's objective
to supply investors and the public securities markets with data that is
easily retrievable for all issuers and to supply them with information
about funds of all sizes, and their important events, in a timely and
relevant manner.\606\ We also do not believe such a framework would be
consistent with the goal of investor protection.
---------------------------------------------------------------------------
\605\ See supra Part IV.E.4.
\606\ See supra Part IV.E.4.
---------------------------------------------------------------------------
However, we are proposing an extended compliance period for the
proposed new current reporting requirements for affected funds that
would not be eligible to file a short-form registration statement. This
extended compliance period--which would 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 proposed rule discussed above--should
enable small entities to defer the burden of additional cost associated
with the proposed 8-K requirements and learn from affected funds that
comply earlier.
G. General Request for Comment
The Commission requests comments regarding this IRFA. We request
comments on the number of small entities that may be affected by our
proposed rules and guidelines, and whether the proposed rules and
guidelines would have any effects not considered in this analysis. We
request that commenters describe the nature of any effects on small
entities subject to the proposed rules and provide empirical data to
support the nature and extent of such effects. We also request comment
on the proposed compliance burdens and the effect these burdens would
have on smaller entities.
VII. Consideration of Impact on the Economy
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\607\ the Commission must advise OMB whether a
proposed regulation constitutes a ``major'' rule. Under SBREFA, a rule
is considered ``major'' where, if adopted, if results in or is likely
to result in:
---------------------------------------------------------------------------
\607\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C., and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------
An annual effect on the economy of $100 million or more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.
We request comment on whether our proposal would be a ``major
rule'' for purposes of SBREFA. We solicit comment and empirical data
on:
The potential effect on the U.S. economy on an annual
basis;
Any potential increase in costs or prices for consumers or
individual industries; and
Any potential effect on competition, investment, or
innovation.
We request that commenters provide empirical data and other factual
support for their views to the extent possible.
VIII. Statutory Authority
The amendments contained in this release are being proposed under
the authority set forth in the Securities Act, particularly sections 6,
7, 8, 10, 19, 27A, and 28 thereof [15 U.S.C. 77a et seq.]; the Exchange
Act, particularly sections 2, 3(b), 9(a), 10, 12, 13, 14, 15, 17(a),
21E, 23(a), 35A, and 36 thereof [15 U.S.C. 78a et seq.]; the Investment
Company Act, particularly sections 6(c), 8, 20(a), 23, 24, 29, 30, 31,
37, and 38 thereof [15 U.S.C. 80a et seq.]; the BDC Act, particularly
section 803(b) thereof [Pub. L. 115-141, title VIII]; and the
Registered CEF Act, particularly section 509(a) thereof [Pub. L. 115-
174].
Text of Proposed Rules and Forms
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
[[Page 14515]]
information, 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,
Life insurance, Reporting and recordkeeping requirements, Securities.
17 CFR Part 274
Investment companies, Reporting and recordkeeping requirements,
Securities.
For reasons set forth in the preamble, we propose to amend Title
17, Chapter II of the Code of Federal Regulations as follows:
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
0
1. The authority citation for part 229 continues to read as follows:
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).
0
2. Amend Sec. 229.601 by revising paragraph (b)(101)(i) introductory
text and paragraph (b)(101)(ii)(A) to read as follows.
Sec. 229.601 (Item 601) Exhibits.
* * * * *
(b) * * *
(101) * * *
(i) Required to be submitted. Required to be submitted to the
Commission in the manner provided by Sec. 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:
* * * * *
(ii) * * *
(A) Registrant is not registered under the Investment Company Act
of 1940 (15 U.S.C. 80a-1 et seq.); and
* * * * *
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
3. The authority citation for part 230 is revised to read, in part, as
follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, Pub. L. 112-106, sec. 201(a), sec. 401, 126 Stat.
313 (2012), sec. 803(b), Pub. L. 115-141, 132 Stat. 348 (2018), and
sec. 509(a), Pub. L. 115-174, 132 Stat. 1296 (2018), unless
otherwise noted.
* * * * *
0
4. Amend Sec. 230.134 by revising paragraph (g) to read as follows:
Sec. 230.134 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.
0
5. Amend Sec. 230.138 by:
0
a. Revising the text to the ``Instruction to paragraph (a)(1):''; and
0
b. Revising paragraph (a)(2)(i).
The revisions read as follows:
Sec. 230.138 Publications or distributions of research reports by
brokers or dealers about securities other than those they are
distributing.
(a) * * *
(1) * * *
Instruction to paragraph (a)(1): If the issuer has filed a shelf
registration statement under Rule 415(a)(1)(x) (Sec. 230.415(a)(1)(x))
or pursuant to General Instruction I.D. of Form S-3, General
Instruction I.C. of Form F-3 (Sec. 239.13 or Sec. 239.33 of this
chapter), or pursuant to General Instructions A.2 and B of Form N-2
(Sec. 239.14 and Sec. 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) The issuer as of the date of reliance on this section:
(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 (Sec.
249.310 of this chapter), 10-Q (Sec. 249.308a of this chapter), and
20-F (Sec. 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 (Sec. Sec.
249.331 and 274.128 of this chapter), N-Q (Sec. Sec. 249.332 and
274.130 of this chapter), N-PORT (Sec. 274.150 of this chapter), and
N-CEN (Sec. Sec. 249.330 and 274.101 of this chapter) pursuant to
section 30 of the Investment Company Act; or
* * * * *
Sec. 230.138 [Amended]
0
6. Effective May 1, 2020, amend Sec. 230.138 by removing ``N-Q
(Sec. Sec. 249.332 and 274.130 of this chapter),'' in paragraph
(a)(2)(i)(B)(2).
0
7. Amend Sec. 230.156 by adding paragraph (d) to read as follows:
Sec. 230.156 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 Sec. 230.168 of this chapter or
Sec. 230.169 of this chapter.
0
8. Amend Sec. 230.163 by:
0
a. Adding ``or'' after the semicolon at the end of paragraph (b)(3)(i);
0
b. Revising paragraph (b)(3)(ii); and
0
c. Removing paragraph (b)(3)(iii).
The revision to read as follows:
Sec. 230.163 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.
* * * * *
0
9. Amend Sec. 230.163A by revising paragraph (b)(4) to read as
follows:
Sec. 230.163A 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
[[Page 14516]]
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.), other than a registered closed-end investment company.
* * * * *
0
10. Amend Sec. 230.164 by revising paragraph (f) to read as follows:
Sec. 230.164 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.
* * * * *
0
11. Amend Sec. 230.168 by revising paragraph (b)(1) introductory text,
paragraph (b)(2) introductory text, and paragraph (d)(3) to read as
follows:
Sec. 230.168 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
information 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.
0
12. Amend Sec. 230.169 by revising paragraph (d)(4) to read as
follows:
Sec. 230.169 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.
0
13. Amend Sec. 230.172 by revising paragraph (d)(1) to read as
follows, removing paragraph (d)(2); and re-designating paragraphs
(d)(3) and (d)(4) as paragraphs (d)(2) and (d)(3).
Sec. 230.172 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;
* * * * *
0
14. Amend Sec. 230.173 by revising paragraph (f)(2) to read as
follows, removing paragraph (f)(3) and re-designating paragraphs (f)(4)
and (f)(5) as paragraphs (f)(3) and (f)(4).
Sec. 230.173 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;
* * * * *
0
15. Amend Sec. 230.405 by:
0
a. Revising the definition of ``Automatic shelf registration
statement.'';
0
b. In the definition of ``Ineligible user:''
0
i. Revising paragraph (1)(i);
0
ii. In paragraph (1)(vii) removing the words ``years; or'' and adding
in their place ``years;'';
0
iii. In paragraph (1)(viii) removing ``offering.'' and adding in its
place ``offering; or'';
0
iv. Adding paragraph (1)(ix) to the definition of ``Ineligible
issuer.'';
0
c. Adding in alphabetical order the definition ``Registered closed-end
investment company.'';
0
d. Revising the introductory text of paragraph (1)(i), and paragraphs
(1)(i)(B)(2), (1)(v), and (2)(iii) of the definition of ``Well-known
seasoned issuer.'';
The additions and revisions read as follows:
Sec. 230.405 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 (Sec. 239.13, Sec. 239.33, or Sec. 239.14
and Sec. 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.
* * * * *
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 (Sec.
249.308 of this chapter) required solely pursuant to an item specified
in General Instruction I.A.3(b) of Form S-3 (Sec. 239.13 of this
chapter) or General Instruction A.2.a of Form N-2 (Sec. 239.14 and
Sec. 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 Item 1101 of Regulation AB (Sec. 229.1101 of this
chapter) 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 company 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
[[Page 14517]]
out of a governmental action that determines that the investment
adviser aided or 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 (Sec. 239.13 or Sec. 239.33 of this
chapter), or General Instructions A.2.a and A.2.b of Form N-2 (Sec.
239.14 and Sec. 274.11a-1 of this chapter) and either:
* * * * *
(B)(1) * * *
(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 (Sec. 249.310 of this chapter), Form 20-F (Sec. 249.220f of
this chapter), or Form N-CSR (Sec. 249.331 and Sec. 274.128 of this
chapter) (or if such report has not been filed by its due date, such
due date).
* * * * *
0
16. Amend Sec. 230.415 by revising paragraphs (a)(1)(x), (a)(1)(xi),
and (a)(2) to read as follows:
Sec. 230.415 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 (Sec. 239.13 or Sec. 239.33 of this chapter), or on
Form N-2 (Sec. 239.14 and Sec. 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 Sec. 270.23c-3 of this chapter.
* * * * *
(2) Securities in paragraph (a)(1)(viii) of this section and
securities in paragraph (a)(1)(ix) of this section that are not
registered on Form S-3 or Form F-3 (Sec. 239.13 or Sec. 239.33 of
this chapter), or on Form N-2 (Sec. 239.14 and Sec. 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.
* * * * *
0
17. Amend Sec. 230.418 by revising paragraph (a)(3) to read as
follows:
Sec. 230.418 Supplemental information.
(a) * * *
(3) Except in the case of a registrant eligible to use Form S-3
(Sec. 239.13 of this chapter) or Form N-2 (Sec. Sec. 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 Rule 405 (Sec. 230.405), of the
securities being registered except for:
* * * * *
0
18. Amend Sec. 230.424 by revising paragraph (f) to read as follows:
Sec. 230.424 Filing of prospectuses, number of copies.
* * * * *
(f) This rule 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.
* * * * *
0
19. Amend Sec. 230.430B by:
0
a. Revising the introductory text to paragraph (b);
0
b. Revising paragraph (f)(4) introductory text and paragraph
(f)(4)(ii); and
0
c. Revising paragraph (i).
The revisions read as follows:
Sec. 230.430B 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 (Sec. Sec. 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 (Sec. Sec. 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 Item 512(a)(1)(ii) of
Regulation S-K (Sec. 229.512(a)(1)(ii) of this chapter) or Item
34.4.a(2) of Form N-2 (Sec. 239.14 and Sec. 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 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 34.4.a(2) of Form N-2 (Sec.
239.14 and Sec. 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
[[Page 14518]]
Item 512(a) of Regulation S-K or Item 34.4 of Form N-2 (Sec. 239.14
and Sec. 274.11a-1 of this chapter) as applicable.
0
20. Amend Sec. 230.433 by revising paragraphs (b)(1)(i), (b)(1)(iv),
and (c)(1)(ii) to read as follows:
Sec. 230.433 Conditions to permissible post-filing free writing
prospectuses.
* * * * *
(b) * * *
(1) * * *
(i) Offerings of securities registered on Form S-3 (Sec. 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 (Sec. 239.45 of this chapter) or on Form
N-2 (Sec. 239.14 and Sec. 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).
* * * * *
0
21. Amend Sec. 230.462 by revising paragraph (f) to read as follows:
Sec. 230.462 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 Rule 413(b) (Sec. 230.413(b)) that satisfies the
requirements of Form S-3, Form F-3, or General Instruction A.2 of Form
N-2 (Sec. 239.13, Sec. 239.33, or Sec. 239.14 and Sec. 274.11a-1 of
this chapter), as applicable, including the signatures required by Rule
402(e) (Sec. 230.402(e)), and contains a prospectus satisfying the
requirements of Rule 430B (Sec. 230.430B), shall become effective upon
filing with the Commission.
0
22. Amend Sec. 230.497 by:
0
a. Removing from paragraphs (c) and (e) the text ``Form N-2 (Sec. Sec.
239.14 and 274.11a-1 of this chapter),''; and
0
b. Adding paragraph (l).
The addition to read as follows:
Sec. 230.497 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 Sec. 230.482 of this chapter,
this section shall not apply with respect to prospectuses of a
registered closed-end investment company, or a business development
company.
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
23. The authority citation for part 232 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c),
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
* * * * *
0
24. Amend Sec. 232.405 by:
0
a. Revising the introductory text;
0
b. Revising paragraph (a)(2);
0
c. Revising the introductory text of paragraph (a)(3)(i);
0
d. Revising paragraph (a)(3)(ii);
0
e. Revising paragraph (a)(4);
0
f. Revising the introductory text of paragraph (b)(1);
0
g. Revising paragraph(b)(2);
0
h. Adding new paragraph (b)(3); and
0
i. Revising the last sentence of ``Note to Sec. 232.405:''.
The revisions and addition to read as follows:
Sec. 232.405 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 (Sec.
239.40 of this chapter), paragraph 101 of the Instructions as to
Exhibits of Form 20-F (Sec. 249.220f of this chapter), paragraph
B.(15) of the General Instructions to Form 40-F (Sec. 249.240f of this
chapter), paragraph C.(6) of the General Instructions to Form 6-K
(Sec. 249.306 of this chapter), General Instruction C.3.(g) of Form N-
1A (Sec. Sec. 239.15A and 274.11A of this chapter), and General
Instruction H.2 of Form N-2 (Sec. Sec. 239.14 and 274.11a-1 of this
chapter) specify when electronic filers are required or permitted to
submit an Interactive Data File (Sec. 232.11), as further described in
the note 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 (Sec. 232.11).
(a) * * *
(2) Be submitted only by an electronic filer either required or
permitted to submit an Interactive Data File as specified by Sec.
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 (Sec. 239.40 of this chapter),
paragraph 101 of the Instructions as to Exhibits of Form 20-F (Sec.
249.220f of this chapter), paragraph B.(15) of the General Instructions
to Form 40-F (Sec. 249.240f of this chapter), paragraph C.(6) of the
General Instructions to Form 6-K (Sec. 249.306 of this chapter),
General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and
274.11A of this chapter), or General Instruction H.2 of Form N-2
(Sec. Sec. 239.14 and 274.11a-1 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 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 a 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)), 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 Sec. 229.601(b)(101) of this chapter (Item
601(b)(101) of Regulation S-K), paragraph (101) of Part
[[Page 14519]]
II--Information Not Required to be Delivered to Offerees or Purchasers
of Form F-10 (Sec. 239.40 of this chapter), paragraph 101 of the
Instructions as to Exhibits of Form 20-F (Sec. 249.220f of this
chapter), paragraph B.(15) of the General Instructions to Form 40-F
(Sec. 249.240f of this chapter), paragraph C.(6) of the General
Instructions to Form 6-K (Sec. 249.306 of this chapter), General
Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A and 274.11A of
this chapter), or General Instruction H.2 of Form N-2 (Sec. Sec.
239.14 and 274.11a-1 of this chapter).
(b)(1) Content--categories of information presented. If the
electronic filer is not a management investment company registered
under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), 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:
* * * * *
(2) If the electronic filer is an open-end management investment
company registered under the Investment Company Act of 1940 (15 U.S.C.
80a et seq.), 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 the risk/return summary information set forth in Items 2, 3, and 4
of Form N-1A (Sec. Sec. 239.15A and 274.11A of this chapter).
(3) If the electronic filer is 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 periods required to be presented in the
corresponding data in the Related Official Filing, no more and no less,
from: (i) For a business development company, the information specified
in paragraph (b)(1) of this section; (ii) all of the information
provided by the electronic filer on the cover page of Form N-2
(Sec. Sec. 239.14 and 274.11a-1 of this chapter) except the
Calculation of Registration Fee table, and (iii) as applicable, 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.
* * * * *
Note to Sec. 232.405: * * * For an issuer that is a 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)), General Instruction C.3.(g) of Form N-1A (Sec. Sec. 239.15A
and 274.11A of this chapter) or General Instruction H.2 of Form N-2
(Sec. Sec. 239.14 and 274.11a-1 of this chapter), as applicable,
specifies the circumstances under which an Interactive Data File must
be submitted.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
0
25. The authority citation for part 239 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a),
78ll,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.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
26. The authority citation for part 240 continues to read, in part, as
follows:
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, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 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; and
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602,
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
27. Amend Sec. 240.13a-11 by revising paragraphs (b) and (c) to read
as follows:
Sec. 240.13a-11 Current reports on Form 8-K (Sec. 249.308 of this
chapter).
* * * * *
(b) This section shall not apply to foreign governments, foreign
private issuers required to make reports on Form 6-K (17 CFR 249.306)
pursuant to Sec. 240.13a-16, issuers of American Depositary Receipts
for securities of any foreign issuer, or investment companies required
to file reports pursuant to Sec. 270.30a-1 of this chapter under the
Investment Company Act of 1940, except where such an investment company
is:
(1) Required to file notice of a blackout period pursuant to Sec.
245.104 of this chapter;
(2) Required to file disclosure pursuant to Instruction 2 to Sec.
240.14a-11(b)(1) of information concerning outstanding shares and
voting;
(3) Required to file disclosure pursuant to Instruction 2 to Sec.
240.14a-11(b)(10) of the date by which a nominating shareholder or
nominating shareholder group must submit the notice required pursuant
to Sec. 240.14a-11(b)(10); or
(4) 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 of 1940 (15 U.S.C. 80a-1 et
seq.).
(c) No failure to file a report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e),
6.03, 10.02, or 10.03 of Form 8-K shall be deemed to be a violation of
15 U.S.C. 78j(b) and Sec. 240.10b-5.
* * * * *
0
28. Amend Sec. 240.14a-101 by revising paragraph E of Notes and
paragraph (b)(1) of Item 13. Financial and other information. (See
Notes D and E at the beginning of this Schedule.) to read as follows:
Sec. 240.14a-101 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
* * * * *
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 (Sec. 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
[[Page 14520]]
(referenced in 17 CFR 239.13 of this chapter); 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 (Sec. 239.14 and Sec. 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.
* * * * *
0
29. Amend Sec. 240.15d-11 by revising paragraphs (b) and (c) to read
as follows:
Sec. 240.15d-11 Current reports on Form 8-K (Sec. 249.308 of this
chapter).
* * * * *
(b) This section shall not apply to foreign governments, foreign
private issuers required to make reports on Form 6-K (17 CFR 249.306)
pursuant to Sec. 240.15d-16, issuers of American Depositary Receipts
for securities of any foreign issuer, or investment companies required
to file reports pursuant to Sec. 270.30a-1 of this chapter under the
Investment Company Act of 1940, except where such an investment company
is:
(1) Required to file notice of a blackout period pursuant to Sec.
245.104 of this chapter;
(2) Required to file disclosure pursuant to Instruction 2 to Sec.
240.14a-11(b)(1) of information concerning outstanding shares and
voting;
(3) Required to file disclosure pursuant to Instruction 2 to Sec.
240.14a-11(b)(10) of the date by which a nominating shareholder or
nominating shareholder group must submit the notice required pursuant
to Sec. 240.14a-11(b)(10); or
(4) 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 of 1940 (15 U.S.C. 80a-1 et
seq.).
(c) No failure to file a report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e),
6.03, 10.02, or 10.03 of Form 8-K shall be deemed to be a violation of
15 U.S.C. 78j(b) and Sec. 240.10b-5.
* * * * *
PART 243--REGULATION FD
0
30. The authority citation for part 243 continues to read as follows:
Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and
80a-29, unless otherwise noted.
* * * * *
0
31. Amend Sec. 243.103 by revising paragraph (a) to read as follows:
Sec. 243.103 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, or Form N-2 (17 CFR
239.14 and 17 CFR 274.11a-1) under 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
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
32. The authority for part 249 continues to read, in part, as follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012);
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001,
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
0
33. Amend Form 8-K (referenced in Sec. 249.308 of this chapter) by:
0
a. Revising the first sentence of B.1. of the ``General Instructions''
section;
0
b. Adding a new sentence to the end of paragraph B.3. of the ``General
Instructions'' section;
0
c. Adding ``or the Investment Company Act'' after ``Securities Act'' in
``General Instruction B.5.'';
0
d. Revising Instruction 4 of ``Item 2.02 Results of Operations and
Financial Conditions.'';
0
e. Revising Instruction 2 of ``Item 3.02 Unregistered Sales of Equity
Securities.'';
0
f. Adding new section 10 in the section titled ``INFORMATION TO BE
INCLUDED IN THE REPORT''.
The revisions read as follows:
Note: The text of Form 8-K does not, and these amendments will
not, appear in the Code of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
* * * * *
GENERAL INSTRUCTIONS
* * * * *
B. * * *
1. A report on this form is required to be filed or furnished, as
applicable, upon the occurrence of any one or more of the events
specified in the items in Sections 1-6 and 9-10 of this form. * * *
* * * * *
3. * * * For registered closed-end investment companies, the term
previously reported has the same meaning as in Rule 8b-2 under the
Investment Company Act (17 CFR 270.8b-2), provided that such previously
reported information is public.
* * * * *
INFORMATION TO BE INCLUDED IN THE REPORT
* * * * *
Item 2.02 Results of Operations and Financial Condition.
* * * * *
Instructions.
* * * * *
4. This Item 2.02 does not apply in the case of a disclosure that
is made in a quarterly report filed with the Commission on Form 10-Q
(17 CFR 249.308a) or an annual report filed with the Commission on Form
10-K (17 CFR 249.310) or, for registered closed-end investment
companies, for reports to stockholders filed with the Commission
[[Page 14521]]
under Rule 30b2-1 of the Investment Company Act.
* * * * *
Item 3.02 Unregistered Sales of Equity Securities.
* * * * *
Instructions.
* * * * *
2. A smaller reporting company is defined under Item 10(f)(1) of
Regulation S-K (17 CFR 229.10(f)(1)). For purposes of this Item, a
``smaller reporting company'' with respect to a closed-end investment
company described in Section 10 of this form means an investment
company identified in Rule 0-10 under the Investment Company Act.
* * * * *
Section 10--Closed-End Investment Companies
The Items in this Section 10 only apply to registered closed-end
investment companies and to business development companies, as defined
in Section 2(a)(48) of the Investment Company Act. Terms used in this
Section 10 have the same meaning as in the Investment Company Act and
the rules thereunder.
Item 10.01 Material Change to Investment Objectives or Policies
If the registrant's investment adviser has determined to implement
a material change to the registrant's investment objectives or
policies, and such change has not been, and will not be, submitted to
shareholders for approval, the registrant must disclose:
(a) The date the investment adviser plans to implement the material
change to the registrant's investment objectives or policies; and
(b) a description of the material change to the registrant's
investment objectives or policies.
Instructions.
1. For purposes of this Item, investment objectives or policies
means the information specified in Item 8.2 of Form N-2. A registrant's
investment adviser includes any sub-advisers.
2. A registrant's investment adviser has determined to implement a
material change if the change would represent a new or different
principal portfolio emphasis, including the types of securities in
which the registrant invests or will invest or the significant
investment practices or techniques that the registrant employs or
intends to employ, from that most recently disclosed in the later of
the registrant's prospectus or most recent periodic report. In the case
of a business development company, the most recent periodic report is
the most recently filed report on Form 10-Q or Form 10-K. In the case
of a registered closed-end investment company, the most recent periodic
report is the most recent report to stockholders filed with the
Commission under Rule 30b2-1 under the Investment Company Act.
3. No report is required under this Item if the registrant provides
substantially the same information in a post-effective amendment to its
Securities Act registration statement or in a subsequent prospectus
filed under Securities Act Rule 424 (17 CFR 230.424).
Item 10.02 Material Write-Downs
If the registrant concludes, in accordance with its valuation
procedures, that a material write-down in fair value of a significant
investment is required under generally accepted accounting principles
applicable to the registrant, disclose the following information:
(a) The date of the conclusion that a material write-down in fair
value is required; and
(b) the registrant's estimate of the amount or range of amounts of
the material write down; provided, however, that if the registrant
determines that at the time of filing it is unable in good faith to
make a determination of such estimate, no disclosure of such estimate
shall be required; provided further, however, that in any such event,
the registrant shall file an amended report on Form 8-K under this Item
10.02 within four business days after it makes a determination of such
an estimate or range of estimates.
Instructions.
1. An investment is deemed to be a significant investment for
purposes of this Item if the registrant's and its other subsidiaries'
investments in a portfolio holding exceed 10% of the total assets of
the registrant and its consolidated subsidiaries. Investments in the
same issuer must be aggregated for purposes of determining whether the
registrant and its subsidiaries have a portfolio holding that is a
significant investment. The determination of whether a portfolio
holding is a significant investment is based on the valuation of the
portfolio holding prior to the material write-down.
2. No filing is required under this Item 10.02 if the conclusion is
made in connection with the preparation, review, or audit of financial
statements required to be included in the next periodic report due to
be filed under the Exchange Act, the periodic report is filed on a
timely basis, and such conclusion is disclosed in the report.
* * * * *
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
0
34. The authority citation for part 270 continues to read, in part, as
follows:
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.
* * * * *
0
35. Amend Sec. 270.8b-16 by adding paragraph (e) to read as follows:
Sec. 270.8b-16 Amendments to registration statement.
* * * * *
(e) The changes required to be disclosed by paragraphs (b)(2)
through (b)(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].''
0
36. Amend Sec. 270.23c-3 by adding paragraph (e) to read as follows:
Sec. 270.23c-3 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.
0
37. Amend Sec. 270.24f-2 by revising the first sentence of paragraph
(a) to read as follows:
Sec. 270.24f-2 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 Sec. 270.23c-3(b) of this chapter, 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
[[Page 14522]]
Form 24F-2 (17 CFR 274.24) with the Commission. * * *
* * * * *
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
0
38. The authority citation for part 274 is revised to read, in part, as
follows:
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, Pub. L. 111-203, sec.
939A, 124 Stat. 1376 (2010), and sec. 803(b), Pub. L. 115-141, 132
Stat. 348 (2018), unless otherwise noted.
* * * * *
0
39. Revise Form N-2 (referenced in Sec. Sec. 239.14 and 274.11a-1 of
this chapter) to read as follows:
Note: The text of Form N-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-2
Check appropriate box or boxes
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ____
[ ] Post-Effective Amendment No. ____
and/or
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. ____
-----------------------------------------------------------------------
Registrant Exact Name as Specified in Charter
-----------------------------------------------------------------------
Address of Principal Executive Offices (Number, Street, City, State,
Zip Code)
-----------------------------------------------------------------------
Registrant's Telephone Number, including Area Code
-----------------------------------------------------------------------
Name and Address (Number, Street, City, State, Zip Code) of Agent for
Service
-----------------------------------------------------------------------
Approximate Date of Commencement of Proposed Public Offering
[ ] Check box if the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment plans.
[ ] Check box if any securities being registered on this Form will be
offered on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933 (``Securities Act''), other than securities
offered in connection with a dividend reinvestment plan.
[ ] Check box if this Form is a registration statement pursuant to
General Instruction A.2 or a post-effective amendment thereto.
[ ] Check box if this Form is a registration statement pursuant to
General Instruction B or a post-effective amendment thereto that will
become effective upon filing with the Commission pursuant to Rule
462(e) under the Securities Act.
[ ] Check box if this Form is a post-effective amendment to a
registration statement filed pursuant to General Instruction B filed to
register additional securities or additional classes of securities
pursuant to Rule 413(b) under the Securities Act.
It is proposed that this filing will become effective (check
appropriate box)
[ ] when declared effective pursuant to Section 8(c) of the Securities
Act
The following boxes should only be included and completed if the
registrant is a registered closed-end management investment company or
business development company which makes periodic repurchase offers
under Rule 23c-3 under the Investment Company Act of 1940 (``Investment
Company Act'') and is making this filing in accordance with Rule 486
under the Securities Act.
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a)
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for
a previously filed [post-effective amendment] [registration statement].
[ ] This Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, and the
Securities Act registration statement number of the earlier effective
registration statement for the same offering is: ____
[ ] This Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, and the Securities Act registration
statement number of the earlier effective registration statement for
the same offering is: ____
[ ] This Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, and the Securities Act registration
statement number of the earlier effective registration statement for
the same offering is: ____
Check each box that appropriately characterizes the Fund:
[ ] Registered Closed-End Fund (closed-end company that is registered
under the Investment Company Act).
[ ] Business Development Company (closed-end company that intends or
has elected to be regulated as a business development company under the
Investment Company Act).
[ ] Interval Fund (Registered Closed-End Fund or a Business Development
Company that makes periodic repurchase offers under Rule 23c-3 under
the Investment Company Act).
[ ] A.2 Qualified (qualified to register securities pursuant to General
Instruction A.2 of this Form).
[ ] Well-Known Seasoned Issuer (as defined by Rule 405 under the
Securities Act).
[ ] Emerging Growth Company (as defined by Rule 12b-2 under the
Securities Exchange Act of 1934 (``Exchange Act'').
[ ] New Registrant (registered or regulated under the Investment
Company Act for less than 12 calendar months preceding this filing).
Calculation of Registration Fee Under the Securities Act of 1933
----------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of securities being registered Amount being offering price aggregate Amount of
registered per unit offering price registration fee
----------------------------------------------------------------------------------------------------------------
[[Page 14523]]
Instructions.
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, 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 Fund is
relying on Rule 456(b) 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.
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 Comprising the Registration Statement or Amendment
H. Preparation of the Registration Statement or Amendment
I. 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; (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 Funds. A Fund 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, if it meets all
of the following requirements:
a. The Fund meets the requirements of General Instruction I.A. of
Form S-3, provided that failing to timely file a report required solely
pursuant to Items 10.01 or 10.02 of Form 8-K will not affect the Fund's
ability to meet the terms of General Instruction I.A.3(b) of Form S-3;
b. if the Fund is registered under the Investment Company Act, it
has been registered for a period of at least twelve
[[Page 14524]]
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 Fund 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 Fund that is a Well-Known Seasoned Issuer as defined in Rule
405 of the Securities Act 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.
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 [17 CFR 230.400 through 497], 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) [17 CFR 270.8b-1 et
seq.], 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. Funds 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, filed on behalf of a Fund which makes
periodic repurchase offers pursuant to Rule 23c-3 under the Investment
Company Act may become effective automatically in accordance with Rule
486 under the Securities Act. In accordance with Rule 429 under the
Securities Act, a Fund 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. 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 (general
rules on incorporation by reference into a prospectus); Rule 303 of
Regulation S-T (specific requirements for electronically filed
documents); and Rules 0-4, 8b-23, 8b-24 and 8b-32 under the Investment
Company Act (additional rules on incorporation by reference for Funds).
2. Specific Requirements for Incorporation by Reference for Funds
Not Relying on General Instruction A.2.
a. A Fund 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 Fund 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 Fund 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
Fund's registration statement.
d. A Fund 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 or any report to shareholders meeting the
requirements of Section 30(e) of the Investment Company Act and Rule
30e-1 thereunder (and a Fund 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 Fund 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. (The Fund 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
[[Page 14525]]
incorporated by reference and are not a part of the registration
statement.)
3. Specific Requirements for Incorporation by Reference for Certain
Funds. If a Fund 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 Fund's latest annual report filed pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that contains financial statements
for the fund'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 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 Fund 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 3-13 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 reference into the
prospectus and SAI that are part of the registration statement.
Instruction. Attention is directed to Rule 439 under the Securities
Act regarding consent to use of material incorporated by reference.
4. Disclosure.
a. The Fund 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 Fund and containing
information about the Fund.
b. The Fund 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 Fund's website address where the prospectus, SAI, and any
incorporated information may be accessed.
Instruction. If the Fund 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 Fund 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 Comprising 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 Fund may file as part of
the registration statement.
H. Preparation of the Registration Statement or Amendment
1. 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.
2. Interactive Data Files.
a. An Interactive Data File as defined in Rule 11 of Regulation S-T
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 on Form N-2 containing 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.
b. 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
form of prospectus filed pursuant to Rule 424 under the Securities Act
that includes 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 that varies from the registration statement. The
Interactive Data File must be submitted with the filing made pursuant
to Rule 424.
c. If a Fund 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.
d. The Interactive Data File 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
[[Page 14526]]
Fund--will permit each class of the Fund to be separately identified.
I. Registration of Additional Securities
With respect to the registration of additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, the Fund 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 that the Fund 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.
Part A: The Prospectus
The purpose of the prospectus is to provide essential information
about the Fund in a way that will help investors make informed
decisions about 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 Fund. 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 Fund
that may be of interest to some investors. Part B also allows the Fund
to augment discussions of matters described in the prospectus with
additional information the Fund 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 Fund need not prepare a SAI or refer to it
in the prospectus (or provide the undertaking required by Item 34.8) if
all of the information required to be in the SAI is included in the
prospectus. A Fund 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 Fund. 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. 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.
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) 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 Fund's name;
b. identification of the type of Fund (e.g., bond fund, balanced
fund, business development company, etc.) or a brief statement of the
Fund'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 Fund that a prospective investor ought to know
before investing; (B) the prospectus should be retained for future
reference; and (C) additional information about the Fund 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
Fund'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 Fund's SAI; annual report; semi-annual
report; or other information about the Fund; and to make shareholder
inquiries. Also state whether the Fund makes available its SAI and
annual and semi-annual reports, free of charge, on or through the
Fund's website at a specified internet address. If the Fund 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 Fund does not have an internet website). Also include the
information that the Commission maintains a website (http://
[[Page 14527]]
www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding funds;
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):
----------------------------------------------------------------------------------------------------------------
Proceeds to registrant or
Price to public Sales load other persons
----------------------------------------------------------------------------------------------------------------
Per Share
-----------------------------------------------------------
Total
----------------------------------------------------------------------------------------------------------------
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 l7 of Schedule A of
the Securities Act). 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.
----------------------------------------------------------------------------------------------------------------
Proceeds to registrant or
Price to public Sales load 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 Fund 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 Fund'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 Fund 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 Fund 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
Fund's investment objectives, investment policies, capital structure,
or the trading markets for the Fund'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 Fund 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
[[Page 14528]]
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 Fund, include
information about the costs and expenses that the investor will bear
directly or indirectly, using the captions and tabular format
illustrated below:
Shareholder Transaction Expenses:
Sales Load (as a percentage of offering ________%
price)....................................
Dividend Reinvestment and Cash Purchase ________%
Plan Fees.................................
Annual Expenses (as a percentage of net assets
attributable to common shares):
Management Fees............................ ________%
Interest Payments on Borrowed Funds........ ________%
Other expenses............................. ________%
________________________ ________%
________________________ ________%
________________________ ________%
Total Annual Expenses...................... ________%
Example 1 year 3 years 5 years 10 years
You would pay the following expenses $______% $______% $______% $______%
on a $1,000 investment, assuming a
5% annual return:
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 Fund 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 Fund (or any other party under an agreement with the
Fund) 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 Fund),
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 Fund'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 Fund'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 (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 Fund's assets and will be reflected as expenses in the Fund's
statement of operations
[[Page 14529]]
(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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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
Fund, the Fund 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 Fund
Where:
AFFE.............................. Acquired Fund fees and expenses;
F1, F2, F3, . . .................. Total annual operating expense ratio
for each Acquired Fund;
FY................................ Number 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 Fund
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 Fund 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 Fund. If the Fund 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 Fund 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 Fund 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 Fund (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 Fund expects to invest,
(ii) estimates of the amount of assets the Fund expects to invest in
each of those Acquired Funds, and (iii) an assumption that the
investment was held for all of the Fund's most recent 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 Fund 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.
[[Page 14530]]
h. If the Fund 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 Fund 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 Fund 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 Fund, 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(e)] (concerning reports and other information filed with the
Commission).
Item 4. Financial Highlights
1. General. Furnish the following information for the Fund, or for
the Fund and its subsidiaries, consolidated as prescribed in Rule 6-03
[17 CFR 210.6-03] of Regulation S-X:
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 Fund (or for the life of the Fund and its
immediate predecessors, if less), but only for periods subsequent to
the effective date of the Fund'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 Fund 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 (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 Fund'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 Fund has not
been in operation for a full fiscal year, state its net asset value
[[Page 14531]]
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 Fund'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 Fund's shares on the dividend/distribution date.
14. A Fund also may include, as a separate caption, total return
based on per share net asset value, provided the Fund 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 Fund'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 Fund 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 Fund 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 Fund'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 Fund 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 Fund 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 Fund. If consolidated statements were
prepared as of any of the dates specified, furnish the information on a
consolidated basis:
----------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
----------------------------------------------------------------------------------------------------------------
Year............................ Total Amount Asset Coverage Per Involuntary Average Market
Outstanding Unit Liquidating Value Per Unit
Exclusive of Preference Per (Exclude Bank
Treasury Unit Loans)
Securities
----------------------------------------------------------------------------------------------------------------
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).
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 Fund (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 Fund;
Instruction. Any material relationship between the underwriter (or
its affiliates) and the investment adviser (or its affiliates) of the
Fund relating to the business or operation of the Fund constitutes a
material relationship of the underwriter with the Fund.
c. the amount of securities underwritten; and
d. the nature of the obligation to distribute the Fund's
securities.
[[Page 14532]]
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 Fund 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 Fund, 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 Fund 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 Fund, 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 Fund 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 Fund,
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.
2. If a material part of the proceeds will be used to discharge
indebtedness, state the interest rate and maturity of the indebtedness.
3. If the Fund intends to incur loans to pay underwriting
commissions or any other organizational or offering expenses, disclose
this fact and state the name of the lender, the amount of the first
installment, the rate of interest, the date on which payments will
begin, the dates and amounts of subsequent installments, and the final
maturity date. Explain that the interest paid on such borrowing will
not be available for investment purposes and will increase the expenses
of the fund.
4. If any material part of the proceeds will be used to acquire
assets other than in the ordinary course of business, briefly describe
the assets, the names of the persons from whom they are to be acquired,
the cost of the assets to the Fund, and how the costs were determined.
2. Disclose how long it is expected to take to fully invest net
proceeds in accordance with the Fund's investment objectives and
policies, the reasons for any anticipated lengthy delay in investing
the net proceeds, and the consequences of any delay.
Item 8. General Description of the Registrant
Concisely discuss the organization and operation, or proposed
operation, of the Fund. Include the information specified below.
[[Page 14533]]
1. General. Briefly describe the Fund, including:
a. The date and form of organization and the name of the state or
other jurisdiction under whose laws it is organized; and
b. the classification and subclassification under Sections 4 and 5
of the Investment Company Act.
2. Investment Objectives and Policies. Concisely describe the
investment objectives and policies of the Fund that will constitute its
principal portfolio emphasis, including the following:
a. If these objectives may be changed without a vote of the holders
of a majority of voting securities, a brief statement to that effect;
b. how the Fund proposes to achieve its objectives, including:
(1) The types of securities in which the Fund invests or will
invest principally;
(2) the identity of any particular industry or group of industries
in which the Fund proposes to concentrate.
Instruction. Concentration, for purposes of this Item, is deemed 25
percent or more of the value of the Fund's total assets invested or
proposed to be invested in a particular industry or group of
industries. The policy on concentration should not be inconsistent with
the Fund's name.
c. identify other policies of the Fund that may not be changed
without the vote of a majority of the outstanding voting securities,
including those policies that the Fund deems to be fundamental within
the meaning of Section 8(b) of the Investment Company Act; and
d. briefly describe the significant investment practices or
techniques that the Fund employs or intends to employ (such as risk
arbitrage, reverse repurchase agreements, forward delivery contracts,
when-issued securities, stand-by commitments, options and futures
contracts, options on futures contracts, currency transactions, foreign
securities, investing for control of management, and/or lending of
portfolio securities) that are not described pursuant to subparagraph
2.c above or subparagraph 3 below.
3. Risk Factors. Concisely describe the risks associated with an
investment in the Fund, including the following:
a. General. Discuss the principal risk factors associated with
investment in the Fund specifically as well as those factors generally
associated with investment in a company with investment objectives,
investment policies, capital structure, or trading markets similar to
the Fund's.
b. Effects of Leverage. If the prospectus offers common stock of
the Fund and the Fund has outstanding or is offering a class of senior
securities as defined in Section 18 of the Investment Company Act,
then:
(1) Set forth the annual rate of interest or dividend payments on
the senior securities;
Instruction. If payments will vary because the interest or dividend
rate is variable, provide the initial rate or, if the security is
currently outstanding, the current rate.
(2) set forth the annual return that the Fund's portfolio must
experience in order to cover annual interest or dividend payments on
senior securities; and
(3) provide a table illustrating the effect on return to a common
stockholder of leverage (using senior securities) in the format
illustrated below, using the captions provided, and assuming annual
returns on the Fund's portfolio (net of expenses) of minus ten, minus
five, zero, five, and ten percent.
(4) The table should be accompanied by a brief narrative explaining
that the purpose of the table is to assist the investor in
understanding the effects of leverage. Indicate that the figures
appearing in the table are hypothetical and that actual returns may be
greater or less than those appearing in the table.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Assumed Return on Portfolio (Net of Expenses).. -10% -5% 0% -5% 10%
Corresponding Return to Common Stockholder..... % % % % %
----------------------------------------------------------------------------------------------------------------
Instructions.
1. Round all percentages to the nearest hundredth of one percent.
2. A Fund may assume additional rates of return on its portfolio;
however, to the extent a Fund shows an additional positive rate of
return, it must also show an additional negative rate of return of the
same magnitude. A Fund may show the positive rate of return at which
the corresponding rate of return to the common stockholder is zero
without showing the corresponding negative rate of return.
3. Compute the ``corresponding return to common stockholder'' as
follows: Multiply the total amount of fund assets at the beginning of
the period by the assumed rate of return; subtract from the resulting
product all interest accrued or dividends declared on senior securities
that would be made during the year following the offering; and divide
the resulting difference by the total amount of fund assets
attributable to common stock. If payments will vary because the
interest or dividend rate is variable, use the initial rate or, if the
security is currently outstanding, the current rate.
4. Other Policies. Briefly discuss the types of investments that
will be made by the Fund, other than those that will constitute its
principal portfolio emphasis (as discussed in Item 8.2 above), and any
policies or practices relating to those investments.
Instructions.
1. This discussion should receive less emphasis in the prospectus
than that required by Item 8.2 and, if appropriate in light of
Instructions 2 and 3 below, may be omitted or limited to the
information necessary to identify the type of investment, policy, or
practice.
2. Do not discuss a policy that prohibits a particular practice or
permits a practice that the Fund has not used within the past twelve
months (or since its initial public offering, if that period is
shorter) and does not intend to use in the future.
3. If a policy limits a particular practice so that no more than
five percent of the Fund's net assets are at risk, or if the Fund has
not followed that practice within the last year (or since its initial
public offering, if such period is shorter) in such a manner that more
than five percent of net assets were at risk and does not intend to
follow such practice so as to put more than five percent of net assets
at risk, limit the prospectus disclosure about such practice to that
necessary to identify the practice. Disclose whether or not the Fund
will provide prior notice to security holders of its intention to
commence or expand the use of such practice.
The amount of the Fund's net assets that are at risk for purposes
of determining whether ``more than five percent of net assets are at
risk'' is not limited to the initial amount of the Fund's assets that
are invested in a particular practice, e.g., the purchase price of an
option. The amount of net assets at risk is determined by reference to
the potential liability or loss that may be incurred by the Fund in
connection with a particular practice.
5. Share Price Data. If the prospectus offers common stock or other
type of
[[Page 14534]]
common equity security (collectively ``common stock'') and if the
Fund's common stock is publicly held, provide the following
information:
a. Identify the principal United States market or markets in which
the common stock is being traded. Where there is no established public
trading market, furnish a statement to that effect.
Instruction. The existence of limited or sporadic quotations should
not itself be deemed to constitute an ``established public trading
market.''
b. If the principal United States market for the common stock is an
exchange, state the high and low sales prices for the stock for each
full quarterly period within the two most recent fiscal years and each
full fiscal quarter since the beginning of the current fiscal year, as
reported in the consolidated transaction reporting system or, if not so
reported, as reported on the principal exchange market for the stock.
If the principal United States market for the common stock is not an
exchange, state the range of high and low bid information for the
common stock for the periods described in the preceding sentence, as
regularly quoted in the automated quotation system of a registered
securities association or, if not so quoted, the range of reported high
and low bid quotations, indicating the source of the quotations.
Instructions.
1. This information should be set forth in tabular form.
2. Indicate, as applicable, that such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-
down, or commission and may not necessarily represent actual
transactions.
3. Where there is an absence of an established public trading
market, qualify reference to quotations by an appropriate explanation.
4. With respect to each quotation, disclose the net asset value and
the discount or premium to net asset value (expressed as a percentage)
represented by the quotation.
5. Where the shares of the Fund trade at their high or low share
price for more than one day during the period, the Fund should provide
the discount or premium information for the day on which the premium or
discount was greatest.
c. Include share price and corresponding net asset value and
premium/discount information as of the latest practicable date.
d. Disclose whether the Fund's common stock has historically traded
for an amount less than, equal to, or exceeding net asset value.
Disclose any methods undertaken or to be undertaken by the Fund that
are intended to reduce any discount (such as the repurchase of fund
shares, providing for the ability to convert to an open-end investment
company, guaranteed distribution plans, etc.), and briefly discuss the
effects that these measures have or may have on the Fund.
e. If the shares of the Fund have no history of public trading,
discuss 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. If the Fund
has omitted the statement required by Item 1.i, describe the basis for
the Fund's belief that its shares will not trade at a discount from net
asset value.
6. Business Development Companies. A Fund that is a business
development company should, in addition, provide the following
information:
a. Portfolio Companies. For each portfolio company in which the
Fund is investing, disclose: (1) The name and address; (2) nature of
business; (3) title, class, percentage of class, and value of portfolio
company securities held by the Fund; (4) amount and general terms of
all loans to portfolio companies; and (5) the relationship of the
portfolio companies to the Fund.
Instructions.
1. The description of the nature of the business of a portfolio
company in which the Fund is investing may vary according to the extent
of the Fund's investment in the particular portfolio company. The Fund
need only briefly identify the nature of the business of a portfolio
company in which the Fund's investment constitutes less than five
percent of the Fund's assets.
2. In describing the nature of the business of a portfolio company,
include matters such as the competitive conditions of the business of
the company; its market share; dependence on a single or small number
of customers; importance to it of any patents, trademarks, licenses,
franchises, or concessions held; key operating personnel; and
particular vulnerability to changes in government regulation, interest
rates, or technology.
3. In describing the relationship of portfolio companies to the
Fund, include a discussion of the extent to which the Fund makes
available significant managerial assistance to its portfolio companies.
Disclose any other material business, professional, or family
relationship between the officers and directors of the Fund and any
portfolio company, its officers, directors, and affiliates (as defined
in Rule 12b-2 under the Exchange Act).
b. Certain Subsidiaries. If the Fund has a wholly-owned small
business investment company subsidiary, disclose: (1) Whether the
subsidiary is regulated as a business development company or investment
company under the Investment Company Act; (2) the percentage of the
Fund's assets invested in the subsidiary; and (3) material information
about the small business investment company's operations, including the
special risks of investing in a portfolio heavily invested in
securities of small and developing or financially troubled businesses.
c. Financial Statements. Unless the business development company
has had less than one fiscal year of operations, provide the financial
statements of the Fund.
Instructions.
1. a. Furnish, in a separate section following the responses to the
above items in Part A of the registration statement, the financial
statements and schedules required by Regulation S-X [17 CFR part 210].
A business development company should comply with the provisions of
Regulation S-X generally applicable to registered management investment
companies. (See Section 210.3-18 and Sections 210.6-01 through 210.6-10
of Regulation S-X.)
b. A business development company should provide an indication in
its Schedule of Investments of those investments that are not
qualifying investments under Section 55(a) of the Investment Company
Act and, in a footnote, briefly explain the significance of non-
qualification.
2. Notwithstanding the requirements of Instruction 1 above, the
following statements and schedules required by Regulation S-X may be
omitted from Part A and included in Part C of the Registration
statement:
a. The statement of any subsidiary that is not a majority-owned
subsidiary; and
b. columns C and D of Schedule IV [17 CFR 210.12-03] in support of
the most recent balance sheet.
3. A business development company with less than one fiscal year of
operations should provide its financial statements in the Statement of
Additional Information in response to Item 24.
d. Prior Operations. If the Fund has had an operating history prior
to electing to be regulated as a business development company, disclose
any anticipated changes in its operations as a result of coming into
compliance with Section 55(a) of the Investment Company Act. This
information may be omitted in a prospectus used a sufficient
[[Page 14535]]
time after election to be regulated as a business development company
so that it is no longer material.
e. Special Risk Factors. To the extent not disclosed in response to
this Item or Item 8.3, concisely describe the special risks of
investing in a business development company, including the risks
associated with investing in a portfolio of small and developing or
financially troubled businesses. (See Section 64(b)(1) of the
Investment Company Act.)
Item 9. Management
1. General. Describe concisely how the business of the Fund is
managed, including:
a. Board of Directors. A description of the responsibilities of the
board of directors with respect to the management of the Fund;
Instructions.
1. In responding to this Item, it is sufficient to include a
general statement as to the responsibilities of the board of directors
under the applicable laws of the Fund's jurisdiction of organization.
2. A Fund that has elected to be regulated as a business
development company should briefly describe the terms of any special
compensation plans available to management.
b. Investment Advisers. For each investment adviser of the Fund:
(1) Its name and principal business address, a description of its
experience as an investment adviser, and, if the investment adviser is
controlled by another person, the name of that person and the general
nature of its business;
Instruction. If the investment adviser is subject to more than one
level of control, it is sufficient to provide the name of the ultimate
control person.
(2) a description of the services provided by the investment
adviser;
Instructions.
1. If, in addition to providing investment advice, the investment
adviser or persons employed by or associated with the investment
adviser are subject to the authority of the board of directors,
responsible for overall management of the Fund's business affairs, it
is sufficient to state that fact instead of listing all services
provided.
2. A Fund that has elected to be regulated as a business
development company should describe briefly the type of managerial
assistance that is or will be provided to the businesses in which it is
investing and the qualifications of the investment adviser to render
such management assistance.
(3) a description of its compensation; and
Instructions.
1. State generally what the adviser's fee is or will be as a
percentage of average net assets, including any break-point. It is not
necessary to include precise details as to how the fee is computed or
paid.
2. If the investment advisory fee is paid in some manner other than
on the basis of average net assets, briefly describe the basis of
payment.
(4) a statement, adjacent to the disclosure required by paragraph
1.b(3) of this Item, that a discussion regarding the basis for the
board of directors approving any investment advisory contract of the
Fund is available in the Fund's annual or semi-annual report to
shareholders, as applicable, and providing the period covered by the
relevant annual or semi-annual report.
c. Portfolio Management. The name, title, and length of service of
the person or persons employed by or associated with the Fund or an
investment adviser of the Fund who are primarily responsible for the
day-to-day management of the Fund's portfolio (``Portfolio Manager'').
Also state each Portfolio Manager's business experience during the past
5 years. Include a statement, adjacent to the foregoing disclosure,
that the SAI provides additional information about the Portfolio
Manager's(s') compensation, other accounts managed by the Portfolio
Manager(s), and the Portfolio Manager's(s') ownership of securities in
the Fund.
Instruction. If a committee, team, or other group of persons
associated with the Fund or an investment adviser of the Fund is
jointly and primarily responsible for the day-to-day management of the
Fund's portfolio, information in response to this Item is required for
each member of such committee, team, or other group. For each such
member, provide a brief description of the person's role on the
committee, team, or other group (e.g., lead member), including a
description of any limitations on the person's role and the
relationship between the person's role and the roles of other persons
who have responsibility for the day-to-day management of the Fund's
portfolio. If more than five persons are jointly and primarily
responsible for the day-to-day management of the Fund's portfolio, the
Fund need only provide information for the five persons with the most
significant responsibility for the day-to-day management of the Fund's
portfolio.
d. Administrators. The identity of any other person who provides
significant administrative or business affairs management services
(e.g., an ``Administrator'' or ``Sub-Administrator''), a description of
the services provided, and the compensation to be paid;
e. Custodians. The name and principal business address of the
custodian(s), transfer agent, and dividend paying agent;
f. Expenses. The type of expenses for which the Fund is
responsible, and, if organization expenses of the Fund are to be paid
out of its assets, how the expenses will be amortized and the period
over which the amortization will occur; and
g. Affiliated Brokerage. If the Fund pays (or will pay) brokerage
commissions to any broker that is an (1) affiliated person of the Fund,
(2) affiliated person of such person, or (3) affiliated person of an
affiliated person of the Fund, its investment adviser, or its principal
underwriter, a statement to that effect.
2. Non-resident Managers. If any non-resident officer, director,
underwriter, investment adviser, or expert named in the registration
statement has a substantial portion of its assets located outside the
United States, identify each person, and state how the enforcement by
investors of civil liabilities under the federal securities laws may be
affected. This disclosure should indicate whether:
a. Investors will be able to effect service of process within the
United States upon these persons;
b. investors will be able to enforce, in United States courts,
judgments against these persons obtained in such courts predicated upon
the civil liability provisions of the federal securities laws;
c. the appropriate foreign courts would enforce judgments of United
States courts obtained in actions against these persons predicated upon
the civil liability provisions of the federal securities laws; and
d. the appropriate foreign courts would enforce, in original
actions, liabilities against these persons predicated solely upon the
federal securities laws.
Instruction. If any portions of this disclosure are stated to be
based upon an opinion of counsel, name the counsel in the prospectus,
and include an appropriate manually signed consent to the use of
counsel's name and opinion as an exhibit to the registration statement.
3. Control Persons. Identify each person who, as of a specified
date no more than 30 days prior to the date of filing the registration
statement (or amendment to it), controls the Fund.
Instruction. For the purposes of this Item, ``control'' means (1)
the beneficial ownership, either directly or through one or more
controlled companies, of
[[Page 14536]]
more than 25 percent of the voting securities of a company; (2) the
acknowledgment or assertion by either the controlled or controlling
party of the existence of control; or (3) an adjudication under Section
2(a)(9) of the Investment Company Act, which has become final, that
control exists.
Item 10. Capital Stock, Long-Term Debt, and Other Securities
1. Capital Stock. For each class of capital stock of the Fund,
state the title of the class and briefly describe all of the matters
listed in paragraphs 1.a through 1.f that are relevant:
a. Concisely discuss the nature and most significant attributes,
including, where applicable, (1) dividend rights, policies, or
limitations; (2) voting rights; (3) liquidation rights; (4) liability
to further calls or to assessments by the Fund; (5) preemptive rights,
conversion rights, redemption provisions, and sinking fund provisions;
and (6) any material obligations or potential liability associated with
ownership of the security (not including investment risks);
Instructions.
1. A complete legal description of the securities should not be
given.
2. If the Fund has a policy of making distribution or dividend
payments at predetermined times and minimum rates, disclosure should
include a statement that, if the fund's investments do not generate
sufficient income, the fund may be required to liquidate a portion of
its portfolio to fund these distributions, and therefore these payments
may represent a reduction of the shareholders' principal investment.
The tax consequences of such payments also should be described briefly.
b. with respect to preferred stock, (1) state whether there are any
restrictions on the Fund while there is an arrearage in the payment of
dividends or sinking fund installments, and, if so, concisely describe
the restrictions and (2) briefly describe provisions restricting the
declaration of dividends, requiring the maintenance of any ratio or
assets, requiring the creation or maintenance of reserves, or
permitting or restricting the issuance of additional securities;
c. if the rights of holders of the security may be modified other
than by a vote of a majority or more of the shares outstanding, voting
as a class, so state, and briefly explain;
d. if rights evidenced by, or the amounts payable with respect to,
any class of securities being described are, or may be, materially
limited or qualified by the rights of any other authorized class of
securities, include sufficient information regarding the other
securities to enable investors to understand such rights and
limitations;
e. if the Fund has a dividend reinvestment plan, briefly discuss
the material aspects of the plan including, but not limited to, whether
the plan is automatic or whether shareholders must affirmatively elect
to participate; (2) the method by which shareholders can elect to
reinvest stock dividends or, if the plan is automatic, to receive cash
dividends; (3) from whom additional information about the plan may be
obtained (including a telephone number or address); (4) the method of
determining the number of shares that will be distributed in lieu of a
cash dividend; (5) the income tax consequences of participation in the
plan (i.e., that capital gains and income are realized, although cash
is not received by the shareholder); (6) how to terminate participation
in the plan and rights upon termination; (7) if applicable, that an
investor holding shares that participate in the dividend reinvestment
plan in a brokerage account may not be able to transfer the shares to
another broker and continue to participate in the dividend reinvestment
plan; (8) the type and amount (if known) of fees, commissions, and
expenses payable by participants in connection with the plan; and (9)
if a cash purchase plan option is available, any minimum or maximum
investment required; and
f. briefly describe any provision of the Fund's charter or bylaws
that would have an effect of delaying, deferring, or preventing a
change of control of the Fund and that would operate only with respect
to an extraordinary corporate transaction involving the Fund, such as a
merger, reorganization, tender offer, sale or transfer of substantially
all of its assets, or liquidation.
Instruction. Provisions and arrangements required by law or imposed
by governmental or judicial authority need not be discussed. Provisions
or arrangements adopted by the Fund to effect or further compliance
with laws or governmental or judicial mandate must be described where
compliance does not require the specific provisions or arrangements
adopted.
2. Long-Term Debt. If the Fund is issuing or has outstanding a
class of long-term debt, state the title of the debt securities and
their principal amount, and concisely describe any of the matters
listed in paragraphs 2.a through 2.e that are relevant:
a. Provisions concerning maturity, interest, conversion,
redemption, amortization, sinking fund, and/or retirement;
b. provisions restricting the declaration of dividends, requiring
the maintenance of any ratio or assets, and/or requiring the creation
or maintenance of reserves;
c. provisions permitting or restricting the issuance of additional
securities, the ability to incur additional debt, the release or
substitution of assets securing the issue, and/or the modification of
the terms of the securities;
Instruction. A complete legal description of the securities should
not be given.
d. for each trustee, its name, the nature of any material
relationship it has with the Fund or any of its affiliates, the
percentage of securities necessary to require the trustee to take
action, and any indemnification the trustee may require before
proceeding against assets of the Fund; and
e. to the extent not otherwise disclosed in response to this Item,
whether the rights evidenced by the long-term debt are, or may be,
materially limited or qualified by the rights of any other authorized
class of securities, and, if so, include sufficient information
regarding such other securities to enable investors to understand such
rights and limitations.
3. General. Concisely describe the significant attributes of each
other class of the Fund's authorized securities. The description should
be comparable to that called for by paragraphs 1 and 2 of this Item. If
the securities are subscription warrants or rights, state the title and
amount of securities called for and the period during which, and the
prices at which, the warrants or rights are exercised.
4. Taxes. Concisely describe the tax consequences to investors of
an investment in the securities being offered. If the Fund intends to
qualify for treatment under Subchapter M of the Internal Revenue Code
of 1986 [26 U.S.C. 851-856], it is sufficient, in the absence of
special circumstances, to state that: (i) The Fund will distribute all
of its net investment income and gains to shareholders and that these
distributions are taxable as ordinary income or capital gains; (ii)
shareholders may be proportionately liable for taxes on income and
gains of the Fund but shareholders not subject to tax on their income
will not be required to pay tax on amounts distributed on them; and
(iii) the Fund will inform shareholders of the amount and nature of the
income or gains.
Instructions.
1. The description should not include detailed discussions of
applicable law.
2. The Fund should specifically address whether shareholders will
be subject to the alternative minimum tax.
[[Page 14537]]
5. Outstanding Securities. Furnish the following information, in
substantially the tabular form indicated, for each class of authorized
securities of the Fund. The information must be current within 90 days
of the filing of this registration statement or amendment to it.
----------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
----------------------------------------------------------------------------------------------------------------
Title of Class Amount Authorized Amount Held by Amount Outstanding
Registrant or for its Exclusive of Amount
Account Shown Under (3)
----------------------------------------------------------------------------------------------------------------
6. Securities Ratings. If the prospectus relates to senior
securities of the Fund that have been assigned a rating by a nationally
recognized securities rating organization and the rating is disclosed
in the prospectus, briefly discuss the significance of the rating, the
basis upon which ratings are issued, any conditions or guidelines
imposed by the NRSRO for the Fund to maintain the rating, and whether
or not the Fund intends, or has any contractual obligation, to comply
with these conditions or guidelines. In addition, disclose the material
terms of any agreement between the Fund or any of its affiliates and
the NRSRO under which the NRSRO provides such rating. If the prospectus
relates to securities other than senior securities of the Fund that
have been assigned a rating by a NRSRO, the information required by
this paragraph may be provided in the Statement of Additional
Information unless the rating criteria will materially affect the
investment policies of the Fund (e.g., if the rating agency establishes
criteria for selection of the Fund's portfolio securities with which
the Fund intends to comply), in which case it should be included in the
prospectus.
Instructions.
1. The term ``nationally recognized securities rating
organization'' has the same meaning as used in Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act.
2. Rule 436(g)(1) of Regulation C under the Securities Act [17 CFR
230.436(g)(1)] provides that a security rating assigned by an NRSRO to
a class of debt securities, a class of convertible debt securities, or
a class of preferred stock is not considered a part of the registration
statement for purposes of Sections 7 and 11 of the Securities Act.
Therefore, in the case of disclosure of a rating assigned to these
types of securities issued by the Fund, the Fund need not include a
written consent of the NRSRO as an exhibit to the registration
statement as required by Item 25.2.n but must provide the disclosure
called for by this Item.
3. Reference should be made to the statement of the Commission's
policy on security ratings set forth under the section ``General'' in
Regulation S-K [17 CFR 229.10] for the Commission's views on other
important matters to be considered in disclosing securities ratings.
Item 11. Defaults and Arrears on Senior Securities
1. State the nature, date, and amount of default of payment of
principal, interest, or amortization for each issue of long-term debt
of the Fund that is in default on the date of filing.
2. If an issue of capital stock has any accumulated dividend in
arrears at the date of filing, state the title of each issue and the
amount per share in arrears.
Item 12. Legal Proceedings
Describe briefly any material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the
Fund, any subsidiary of the Fund, or the Fund's investment adviser or
principal underwriter is a party. Include the name of the court where
the case is pending, the date instituted, the principal parties, a
description of the factual basis alleged to underlie the proceeding,
and the relief sought. Include similar information as to any proceeding
instituted by a governmental authority or known to be contemplated by a
governmental authority.
Instruction. Legal Proceedings, for purposes of this Item, are
material only to the extent that they are likely to have a material
adverse effect upon: (1) The ability of the investment adviser or
principal underwriter to perform its contract with the Fund; or (2) the
Fund.
Item 13. [Removed and Reserved]
Part B--Information Required in a Statement of Additional Information
Item 14. Cover Page
1. The outside cover page must contain the following information:
a. The Fund's name;
b. a statement or statements (1) that the Statement of Additional
Information is not a prospectus, (2) that the Statement of Additional
Information should be read with the prospectus, and (3) how a copy of
the prospectus may be obtained;
c. the date of the Statement of Additional Information;
d. the date of the related prospectus and any other identifying
information that the Fund deems appropriate; and
e. the statement required by paragraph (b)(2) of Rule 481 under the
Securities Act.
2. The cover page may include other information, provided that it
does not, by its nature, quantity, or manner of presentation, impede
understanding of required information.
Item 15. Table of Contents
List the contents of the Statement of Additional Information, and,
where useful, provide a cross-reference to related disclosure in the
prospectus.
Item 16. General Information and History
If the Fund has engaged in a business other than that of an
investment company during the past five years, state the nature of the
other business and give the approximate date on which the Fund
commenced business as an investment company. If the Fund's name was
changed during that period, state its former name and the approximate
date on which it was changed. If the change in the Fund's business or
name occurred in connection with any bankruptcy, receivership, or
similar proceeding or any other material reorganization, readjustment,
or succession, briefly describe the nature and results of the same.
Item 17. Investment Objective and Policies
1. Describe clearly and concisely the investment policies of the
Fund. It is not necessary to repeat information contained in the
prospectus, but, in augmenting the disclosure about those types of
investments, policies, or practices that are briefly discussed or
identified in the prospectus, the Fund should refer to the prospectus
when necessary to clarify the additional information called for by this
Item.
2. Concisely describe any fundamental policy of the Fund not
described in the prospectus with respect to each of the following
activities:
a. The issuance of senior securities;
b. short sales, purchases on margin, and the writing of put and
call options;
[[Page 14538]]
c. the borrowing of money (describe briefly any fundamental policy
that limits the Fund's ability to borrow money, and state the purpose
for which the proceeds will be used);
d. the underwriting of securities of other issuers (include any
fundamental policy concerning the acquisition of restricted securities,
i.e., securities that must be registered under the Securities Act
before they may be offered or sold to the public);
e. the concentration of investments in a particular industry or
groups of industries;
f. the purchase or sale of real estate and real estate mortgage
loans;
g. the purchase or sale of commodities or commodity contracts,
including futures contracts;
h. the making of loans (for purposes of this item, the term
``loans'' does not include the purchase of a portion of an issue of
publicly distributed bonds, debentures, or other securities, whether or
not the purchase was made upon the original issuance of the securities;
however, the term ``loan'' includes the loaning of cash or portfolio
securities to any person); and
i. any other policy that the Fund deems fundamental.
Instructions.
1. For purposes of this Item, the term ``fundamental policy'' is
defined as any policy that the Fund has deemed to be fundamental or
that may not be changed without the approval of a majority of the
Fund's outstanding voting securities.
2. If the Fund reserves freedom of action with respect to any of
the foregoing activities (other than the activity described in
paragraph e), it must disclose the maximum percentage of assets to be
devoted to the particular activity.
3. Describe fully any significant investment policies of the Fund
not described in the prospectus that are not deemed fundamental and
that may be changed without the approval of the holders of a majority
of the voting securities (e.g., investing for control of management,
investing in foreign securities, or arbitrage activities).
Instruction. The Fund should disclose the extent to which it may
engage in the above policies and the risks inherent in such policies.
4. Briefly explain any significant change in the Fund's portfolio
turnover rates over the last two fiscal years. If the Fund anticipates
a significant change in the portfolio turnover rate from that reported
under caption k of Item 4.1 for its most recent fiscal year, so state.
In the case of a new registration, the Fund should state its policy
with respect to portfolio turnover.
Item 18. Management
General Instructions.
1. For purposes of this Item 18, the terms below have the following
meanings:
a. The term ``family of investment companies'' means any two or
more registered investment companies that:
(1) Share the same investment adviser or principal underwriter; and
(2) Hold themselves out to investors as related companies for
purposes of investment and investor services.
b. The term ``fund complex'' means two or more registered
investment companies that:
(1) Hold themselves out to investors as related companies for
purposes of investment and investor services; or
(2) Have a common investment adviser or have an investment adviser
that is an affiliated person of the investment adviser of any of the
other registered investment companies.
c. The term ``immediate family member'' means a person's spouse;
child residing in the person's household (including step and adoptive
children); and any dependent of the person, as defined in Section 152
of the Internal Revenue Code [26 U.S.C. 152].
d. The term ``officer'' means the president, vice-president,
secretary, treasurer, controller, or any other officer who performs
policy-making functions.
2. When providing information about directors, furnish information
for directors who are interested persons of the Fund, as defined in
Section 2(a)(19) of the Investment Company Act and the rules
thereunder, separately from the information for directors who are not
interested persons of the Fund. For example, when furnishing
information in a table, you should provide separate tables (or separate
sections of a single table) for directors who are interested persons
and for directors who are not interested persons. When furnishing
information in narrative form, indicate by heading or otherwise the
directors who are interested persons and the directors who are not
interested persons.
1. Provide the information required by the following table for each
director and officer of the Fund, and, if the Fund has an advisory
board, member of the board. Explain in a footnote to the table any
family relationship between the persons listed.
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name, Address, and Age Position(s) Held with Term of Office and Principal Number of Portfolios Other Directorships
Registrant Length of Time Served Occupation(s) During in Fund Complex Held by Director
Past 5 Years Overseen by Director
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instructions.
1. For purposes of this paragraph, the term ``family relationship''
means any relationship by blood, marriage, or adoption, not more remote
than first cousin.
2. For each director who is an interested person of the Fund, as
defined in Section 2(a)(19) of the Investment Company Act and the rules
thereunder, describe, in a footnote or otherwise, the relationship,
events, or transactions by reason of which the director is an
interested person.
3. State the principal business of any company listed under column
(4) unless the principal business is implicit in its name.
4. Indicate in column (6) directorships not included in column (5)
that are held by a director in any company with a class of securities
registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act,
and name the companies in which the directorships are held. Where the
other directorships include directorships overseeing two or more
portfolios in the same fund complex, identify the fund complex and
provide the number of portfolios overseen as a director in the fund
complex rather than listing each portfolio separately.
2. For each individual listed in column (1) of the table required
by paragraph 1 of this Item 18, except for any director who is not an
interested person of the Fund, as defined in Section 2(a)(19) of the
Investment Company Act and the rules thereunder, describe any
positions, including as an officer, employee, director, or general
partner, held with affiliated persons or principal underwriters of the
Fund.
[[Page 14539]]
Instruction. When an individual holds the same position(s) with two
or more registered investment companies that are part of the same fund
complex, identify the fund complex and provide the number of registered
investment companies for which the position(s) are held rather than
listing each registered investment company separately.
3. Describe briefly any arrangement or understanding between any
director or officer and any other person(s) (naming the person(s))
pursuant to which he was selected as a director or officer.
Instruction. Do not include arrangements or understandings with
directors or officers acting solely in their capacities as such.
4. For each non-resident director or officer of the Fund listed in
column (1) of the table required by paragraph 1, disclose whether he
has authorized an agent in the United States to receive notice and, if
so, disclose the name and address of the agent.
5. a. Briefly describe the leadership structure of the Fund's
board, including whether the chairman of the board is an interested
person of the Fund, as defined in Section 2(a)(19) of the Investment
Company Act. If the chairman of the board is an interested person of
the Fund, disclose whether the Fund has a lead independent director and
what specific role the lead independent director plays in the
leadership of the Fund. This disclosure should indicate why the Fund
has determined that its leadership structure is appropriate given the
specific characteristics or circumstances of the Fund. In addition,
disclose the extent of the board's role in the risk oversight of the
Fund, such as how the board administers its oversight function, and the
effect that this has on the board's leadership structure.
b. Identify the standing committees of the Fund's board of
directors, and provide the following information about each committee:
(1) A concise statement of the functions of the committee;
(2) The members of the committee;
(3) The number of committee meetings held during the last fiscal
year; and
(4) If the committee is a nominating or similar committee, state
whether the committee will consider nominees recommended by security
holders and, if so, describe the procedures to be followed by security
holders in submitting recommendations.
6. a. Unless disclosed in the table required by paragraph 1 of this
Item 18, describe any positions, including as an officer, employee,
director, or general partner, held by any director who is not an
interested person of the Fund, as defined in Section 2(a)(19) of the
Investment Company Act and the rules thereunder, or immediate family
member of the director, during the two most recently completed calendar
years with:
(1) The Fund;
(2) An investment company, or a person that would be an investment
company but for the exclusions provided by Sections 3(c)(1) and 3(c)(7)
of the Investment Company Act, having the same investment adviser or
principal underwriter as the Fund or having an investment adviser or
principal underwriter that directly or indirectly controls, is
controlled by, or is under common control with an investment adviser or
principal underwriter of the Fund;
(3) An investment adviser, principal underwriter, or affiliated
person of the Fund; or
(4) Any person directly or indirectly controlling, controlled by,
or under common control with an investment adviser or principal
underwriter of the Fund.
b. Unless disclosed in the table required by paragraph 1 of this
Item 18 or in response to paragraph 6.a of this Item 18, indicate any
directorships held during the past five years by each director in any
company with a class of securities registered pursuant to Section 12 of
the Exchange Act or subject to the requirements of Section 15(d) of the
Exchange Act or any company registered as an investment company under
the Investment Company Act, and name the companies in which the
directorships were held.
Instruction. When an individual holds the same position(s) with two
or more portfolios that are part of the same fund complex, identify the
fund complex and provide the number of portfolios for which the
position(s) are held rather than listing each portfolio separately.
7. For each director, state the dollar range of equity securities
beneficially owned by the director as required by the following table:
a. In the Fund; and
b. On an aggregate basis, in any registered investment companies
overseen by the director within the same family of investment companies
as the Fund.
------------------------------------------------------------------------
(1) (2) (3)
------------------------------------------------------------------------
Name of Director Dollar Range of Aggregate Dollar
Equity Securities Range of Equity
in the Registrant Securities in All
Registered
Investment
Companies Overseen
by Director in
Family of
Investment
Companies
------------------------------------------------------------------------
Instructions.
1. Information should be provided as of the end of the most
recently completed calendar year. Specify the valuation date by
footnote or otherwise.
2. Determine ``beneficial ownership'' in accordance with Rule 16a-
1(a)(2) under the Exchange Act.
3. In disclosing the dollar range of equity securities beneficially
owned by a director in columns (2) and (3), use the following ranges:
None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
8. For each director who is not an interested person of the Fund,
as defined in Section 2(a)(19) of the Investment Company Act and the
rules thereunder, and his immediate family members, furnish the
information required by the following table as to each class of
securities owned beneficially or of record in:
a. An investment adviser or principal underwriter of the Fund; or
b. person (other than a registered investment company) directly or
indirectly controlling, controlled by, or under common control with an
investment adviser or principal underwriter of the Fund:
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Director Name of Owners and Company Title of Class Value of Securities Percent of Class
Relationships to
Director
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 14540]]
Instructions.
1. Information should be provided as of the end of the most
recently completed calendar year. Specify the valuation date by
footnote or otherwise.
2. An individual is a ``beneficial owner'' of a security if he is a
``beneficial owner'' under either Rule 13d-3 or Rule 16a-1(a)(2) under
the Exchange Act.
3. Identify the company in which the director or immediate family
member of the director owns securities in column (3). When the company
is a person directly or indirectly controlling, controlled by, or under
common control with an investment adviser or principal underwriter,
describe the company's relationship with the investment adviser or
principal underwriter.
4. Provide the information required by columns (5) and (6) on an
aggregate basis for each director and his immediate family members.
9. Unless disclosed in response to paragraph 8 of this Item 18,
describe any direct or indirect interest, the value of which exceeds
$120,000, of each director who is not an interested person of the Fund,
as defined in Section 2(a)(19) of the Investment Company Act and the
rules thereunder, or immediate family member of the director, during
the two most recently completed calendar years, in:
a. An investment adviser or principal underwriter of the Fund; or
b. A person (other than a registered investment company) directly
or indirectly controlling, controlled by, or under common control with
an investment adviser or principal underwriter of the Fund.
Instructions.
1. A director or immediate family member has an interest in a
company if he is a party to a contract, arrangement, or understanding
with respect to any securities of, or interest in, the company.
2. The interest of the director and the interests of his immediate
family members should be aggregated in determining whether the value
exceeds $120,000.
10. Describe briefly any material interest, direct or indirect, of
any director who is not an interested person of the Fund, as defined in
Section 2(a)(19) of the Investment Company Act and the rules
thereunder, or immediate family member of the director, in any
transaction, or series of similar transactions, during the two most
recently completed calendar years, in which the amount involved exceeds
$120,000 and to which any of the following persons was a party:
a. The Fund;
b. An officer of the Fund;
c. An investment company, or a person that would be an investment
company but for the exclusions provided by Sections 3(c)(1) and 3(c)(7)
of the Investment Company, having the same investment adviser or
principal underwriter as the Fund or having an investment adviser or
principal underwriter that directly or indirectly controls, is
controlled by, or is under common control with an investment adviser or
principal underwriter of the Fund;
d. An officer of an investment company, or a person that would be
an investment company but for the exclusions provided by Sections
3(c)(1) and 3(c)(7) of the Investment Company Act, having the same
investment adviser or principal underwriter as the Fund or having an
investment adviser or principal underwriter that directly or indirectly
controls, is controlled by, or is under common control with an
investment adviser or principal underwriter of the Fund;
e. An investment adviser or principal underwriter of the Fund;
f. An officer of an investment adviser or principal underwriter of
the Fund;
g. A person directly or indirectly controlling, controlled by, or
under common control with an investment adviser or principal
underwriter of the Fund; or
h. An officer of a person directly or indirectly controlling,
controlled by, or under common control with an investment adviser or
principal underwriter of the Fund.
Instructions.
1. Include the name of each director or immediate family member
whose interest in any transaction or series of similar transactions is
described and the nature of the circumstances by reason of which the
interest is required to be described.
2. State the nature of the interest, the approximate dollar amount
involved in the transaction, and, where practicable, the approximate
dollar amount of the interest.
3. In computing the amount involved in the transaction or series of
similar transactions, include all periodic payments in the case of any
lease or other agreement providing for periodic payments.
4. Compute the amount of the interest of any director or immediate
family member of the director without regard to the amount of profit or
loss involved in the transaction(s).
5. As to any transaction involving the purchase or sale of assets,
state the cost of the assets to the purchaser and, if acquired by the
seller within two years prior to the transaction, the cost to the
seller. Describe the method used in determining the purchase or sale
price and the name of the person making the determination.
6. Disclose indirect, as well as direct, material interests in
transactions. A person who has a position or relationship with, or
interest in, a company that engages in a transaction with one of the
persons listed in paragraphs 10.a through 10.h of this Item 18 may have
an indirect interest in the transaction by reason of the position,
relationship, or interest. The interest in the transaction, however,
will not be deemed ``material'' within the meaning of paragraph 10 of
this Item 18 where the interest of the director or immediate family
member arises solely from the holding of an equity interest (including
a limited partnership interest, but excluding a general partnership
interest) or a creditor interest in a company that is a party to the
transaction with one of the persons specified in paragraphs 10.a
through 10.h of this Item 18, and the transaction is not material to
the company.
7. The materiality of any interest is to be determined on the basis
of the significance of the information to investors in light of all the
circumstances of the particular case. The importance of the interest to
the person having the interest, the relationship of the parties to the
transaction with each other, and the amount involved in the transaction
are among the factors to be considered in determining the significance
of the information to investors.
8. No information need be given as to any transaction where the
interest of the director or immediate family member arises solely from
the ownership of securities of a person specified in paragraphs 10.a
through 10.h of this Item 18 and the director or immediate family
member receives no extra or special benefit not shared on a pro rata
basis by all holders of the class of securities.
9. Transactions include loans, lines of credit, and other
indebtedness. For indebtedness, indicate the largest aggregate amount
of indebtedness outstanding at any time during the period, the nature
of the indebtedness and the transaction in which it was incurred, the
amount outstanding as of the end of the most recently completed
calendar year, and the rate of interest paid or charged.
10. No information need be given as to any routine, retail
transaction. For example, the Fund need not disclose that a director
has a credit card, bank or brokerage account, residential mortgage,
[[Page 14541]]
or insurance policy with a person specified in paragraphs 10.a through
10.h of this Item 18 unless the director is accorded special treatment.
11. Describe briefly any direct or indirect relationship, in which
the amount involved exceeds $120,000, of any director who is not an
interested person of the Fund, as defined in Section 2(a)(19) of the
Investment Company Act and the rules thereunder, or immediate family
member of the director, that existed at any time during the two most
recently completed calendar years, with any of the persons specified in
paragraphs 10.a through 10.h of this Item 18. Relationships include:
a. Payments for property or services to or from any person
specified in paragraphs 10.a through 10.h of this Item 18;
b. Provision of legal services to any person specified in
paragraphs 10.a through 10.h of this Item 18;
c. Provision of investment banking services to any person specified
in paragraphs 10.a through 10.h of this Item 18, other than as a
participating underwriter in a syndicate; and
d. Any consulting or other relationship that is substantially
similar in nature and scope to the relationships listed in paragraphs
11.a through 11.c of this Item 18.
Instructions.
1. Include the name of each director or immediate family member
whose relationship is described and the nature of the circumstances by
reason of which the relationship is required to be described.
2. State the nature of the relationship and the amount of business
conducted between the director or immediate family member and the
person specified in paragraphs 10.a through 10.h of this Item 18 as a
result of the relationship during the two most recently completed
calendar years.
3. In computing the amount involved in a relationship, include all
periodic payments in the case of any agreement providing for periodic
payments.
4. Disclose indirect, as well as direct, relationships. A person
who has a position or relationship with, or interest in, a company that
has a relationship with one of the persons listed in paragraphs 10.a
through 10.h of this Item 18 may have an indirect relationship by
reason of the position, relationship, or interest.
5. In determining whether the amount involved in a relationship
exceeds $120,000, amounts involved in a relationship of the director
should be aggregated with those of his immediate family members.
6. In the case of an indirect interest, identify the company with
which a person specified in paragraphs 10.a through 10.h of this Item
18 has a relationship; the name of the director or immediate family
member affiliated with the company and the nature of the affiliation;
and the amount of business conducted between the company and the person
specified in paragraphs 10.a through 10.h of this Item 18 during the
two most recently completed calendar years.
7. In calculating payments for property and services for purposes
of paragraph 11.a of this Item 18, the following may be excluded:
a. Payments where the transaction involves the rendering of
services as a common contract carrier, or public utility, at rates or
charges fixed in conformity with law or governmental authority; or
b. Payments that arise solely from the ownership of securities of a
person specified in paragraphs 10.a through 10.h of this Item 18 and no
extra or special benefit not shared on a pro rata basis by all holders
of the class of securities is received.
8. No information need be given as to any routine, retail
relationship. For example, the Fund need not disclose that a director
has a credit card, bank or brokerage account, residential mortgage, or
insurance policy with a person specified in paragraphs 10.a through
10.h of this Item 18 unless the director is accorded special treatment.
12. If an officer of an investment adviser or principal underwriter
of the Fund, or an officer of a person directly or indirectly
controlling, controlled by, or under common control with an investment
adviser or principal underwriter of the Fund, served during the two
most recently completed calendar years, on the board of directors of a
company where a director of the Fund who is not an interested person of
the Fund, as defined in Section 2(a)(19) of the Investment Company Act
and the rules thereunder, or immediate family member of the director,
was during the two most recently completed calendar years, an officer,
identify:
a. The company;
b. The individual who serves or has served as a director of the
company and the period of service as director;
c. The investment adviser or principal underwriter or person
controlling, controlled by, or under common control with the investment
adviser or principal underwriter where the individual named in
paragraph 12.b of this Item 18 holds or held office and the office
held; and
d. The director of the Fund or immediate family member who is or
was an officer of the company; the office held; and the period of
holding the office.
13. In the case of a Fund that is not a business development
company, provide the following for all directors of the Fund, all
members of the advisory board of the Fund, and for each of the three
highest paid officers or any affiliated person of the Fund with
aggregate compensation from the Fund for the most recently completed
fiscal year in excess of $60,000 (``Compensated Persons'').
a. Furnish the information required by the following table:
Compensation Table
----------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
----------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Pension or Estimated Annual Total Compensation
Compensation From Retirement Benefits Upon From Fund and
Fund Benefits Accrued Retirement Fund Complex Paid
As Part of Fund to Directors
Expenses
----------------------------------------------------------------------------------------------------------------
Instructions.
1. For column (1), indicate, if necessary, the capacity in which
the remuneration is received. For Compensated Persons that are
directors of the Fund, compensation is amounts received for service as
a director.
2. If the Fund has not completed its first full year since its
organization, furnish the information for the current fiscal year,
estimating future payments that would be made pursuant to an existing
agreement or understanding. Disclose in a footnote to the Compensation
Table the period for which the information is furnished.
3. Include in column (2) amounts deferred at the election of the
Compensated Person, whether pursuant to a plan established under
Section 401(k) of the Internal Revenue Code [26
[[Page 14542]]
U.S.C. 401(k)] or otherwise for the fiscal year in which earned.
Disclose in a footnote to the Compensation Table the total amount of
deferred compensation (including interest) payable to or accrued for
any Compensated Person.
4. Include in columns (3) and (4) all pension or retirement
benefits proposed to be paid under any existing plan in the event of
retirement at normal retirement date, directly or indirectly, by the
Fund, any of its subsidiaries, or other companies in the Fund Complex.
Omit column (4) where retirement benefits are not determinable.
5. For any defined benefit or actuarial plan under which benefits
are determined primarily by final compensation (or average final
compensation) and years of service, provide the information required in
column (4) in a separate table showing estimated annual benefits
payable upon retirement (including amounts attributable to any defined
benefit supplementary or excess pension award plans) in specified
compensation and years of service classifications. Also provide the
estimated credited years of service for each Compensated Person.
6. Include in column (5) only aggregate compensation paid to a
director for service on the board and all other boards of investment
companies in a Fund Complex specifying the number of such other
investment companies.
b. Describe briefly the material provisions of any pension,
retirement, or other plan or any arrangement other than fee
arrangements disclosed in paragraph (a) pursuant to which Compensated
Persons are or may be compensated for any services provided, including
amounts paid, if any, to the Compensated Person under any such
arrangements during the most recently completed fiscal year.
Specifically include the criteria used to determine amounts payable
under the plan, the length of service or vesting period required by the
plan, the retirement age or other event which gives rise to payments
under the plan, and whether the payment of benefits is secured or
funded by the Fund.
14. In the case of a Fund that is a business development company,
provide the information required by Item 402 of Regulation S-K [17 CFR
229.402].
15. Codes of Ethics. Provide a brief statement disclosing whether
the Fund and its investment adviser and principal underwriter have
adopted codes of ethics under Rule 17j-1 under the Investment Company
Act and whether these codes of ethics permit personnel subject to the
codes to invest in securities, including securities that may be
purchased or held by the Fund. Also, explain in the statement that
these codes of ethics are available on the EDGAR Database on the
Commission's internet site at http://www.sec.gov, and that copies of
these codes of ethics may be obtained, after paying a duplicating fee,
by electronic request at the following email address:
[email protected].
Instruction. A Fund that is not required to adopt a code of ethics
under Rule 17j-1 under the Investment Company Act is not required to
respond to this Item.
16. Unless the Fund invests exclusively in non-voting securities,
describe the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities, including the
procedures that the Fund uses when a vote presents a conflict between
the interests of the Fund's shareholders, on the one hand, and those of
the Fund's investment adviser; principal underwriter; or any affiliated
person (as defined in Section 2(a)(3) of the Investment Company Act and
the rules thereunder) of the Fund, its investment adviser, or its
principal underwriter, on the other. Include any policies and
procedures of the Fund's investment adviser, or any other third party,
that the Fund uses, or that are used on the Fund's behalf, to determine
how to vote proxies relating to portfolio securities. Also, state that
information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is
available (i) without charge, upon request, by calling a specified
toll-free (or collect) telephone number; sending an email to a
specified email address, if any; or on or through the Fund's website at
a specified internet address; and (ii) on the Commission's website at
http://www.sec.gov.
Instructions.
1. A Fund may satisfy the requirement to provide a description of
the policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities by including a copy of the
policies and procedures themselves.
2. If a Fund discloses that the Fund's proxy voting record is
available by calling a toll-free (or collect) telephone number or
sending an email to a specified email address, if any, and the Fund (or
financial intermediary through which shares of the Fund may be
purchased or sold) receives a request for this information, the Fund
(or financial intermediary) must send the information disclosed in the
Fund's most recently filed report on Form N-PX, within 3 business days
of receipt of the request, by first-class mail or other means designed
to ensure equally prompt delivery.
3. If a Fund discloses that the Fund's proxy voting record is
available on or through its website, the Fund must make available free
of charge the information disclosed in the Fund's most recently filed
report on Form N-PX on or through its website as soon as reasonably
practicable after filing the report with the Commission. The
information disclosed in the Fund's most recently filed report on Form
N-PX must remain available on or through the Fund's website for as long
as the Fund remains subject to the requirements of Rule 30b1-4 under
the Investment Company Act and discloses that the Fund's proxy voting
record is available on or through its website.
17. For each director, briefly discuss the specific experience,
qualifications, attributes, or skills that led to the conclusion that
the person should serve as a director for the Fund at the time that the
disclosure is made, in light of the Fund's business and structure. If
material, this disclosure should cover more than the past five years,
including information about the person's particular areas of expertise
or other relevant qualifications.
Item 19. Control Persons and Principal Holders of Securities
Furnish the following information as of a specified date no more
than 30 days prior to the date of filing of the registration statement
or amendment to it.
1. State the name and address of each person who controls the Fund,
and briefly explain the effect of such control on the voting rights of
other shareholders. For each control person, state the percentage of
the Fund's voting securities owned or any other basis of control. If
the control person is a company, disclose the state or other
jurisdiction under the laws of which it is organized. List all parents
of each control person.
Instructions.
1. The term ``control'' is defined in the instruction to Item 9.3
of this Form.
2. A Fund that is controlled by its adviser or underwriter(s)
before the effective date of the registration statement need not
respond to this Item if, immediately after the public offering, there
will be no control person.
2. State the name, address, and percentage of ownership of each
person who owns of record or is known by the Fund to own of record or
beneficially five percent or more of any class of the Fund's
outstanding equity securities.
Instructions.
[[Page 14543]]
1. Calculate the percentages on the basis of the amount of common
stock outstanding.
2. If securities are being registered in connection with or
pursuant to a plan of acquisition, reorganization, readjustment, or
succession, indicate, to the extent practicable, the status to exist
upon consummation of the plan on the basis of present holdings and
commitments.
3. If, to the knowledge of the Fund or any principal underwriter of
its securities, five percent or more of any class of voting securities
of the Fund are or will be held subject to any voting trust or other
similar agreement, disclose this fact.
4. Indicate whether the securities are owned both of record and
beneficially, or of record only, or beneficially only, and disclose the
respective percentage owned in each manner.
3. Disclose all equity securities of the Fund owned by all
officers, directors, and members of the advisory board of the Fund as a
group, without naming them. In any case where the amount owned by
directors and officers as a group is less than one percent of the
class, a statement to that effect is sufficient.
Item 20. Investment Advisory and Other Services
1. Furnish the following information about each investment adviser:
a. The names of all controlling persons, the basis of such control,
and, if material, the business history of any organization that
controls the adviser;
b. the names of any affiliated person of the Fund who is also an
affiliated person of the investment adviser and a list of all
capacities in which such person named is affiliated with the Fund and/
or with the investment adviser; and
Instruction. If an affiliated person of the Fund, either alone or
together with others, is a controlling person of the investment
adviser, the Fund must disclose that fact but need not supply the
specific amount of percentage of the outstanding voting securities of
the investment adviser that are owned by the controlling person.
c. the method of computing the advisory fee payable by the Fund,
including:
(1) The total dollar amounts paid to the adviser by the Fund under
the investment advisory contract for the last three fiscal years;
(2) if applicable, any credits that reduced the advisory fee for
any of the last fiscal years; and
(3) any expense limitation provision.
Instructions.
1. If the advisory fee payable by the Fund varies depending on the
Fund's investment performance in relation to some standard, set forth
the standard along with a fee schedule in tabular form. The Fund may
include examples showing the fees the adviser would earn at various
levels of performance, but such examples must include calculations
showing the maximum and minimum fee percentages that could be earned
under the contract.
2. State each type of credit or offset separately.
3. Where the Fund is subject to more than one expense limitation
provision, describe only the most restrictive provision.
2. Concisely describe all services performed for or on behalf of
the Fund that are supplied or paid for wholly or in substantial part by
the investment adviser in connection with the investment advisory
contract.
3. Describe briefly all fees, expenses, and costs of the Fund that
are to be paid by persons other than the investment adviser or the
Fund, and identify such persons.
4. Summarize any management-related service contract under which
services are provided to the Fund that is not otherwise disclosed in
response to an Item of this Form and may be of interest to a purchaser
of the Fund's securities, indicating the parties to the contract and
the total dollars paid, and by whom, for the past three years.
Instructions.
1. A ``management-related service contract'' includes any agreement
whereby another person contracts with the Fund to keep, prepare, and/or
file accounts, books, records, or other documents that the Fund may be
required to keep under federal or state law, or to provide any similar
services with respect to the daily administration of the Fund, but does
not include the following: (1) Any contract with the Fund to provide
investment advice; (2) any agreement to act as custodian, transfer
agent, or dividend-paying agent; and (3) bona fide contracts for
outside legal or auditing services, or bona fide contracts for personal
employment entered into in the ordinary course of business.
2. No information is required about the service of mailing proxies
or periodic reports to shareholders of the Fund.
3. In summarizing the substantive provisions of a management-
related service contract, include: (1) The name of the person providing
the service; (2) any direct or indirect relationship of that person
with the Fund, its investment adviser, or its principal underwriter;
(3) the nature of the services provided; and (4) the basis of the
compensation paid for the last three fiscal years.
5. If any person (other than a bona fide director, officer, member
of an advisory board, employee of the Fund, or a person named as an
investment adviser in response to paragraph 1 of this Item), pursuant
to any understanding, whether formal or informal, regularly furnishes
advice to the Fund or the investment adviser of the Fund with respect
to the desirability of the Fund's investing in, purchasing, or selling
securities or other property, or is empowered to determine which
securities or other property should be purchased or sold by the Fund,
and receives direct or indirect remuneration from the Fund, furnish the
following information:
a. The name of the person;
b. a description of the nature of the arrangement and the advice or
information given; and
c. any remuneration (including, for example, participation,
directly or indirectly, in commissions or other compensation paid in
connection with transactions in the Fund's portfolio securities) paid
for the advice or information, and a statement as to how and by whom
such remuneration was paid for the last three fiscal years.
Instruction. No information is required with respect to any of the
following:
1. Persons whose advice was furnished solely through uniform
publications distributed to subscribers;
2. persons who furnished only statistical and other factual
information, advice regarding economic factors and trends, or advice as
to occasional transactions in specific securities, but without
generally furnishing advice or making recommendations regarding the
purchase or sale of securities by the Fund;
3. a company that is excluded from the definition of ``investment
adviser'' of an investment company by reason of Section 2(a)(20)(iii)
of the Investment Company Act;
4. any person the character and amount of whose compensation for
such service must be approved by a court; or
5. such other persons as the Commission has by rules and
regulations or order determined not to be an ``investment adviser'' of
an investment company.
6. Furnish the name and principal business address of each of the
Fund's custodians, the nature of the business of each such person, and
a general description of the services performed by each.
[[Page 14544]]
7. Furnish the name and principal business address of the Fund's
independent public accountant, and provide a general description of the
services performed by such person.
8. If an affiliated person of the Fund, or an affiliated person of
an affiliated person of the Fund, acts as custodian, transfer agent, or
dividend-paying agent for the Fund, furnish a description of the
services performed by that person and the basis for remuneration (e.g.,
the method by which that person's fee is calculated).
Item 21. Portfolio Managers
1. Other Accounts Managed. If a Portfolio Manager required to be
identified in response to Item 9.1.c is primarily responsible for the
day-to-day management of the portfolio of any other account, provide
the following information:
a. The Portfolio Manager's name;
b. The number of other accounts managed within each of the
following categories and the total assets in the accounts managed
within each category:
(1) Registered investment companies;
(2) Other pooled investment vehicles; and
(3) Other accounts.
c. For each of the categories in Item 21.1.b, the number of
accounts and the total assets in the accounts with respect to which the
advisory fee is based on the performance of the account; and
d. A description of any material conflicts of interest that may
arise in connection with the Portfolio Manager's management of the
Fund's investments, on the one hand, and the investments of the other
accounts included in response to Item 21.1.b, on the other. This
description would include, for example, material conflicts between the
investment strategy of the Fund and the investment strategy of other
accounts managed by the Portfolio Manager and material conflicts in
allocation of investment opportunities between the Fund and other
accounts managed by the Portfolio Manager.
Instructions.
1. Provide the information required by Item 21.1 as of the end of
the Fund's most recently completed fiscal year, except that, in the
case of an initial registration statement or an update to the Fund's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager must
be provided as of the most recent practicable date. Disclose the date
as of which the information is provided.
2. If a committee, team, or other group of persons that includes
the Portfolio Manager is jointly and primarily responsible for the day-
to-day management of the portfolio of an account, include the account
in responding to Item 21.1.
2. Compensation. Describe the structure of, and the method used to
determine, the compensation of each Portfolio Manager required to be
identified in response to Item 9.1.c. For each type of compensation
(e.g., salary, bonus, deferred compensation, retirement plans and
arrangements), describe with specificity the criteria on which that
type of compensation is based, for example, whether compensation is
fixed, whether (and, if so, how) compensation is based on the Fund's
pre- or after-tax performance over a certain time period, and whether
(and, if so, how) compensation is based on the value of assets held in
the Fund's portfolio. For example, if compensation is based solely or
in part on performance, identify any benchmark used to measure
performance and state the length of the period over which performance
is measured.
Instructions.
1. Provide the information required by Item 21.2 as of the end of
the Fund's most recently completed fiscal year, except that, in the
case of an initial registration statement or an update to the Fund's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager must
be provided as of the most recent practicable date. Disclose the date
as of which the information is provided.
2. Compensation includes, without limitation, salary, bonus,
deferred compensation, and pension and retirement plans and
arrangements, whether the compensation is cash or non-cash. Group life,
health, hospitalization, medical reimbursement, and pension and
retirement plans and arrangements may be omitted, provided that they do
not discriminate in scope, terms, or operation in favor of the
Portfolio Manager or a group of employees that includes the Portfolio
Manager and are available generally to all salaried employees. The
value of compensation is not required to be disclosed under this Item.
3. Include a description of the structure of, and the method used
to determine, any compensation received by the Portfolio Manager from
the Fund, the Fund's investment adviser, or any other source with
respect to management of the Fund and any other accounts included in
the response to Item 21.1.b. This description must clearly disclose any
differences between the method used to determine the Portfolio
Manager's compensation with respect to the Fund and other accounts,
e.g., if the Portfolio Manager receives part of an advisory fee that is
based on performance with respect to some accounts but not the Fund,
this must be disclosed.
3. Ownership of Securities. For each Portfolio Manager required to
be identified in response to Item 9.1.c, state the dollar range of
equity securities in the Fund beneficially owned by the Portfolio
Manager using the following ranges: None; $1-$10,000; $10,001-$50,000;
$50,001-$100,000; $100,001-$500,000; $500,001-$1,000,000; or over
$1,000,000.
Instructions.
1. Provide the information required by Item 21.3 as of the end of
the Fund's most recently completed fiscal year, except that, in the
case of an initial registration statement or an update to the Fund's
registration statement that discloses a new Portfolio Manager,
information with respect to any newly identified Portfolio Manager must
be provided as of the most recent practicable date. Specify the
valuation date.
2. Determine ``beneficial ownership'' in accordance with Rule 16a-
1(a)(2) under the Exchange Act.
Item 22. Brokerage Allocation and Other Practices
1. Concisely describe how transactions in portfolio securities are
or will be effected. Provide a general statement about brokerage
commissions and mark-ups on principal transactions and the aggregate
amount of any brokerage commissions paid by the Fund during the three
most recent fiscal years. Concisely explain any material change in
brokerage commissions paid by the Fund during the most recent fiscal
year as compared to the two prior fiscal years.
2. a. State the total dollar amount, if any, of brokerage
commissions paid by the Fund during the three most recent fiscal years
to any broker that: (1) Is an affiliated person of the Fund; (2) is an
affiliated person of an affiliated person of the Fund; or (3) has an
affiliated person that is an affiliated person of the Fund, its
investment adviser, or principal underwriter. In the case of an initial
public offering, disclose whether or not the Fund intends to use any
brokers described in this subparagraph, a. Identify each broker, and
state the relationships that cause the broker to be identified in this
Item.
b. State for each broker identified in response to paragraph 2.a of
this Item:
(1) The percentage of the Fund's aggregate brokerage commissions
paid
[[Page 14545]]
to the broker during the most recent fiscal year; and
(2) the percentage of the Fund's aggregate dollar amount of
transactions involving the payment of commissions effected through the
broker during the most recent fiscal year.
c. Where there is a material difference in the percentage of
brokerage commissions paid to, and the percentage of transactions
effected through, any broker identified in response to paragraph 2.a of
this Item, state the reasons for the difference.
3. Describe briefly how brokers will be selected to effect
securities transactions for the Fund and how evaluations will be made
of the overall reasonableness of brokerage commissions paid, including
the factors considered.
Instructions.
1. If the receipt of products or services other than brokerage or
research services is a factor considered in the selection of brokers,
specify the products and services.
2. If the receipt of research services is a factor in selecting
brokers, identify the nature of the research services.
3. State whether persons acting on behalf of the Fund are
authorized to pay a broker a commission in excess of that which another
broker might have charged for effecting the same transaction because of
the value of brokerage or research services provided by the broker.
4. If applicable, explain that research services furnished by
brokers through whom the Fund effects securities transactions may be
used by the Fund's investment adviser in servicing all of its accounts
and that not all the services may be used by the investment adviser in
connection with the Fund; or, if other policies or practices are
applicable to the Fund with respect to the allocation of research
services provided by brokers, concisely explain the policies and
practices.
5. Funds should refer to Rule 17e-1 under the Investment Company
Act with respect to securities transactions executed by exchange
members.
4. If during the last fiscal year the Fund or its investment
adviser, pursuant to an agreement or understanding with a broker or
otherwise through an internal allocation procedure, directed the Fund's
brokerage transactions to a broker because of research services
provided, state the amount of the transactions and related commissions.
5. If the Fund has acquired during its most recent fiscal year or
during the period of time since organization, whichever is shorter,
securities of its regular brokers or dealers, as defined in Rule 10b-1
under the Investment Company Act, or their parents, identify those
brokers or dealers, and state the value of the Fund's aggregate
holdings of the securities of each subject issuer as of the close of
the Fund's most recent fiscal year.
Instruction. The Fund need only disclose information with respect
to the parent of a broker or dealer that derived more than fifteen
percent of its gross revenues from the business of a broker, a dealer,
an underwriter, or an investment adviser.
Item 23. Tax Status
Provide information about the Fund's tax status that is not
required to be in the prospectus but that the Fund believes is of
interest to investors, including, but not limited to, an explanation of
the legal basis for the Fund's tax status. If the Fund is qualified or
intends to qualify under Subchapter M of the Internal Revenue Code and
has not disclosed that fact in the prospectus, then disclosure of that
fact will be sufficient. If not otherwise disclosed, concisely describe
any special or unusual tax aspects of the Fund, e.g., taxes resulting
from foreign investment or from status as a personal holding company,
or any tax loss carry-forward to which the Fund may be entitled.
Item 24. Financial Statements
Provide the financial statements of the Fund.
Instructions.
1. a. Furnish, in a separate section following the responses to the
above items in Part B of the registration statement, the financial
statements and schedules required by Regulation S-X [17 CFR part 210].
(See Section 210.3-18 and Sections 210.6-01 through 210.6-10 of
Regulation S-X.)
b. A business development company that has had at least one fiscal
year of operations need provide financial statements under Item 8.6.c
of Part A only. A business development company with less than one
fiscal year of operations should refer to Item 8.6.c of Part A and
Instructions 1 and 2 thereunder in responding to this Item 24.
2. Notwithstanding the requirements of Instruction 1 above, the
following statements and schedules required by Regulation S-X may be
omitted from Part B and included in Part C of the registration
statement:
a. The statement of any subsidiary that is not a majority-owned
subsidiary; and
b. Columns C and D of Schedule III [17 CFR 210.12-14].
3. In addition to the requirements of Rule 3-18 of Regulation S-X
[17 CFR 210.3-18], any company registered under the Investment Company
Act that has not previously had an effective registration statement
under the Securities Act shall include in its initial registration
statement under the Securities Act such additional financial statements
and financial highlights (which need not be audited) as are necessary
to make the financial statements and financial highlights included in
the registration statement as of a date within 90 days prior to the
date of filing.
4. Every annual report to shareholders required by Section 30(e) of
the Investment Company Act and Rule 30e-1 thereunder shall contain the
following information:
a. The audited financial statements required by Regulation S-X for
the periods specified by Regulation S-X, modified to permit the
omission of the statements and schedules that may be omitted from Part
B of the registration statement by Instruction 2 above and as permitted
by Instruction 7 below;
b. the financial highlights required by Item 4.1 of this Form, for
the five most recent fiscal years, with at least the most recent year
audited;
c. unless shown elsewhere in the report as part of the financial
statements required by a above, the aggregate remuneration paid by the
company during the period covered by the report (1) to all directors
and to all members of any advisory board for regular compensation; (2)
to each director and to each member of an advisory board for special
compensation; (3) to all officers; and (4) to each person of whom any
officer or director of the company is an affiliated person;
d. the information concerning changes in and disagreements with
accountants and on accounting and financial disclosure required by Item
304 of Regulation S-K [17 CFR 229.304];
e. the management information required by paragraph 1 of Item 18;
and
f. a statement that the SAI includes additional information about
directors of the Fund and is available, without charge, upon request,
and a toll-free (or collect) telephone number and email address, if
any, for shareholders to use to request the SAI.
g. Management's Discussion of Fund Performance. Disclose the
following information:
(1) Discuss the factors that materially affected the Fund's
performance during the most recently completed fiscal year, including
the relevant market
[[Page 14546]]
conditions and the investment strategies and techniques used by the
Fund. The information presented may include tables, charts, and other
graphical depictions.
(2) (A) Provide a line graph comparing the initial and subsequent
account values at the end of each of the most recently completed 10
fiscal years of the Fund (or for the life of the Fund, if shorter), but
only for periods subsequent to the effective date of the Fund's
registration statement. Assume a $10,000 initial investment at the
beginning of the first fiscal year in an appropriate broad-based
securities market index for the same period.
1. Line Graph Computation.
(a) Assume that the initial investment was made at the offering
price last calculated on the business day before the first day of the
first fiscal year.
(b) Base subsequent account values on the market price (or, if
shares are not listed, the net asset value) of the Fund on the last
business day of the first and each subsequent fiscal year.
(c) Calculate the final account value by assuming the account was
closed and sale was at the market price (or, if shares are not listed,
the net asset value) on the last business day of the most recent fiscal
year.
(d) Base the line graph on the Fund's required minimum initial
investment if that amount exceeds $10,000.
2. Multiple Class Funds. The Fund can select which Class to
include, consistent with the requirements of Instruction 3(a) to Item
4(b)(2) of Form N-1A.
(B) In a table placed within or next to the graph, provide the
Fund's average annual total returns for the 1-, 5-, and 10-year periods
as of the end of the last day of the most recent fiscal year (or for
the life of the Fund, if shorter), but only for periods subsequent to
the effective date of the Fund's registration statement. Average annual
total returns should be computed in accordance with Item 26(b)(1) of
Form N-1A, except with respect to reinvestments of dividends and
distributions, which must be calculated consistent with Item 4 of this
Form. Include a statement accompanying the graph and table to the
effect that past performance does not predict future performance and
that the graph and table do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the sale of fund shares.
(C) Sales Load. Reflect any sales load (or any other fees charged
at the time of purchasing shares or opening an account) by beginning
the line graph at the amount that actually would be invested (i.e.,
assume that the maximum sales load, and other charges deducted from
payments, is deducted from the initial $10,000 investment). For a Fund
whose shares are subject to a contingent deferred sales load, assume
the deduction of the maximum deferred sales load (or other charges)
that would apply for a complete sale that received the market price
(or, if shares are not listed, the net asset value) on the last
business day of the most recent fiscal year. For any other deferred
sales load, repurchase fee, or withdrawal charge, assume that the
deduction is in the amount(s) and at the time(s) that the sales load,
repurchase fee, or withdrawal charge actually would have been deducted.
(D) Dividends and Distributions. Assume reinvestment of all of the
Fund's dividends and distributions on the reinvestment dates during the
period, and reflect any sales load imposed upon reinvestment of
dividends or distributions or both.
(E) Account Fees. Reflect recurring fees that are charged to all
accounts.
1. For any account fees that vary with the size of the account,
assume a $10,000 account size.
2. Reflect, as appropriate, any recurring fees charged to
shareholder accounts that are paid other than by sale of the Fund's
shares.
3. Reflect an annual account fee that applies to more than one Fund
by allocating the fee in the following manner: Divide the total amount
of account fees collected during the year by the Funds' total average
market price, multiply the resulting percentage by the average account
value for each Fund and reduce the value of each hypothetical account
at the end of each fiscal year during which the fee was charged.
(F) Appropriate Index. For purposes of this Item, an ``appropriate
broad-based securities market index'' is one that is administered by an
organization that is not an affiliated person of the Fund, its
investment adviser, or principal underwriter, unless the index is
widely recognized and used. Adjust the index to reflect the
reinvestment of dividends on securities in the index, but do not
reflect the expenses of the Fund.
(G) Additional Indexes. A Fund is encouraged to compare its
performance not only to the required broad-based index, but also to
other more narrowly based indexes that reflect the market sectors in
which the Fund invests. A Fund also may compare its performance to an
additional broad-based index, or to a non-securities index (e.g., the
Consumer Price Index), so long as the comparison is not misleading.
(H) Change in Index. If the Fund uses an index that is different
from the one used for the immediately preceding fiscal year, explain
the reason(s) for the change and compare the Fund's annual change in
the value of an investment in the hypothetical account with the new and
former indexes.
(I) Other Periods. The line graph may cover earlier fiscal years
and may compare the ending values of interim periods (e.g., monthly or
quarterly ending values), so long as those periods are after the
effective date of the Fund's registration statement.
(J) Scale. The axis of the graph measuring dollar amounts may use
either a linear or a logarithmic scale.
(K) New Funds. A New Fund is not required to include the
information specified by this Item in its prospectus (or annual
report), unless Form N-2 (or the annual report) contains audited
financial statements covering a period of at least 6 months.
(L) Change in Investment Adviser. If the Fund has not had the same
investment adviser for the previous 10 fiscal years, the Fund may begin
the line graph on the date that the current adviser began to provide
advisory services to the Fund so long as:
1. Neither the current adviser nor any affiliate is or has been in
``control'' of the previous adviser under Section 2(a)(9) of the
Investment Company Act;
2. The current adviser employs no officer(s) of the previous
adviser or employees of the previous adviser who were responsible for
providing investment advisory or portfolio management services to the
Fund; and
3. The graph is accompanied by a statement explaining that previous
periods during which the Fund was advised by another investment adviser
are not shown.
(3) 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 net asset value during the last
fiscal year. Also discuss the extent to which the Fund's distribution
policy resulted in distributions of capital.
h. If the Fund has filed a registration statement pursuant to
General Instruction A.2:
(1) Senior Securities. Include the information required by Item
4.3.
(2) Fee and Expense Table. Include the information required by Item
3.1.
(3) Share Price Data. Include the information required by Item 8.5.
(4) Unresolved Staff Comments. If the Fund has received written
comments from the Commission staff regarding its periodic or current
reports under the Exchange Act or Investment Company
[[Page 14547]]
Act or its registration statement not less than 180 days before the end
of its fiscal period to which the annual report relates, and such
comments remain unresolved, disclose the substance of any such
unresolved comments that the Fund believes are material. Such
disclosure may provide other information including the position of the
Fund with respect to any such comment.
5. Every report to shareholders required by Section 30(e) of the
Investment Company Act and Rule 30e-1 thereunder, except the annual
report, shall contain the following information (which need not be
audited):
a. The financial statements required by Regulation S-X for the
period commencing either with (1) the beginning of the company's fiscal
year (or date of organization, if newly organized); or (2) a date not
later than the date after the close of the period included in the last
report conforming with the requirements of Rule 30e-1 and the most
recent preceding fiscal year, modified to permit the omission of the
statements and schedules that may be omitted from Part B of the
registration statement by Instruction 2 above and as permitted by
Instruction 7 below;
b. the financial highlights required by Item 4.1 of this Form, for
the period of the report as specified by subparagraph a of this
instruction, and the most recent preceding fiscal year;
c. unless shown elsewhere in the report as part of the financial
statements required by subparagraph a of this instruction, the
aggregate remuneration paid by the company during the period covered by
the report (1) to all directors and to all members of any advisory
board for regular compensation; (2) to each director and to each member
of an advisory board for special compensation; (3) to all officers; and
(4) to each person of whom an officer or director of the company is an
affiliated person; and
d. the information concerning changes in and disagreements with
accountants and on accounting and financial disclosure required by Item
304 of Regulation S-K.
6. Every annual and semi-annual report to shareholders required by
Section 30(e) of the Investment Company Act and Rule 30e-1 thereunder
shall contain the following information:
a. One or more tables, charts, or graphs depicting the portfolio
holdings of the Fund by reasonably identifiable categories (e.g., type
of security, industry sector, geographic region, credit quality, or
maturity) showing the percentage of net asset value or total
investments attributable to each. The categories and the basis of
presentation (e.g., net asset value or total investments) should be
selected, and the presentation should be formatted, in a manner
reasonably designed to depict clearly the types of investments made by
the Fund, given its investment objectives. If the Fund depicts
portfolio holdings according to credit quality, it should include a
description of how the credit quality of the holdings were determined,
and if credit ratings, as defined in Section 3(a)(60) of the Exchange
Act, assigned by a credit rating agency, as defined in Section 3(a)(61)
of the Exchange Act, are used, explain how they were identified and
selected. This description should be included near, or as part of, the
graphical representation.
b. Statement Regarding Availability of Quarterly Portfolio
Schedule. A statement that: (i) The Fund files its complete schedule of
portfolio holdings with the SEC for the first and third quarters of
each fiscal year as an exhibit to its reports on Form N-PORT; (ii) the
Fund's Form N-PORT reports are available on the Commission's website at
http://www.sec.gov; (iii) if the Fund makes the information on Form N-
PORT available to shareholders on its website or upon request, a
description of how the information may be obtained from the Fund.
c. A statement that a description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to
portfolio securities is available (1) without charge, upon request, by
calling a specified toll-free (or collect) telephone number or sending
an email to a specified email address, if any; (2) on the Fund's
website, if applicable; and (3) on the Commission's website at http://www.sec.gov; and
d. A statement that information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-
month period ended June 30 is available (1) without charge, upon
request, by calling a specified toll-free (or collect) telephone
number; sending an email to a specified email address, if any; or on or
through the Fund's website at a specified internet address; and (2) on
the Commission's website at http://www.sec.gov.
e. If the Fund's board of directors approved any investment
advisory contract during the Fund's most recent fiscal half-year,
discuss in reasonable detail the material factors and the conclusions
with respect thereto that formed the basis for the board's approval.
Include the following in the discussion:
(1) Factors relating to both the board's selection of the
investment adviser and approval of the advisory fee and any other
amounts to be paid by the Fund under the contract. This would include,
but not be limited to, a discussion of the nature, extent, and quality
of the services to be provided by the investment adviser; the
investment performance of the Fund and the investment adviser; the
costs of the services to be provided and profits to be realized by the
investment adviser and its affiliates from the relationship with the
Fund; the extent to which economies of scale would be realized as the
Fund grows; and whether fee levels reflect these economies of scale for
the benefit of the Fund's investors. Also indicate in the discussion
whether the board relied upon comparisons of the services to be
rendered and the amounts to be paid under the contract with those under
other investment advisory contracts, such as contracts of the same and
other investment advisers with other registered investment companies or
other types of clients (e.g., pension funds and other institutional
investors). If the board relied upon such comparisons, describe the
comparisons that were relied on and how they assisted the board in
concluding that the contract should be approved; and
(2) If applicable, any benefits derived or to be derived by the
investment adviser from the relationship with the Fund such as soft
dollar arrangements by which brokers provide research to the Fund or
its investment adviser in return for allocating the Fund's brokerage.
f. Board approvals covered by Instruction 6.e to this Item include
both approvals of new investment advisory contracts and approvals of
contract renewals. Investment advisory contracts covered by Instruction
6.e include subadvisory contracts. Conclusory statements or a list of
factors will not be considered sufficient disclosure under Instruction
6.e. Relate the factors to the specific circumstances of the Fund and
the investment advisory contract and state how the board evaluated each
factor. For example, it is not sufficient to state that the board
considered the amount of the investment advisory fee without stating
what the board concluded about the amount of the fee and how that
affected its decision to approve the contract. If any factor enumerated
in Instruction 6.e(1) to this Item is not relevant to the board's
evaluation of an investment advisory contract, note this and explain
the reasons why the factor is not relevant.
[[Page 14548]]
g. Include on the front cover page or at the beginning of the
annual or semi-annual report 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 Fund's
shareholder reports like this one will no longer be sent by mail,
unless you specifically request paper copies of the reports from the
Fund [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 Fund [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 Fund [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].
h. Disclose any information the Fund was required to disclose in a
report on Form 8-K and that the Fund has not reported during the
relevant period. If disclosure of such information is made under this
instruction, it need not be repeated in a report on Form 8-K that would
otherwise be required to be filed with respect to such information or
in a subsequent annual or semi-annual report to shareholders.
i. A Fund that files a registration statement pursuant to General
Instruction A.2, and includes in any annual or semi-annual report to
shareholders or periodic report filed under the Exchange Act
information not otherwise required to be included in the report in
order to update the Fund's prospectus or SAI, must include a statement
in the report identifying all information included for this purpose.
7. Schedule IX--Summary schedule of investments in securities of
unaffiliated issuers [17 CFR 210.12-12C] may be included in the
financial statements required under Instructions 4.a and 5.a of this
Item in lieu of Schedule I--Investments in securities of unaffiliated
issuers [17 CFR 210.12-12] if:
a. The Fund states in the report that the Fund's complete schedule
of investments in securities of unaffiliated issuers is available (i)
without charge, upon request, by calling a specified toll-free (or
collect) telephone number or sending an email to a specified email
address, if any; (ii) on the Fund's website, if applicable; and (iii)
on the Commission's website at http://www.sec.gov; and
b. whenever the Fund (or financial intermediary through which
shares of the Fund may be purchased or sold) receives a request for the
Fund's schedule of investments in securities of unaffiliated issuers,
the Fund (or financial intermediary) sends a copy of Schedule I--
Investments in securities of unaffiliated issuers within 3 business
days of receipt by first-class mail or other means designed to ensure
equally prompt delivery.
8. a. When a Fund (or financial intermediary through which shares
of the Fund may be purchased or sold) receives a request for a
description of the policies and procedures that the Fund uses to
determine how to vote proxies, the Fund (or financial intermediary)
must send the information most recently disclosed in response to Item
18.16 of this Form or Item 7 of Form N-CSR within 3 business days of
receipt of the request, by first-class mail or other means designed to
ensure equally prompt delivery.
b. If a Fund discloses that the Fund's proxy voting record is
available by calling a toll-free (or collect) telephone number or
sending an email to a specified email address, if any, and the Fund (or
financial intermediary through which shares of the Fund may be
purchased or sold) receives a request for this information, the Fund
(or financial intermediary) must send the information disclosed in the
Fund's most recently filed report on Form N-PX, within 3 business days
of receipt of the request, by first-class mail or other means designed
to ensure equally prompt delivery.
c. If a Fund discloses that the Fund's proxy voting record is
available on or through its website, the Fund must make available free
of charge the information disclosed in the Fund's most recently filed
report on Form N-PX on or through its website as soon as reasonably
practicable after filing the report with the Commission. The
information disclosed in the Fund's most recently filed report on Form
N-PX must remain available on or through the Fund's website for as long
as the Fund remains subject to the requirements of Rule 30b1-4 under
the Investment Company Act and discloses that the Fund's proxy voting
record is available on or through its website.
9. See General Instruction F regarding Incorporation by Reference.
10. Every annual report filed under the Exchange Act by a business
development company must contain the information required by
Instructions 4.b and 4.h, and every periodic report filed under the
Exchange Act by a business development company must include the
information required by Instruction 6.i, if applicable.
Part C--Other Information
Item 25. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
registration statement.
1. Financial statements.
Instruction. Identify those financial statements that are included
in Parts A and B of the registration statement.
2. Exhibits.
Subject to General Instruction F regarding incorporation by
reference and Rule 483 under the Securities Act, file the exhibits
listed below as part of the registration statement. Letter or number
the exhibits in the sequence indicated, unless otherwise required by
Rule 483. Reflect any exhibit incorporated by reference in the list
below and identify the previously filed document containing the
incorporated material.
a. Copies of the charter as now in effect.
b. Copies of the existing bylaws or instruments corresponding
thereto.
c. Copies of any voting trust agreement with respect to more than
five percent of any class of equity securities of the Fund.
d. Copies of the constituent instruments defining the rights of the
holders of the securities.
e. A copy of the document setting forth the Fund's dividend
reinvestment plan, if any.
f. Copies of the constituent instruments defining the rights of the
holders of long-term debt of all subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed (The
instrument relating to any class of long- term debt of the Fund or any
subsidiary need not be filed if the total amount of securities
authorized thereunder amounts to less than two percent of the total
assets of the Fund and its subsidiaries on a consolidated basis, and if
the Fund files an agreement to furnish such copies to the Commission
upon request.).
g. Copies of all investment advisory contracts relating to the
management of the assets of the Fund.
[[Page 14549]]
h. Copies of each underwriting or distribution contract between the
Fund and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers.
i. Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of directors
or officers of the Fund in their capacity as such (a reasonably
detailed description of any plan that is not set forth in a formal
document should be furnished).
j. Copies of all custodian agreements and depository contracts
entered into in conformance with Section 17(f) of the Investment
Company Act or rules thereunder with respect to securities and similar
investments of the Fund, including the schedule of remuneration.
k. Copies of all other material contracts not made in the ordinary
course of business that are to be performed in whole or in part at or
after the date of filing the registration statement.
l. An opinion of counsel and consent to its use as to the legality
of the securities being registered, indicating whether they will be
legally issued, fully paid, and nonassessable.
m. If a non-resident director, officer, investment adviser, or
expert named in the registration statement has executed a consent to
service of process within the United States, a copy of that consent to
service.
n. Copies of any other opinions, appraisals, or rulings, and
consents to their use, relied on in preparing the registration
statement, and consents to the use of accountants' reports relating to
audited financial statements required by Section 7 of the Securities
Act.
o. All financial statements omitted from Items 8.6 or 24.
p. Copies of any agreements or understandings made in consideration
for providing the initial capital between or among the Fund, the
underwriter, adviser, promoter, or initial stockholders and written
assurance from the promoters or initial stockholders that their
purchases were made for investment purposes without any present
intention of reselling.
q. Copies of the model plan used in the establishment of any
retirement plan in conjunction with which the Fund offers its
securities, any instructions to it, and any other documents making up
the model plan (such form(s) should disclose the costs and fees charged
in connection with the plan).
r. Copies of any codes of ethics adopted under Rule 17j-1 under the
Investment Company Act and currently applicable to the Fund (i.e., the
codes of the Fund and its investment advisers and principal
underwriters). If there are no codes of ethics applicable to the Fund,
state the reason (e.g., the Fund is a Money Market Fund).
Instructions.
1. Subject to the rules on incorporation by reference and
Instruction 2 below, the foregoing exhibits shall be filed as a part of
the registration statement. Exhibits required by paragraphs 2.h, 2.l,
2.n, and 2.o above need to be filed only as part of a Securities Act
registration statement. Exhibits shall be appropriately lettered or
numbered for convenient reference. Exhibits incorporated by reference
may bear the designation given in a previous filing. Where exhibits are
incorporated by reference, the reference shall be made in the list of
exhibits. The reference shall include the form, file number and date of
the previous filing, and the exhibit number (i.e., exhibit 2.a, 2.b,
etc.) under which the exhibit was previously filed.
2. A Fund need not file an exhibit as part of a post-effective
amendment, if the exhibit has been filed in the Fund's initial
registration statement or in a previous post-effective amendment,
unless there has been a change in the exhibit, or unless the exhibit is
a copy of a consent required by Section 7 of the Securities Act or is a
financial statement omitted from Items 8.6 or 24. The reference to this
exhibit shall include the number of the previous filing (e.g., pre-
effective amendment No. 1) where such exhibit was filed.
3. If an exhibit to a registration statement (other than an opinion
or consent), filed in preliminary form, has been changed (1) only to
insert information as to interest, dividend or conversion rates,
redemption or conversion prices, purchase or offering prices,
underwriters' or dealers' commissions, names, addresses or
participation of underwriters or similar matters, which information
appears elsewhere in an amendment to the registration statement or a
prospectus filed pursuant to Rule 424(b) under the Securities Act or
(2) to correct typographical errors, insert signatures or make other
similar immaterial changes, then, notwithstanding any contrary
requirement of any rule or form, the Fund need not refile the exhibit
as so amended. Any incomplete exhibit may not, however, be incorporated
by reference into any subsequent filing under any Act administered by
the Commission. If an exhibit required to be executed (e.g., an
underwriting agreement) is filed in final form, a copy of an executed
copy shall be filed.
Item 26. Marketing Arrangements
Briefly describe any arrangements known to the Fund or to any
person named in response to Item 5, or to any person specified in Item
19.2, made for any of the following purposes:
1. To limit or restrict the sale of other securities of the same
class as those to be offered for the period of distribution;
2. to stabilize the market for any of the securities to be offered;
or
3. to hold each underwriter or dealer responsible for the
distribution of his or her participation.
Instruction. If the answer to this Item is contained in an exhibit,
the Item may be answered by cross-reference to the relevant
paragraph(s) of the exhibit.
Item 27. Other Expenses of Issuance and Distribution
Furnish a reasonably itemized statement of all expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions. If any
of the securities being registered are to be offered for the account of
securityholders, indicate the portion of expenses to be borne by
securityholders.
Instruction. Insofar as practicable, separately itemize
registration fees, federal taxes, state taxes and fees, trustees' and
transfer agents' fees, costs of printing and engraving, rating agency
fees, and legal and accounting fees. The information may be given
subject to future contingencies. Provide estimates if the amounts of
any items are not known.
Item 28. Persons Controlled by or Under Common Control
Furnish a list or diagram of all persons directly or indirectly
controlled by, or under common control with, the Fund, and as to each
of these persons indicate (1) if a company, the state or other
jurisdiction under whose laws it is organized, and (2) the percentage
of voting securities owned or other basis of control by the person, if
any, immediately controlling it.
Instructions.
1. The list or diagram shall include the Fund and shall show
clearly the relationship of each company named to the Fund and to other
companies named. If the company is controlled by the direct ownership
of its securities by two or more persons, so indicate by appropriate
cross-reference.
2. Identify, by appropriate symbols: (1) Subsidiaries for which
separate financial statements are filed; (2) subsidiaries included in
the respective consolidated financial statements; (3)
[[Page 14550]]
subsidiaries included in the respective group financial statements
filed for unconsolidated subsidiaries; and (4) other subsidiaries,
indicating briefly why statements of these subsidiaries are not filed.
Item 29. Number of Holders of Securities
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number
of record holders of each class of securities of the Fund.
------------------------------------------------------------------------
(1) (2)
------------------------------------------------------------------------
Title of Class Number of Record Holders
------------------------------------------------------------------------
Item 30. Indemnification
State the general effect of any contract, arrangement, or statute
under which any director, officer, underwriter, or affiliated person of
the Fund is insured or indemnified in any manner against any liability
that may be incurred in such capacity, other than insurance provided by
any member of the board of directors, officer, underwriter, or
affiliated person for his or her own protection.
Instruction. In responding to this Item, the Fund should note the
requirements of Rules 461(c) and 484 under the Securities Act and
Section 17 of the Investment Company Act. (See Investment Company Act
Rel. No. 11330 (Sept. 4, 1980) [45 FR 62423 (Sept. 19, 1980)] and
Investment Company Act Rel. No. 7221 (June 9, 1972) [37 FR 12790 (June
29, 1972)].)
Item 31. Business and Other Connections of Investment Adviser
Describe briefly any other business, profession, vocation, or
employment of a substantial nature in which each investment adviser of
the Fund, and each director, executive officer, or partner of any such
investment adviser, is or has been, at any time during the past two
fiscal years, engaged for his or her own account or in the capacity of
director, officer, employee, partner, or trustee.
Instructions.
1. State the name and principal business address of any company
with which any person specified above is connected in the capacity of
director, officer, employee, partner, or trustee and the nature of the
connection.
2. The names of investment advisory clients need not be provided.
3. For purposes of this Item, the term ``executive officer'' means
the investment adviser's president, any other officer who performs a
policy-making function for the investment adviser in connection with
its management of the closed-end fund, or any other person who performs
a similar policy-making function for the investment adviser. Executive
officers of subsidiaries of the investment adviser may be deemed
executive officers of the investment adviser, if they perform such
policy-making functions for the investment adviser.
Item 32. Location of Accounts and Records
Furnish the name and address of each person maintaining physical
possession of each account, book, or other document required to be
maintained by Section 31(a) of the Investment Company Act and the rules
thereunder.
Instruction. The Fund may omit this information to the extent it is
provided in its most recent report on Form N-CEN.
Item 33. Management Services
Furnish a summary of the substantive provisions of any management-
related service contract not discussed in Part A or B of the
registration statement (because the contract was not believed to be of
interest to a purchaser of the Fund's securities), indicating the
parties to the contract, the total dollars paid, and by whom, for the
last three fiscal years.
Instructions.
1. The instructions to Item 20.4 of this Form shall also apply to
this Item.
2. Information need not be provided for any service for which total
payments of less than $5,000 were made during each of the last three
fiscal years.
Item 34. Undertakings
Furnish the following undertakings in substantially the following
form in all registration statements filed under the Securities Act, as
applicable:
1. An undertaking to suspend the offering of shares until the
prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than ten
percent from its net asset value as of the effective date of the
registration statement or (2) the net asset value increases to an
amount greater than its net proceeds as stated in the prospectus.
2. An undertaking to file a post-effective amendment with certified
financial statements showing the initial capital received before
accepting subscriptions from more than 25 persons, if the Fund proposes
to raise its initial capital under Section 14(a)(3) of the Investment
Company Act.
3. If the securities being registered are to be offered to existing
shareholders pursuant to warrants or rights, and any securities not
taken by shareholders are to be reoffered to the public, an undertaking
to supplement the prospectus, after the expiration of the subscription
period, to set forth the results of the subscription offer, the
transactions by underwriters during the subscription period, the amount
of unsubscribed securities to be purchased by underwriters, and the
terms of any subsequent reoffering thereof. If any public offering by
the underwriters of the securities being registered is to be made on
terms differing from those set forth on the cover page of the
prospectus, the Fund shall undertake to file a post-effective amendment
to set forth the terms of such offering.
4. If the securities are being registered in reliance on Rule 415
under the Securities Act, an undertaking:
a. To file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) to reflect in the prospectus any facts or events after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the ``Calculation of Registration
Fee'' table in the effective registration statement.
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs a(1), a(2), and a(3) of this
section do not apply if the registration statement is filed pursuant to
General Instruction A.2 of this Form and the information required to be
included in a post-effective amendment by those paragraphs is contained
in reports filed
[[Page 14551]]
with or furnished to the Commission by the Fund pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by reference
into the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
b. that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof;
c. to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering;
d. that, for the purpose of determining liability under the
Securities Act to any purchaser:
(1) If the Fund is relying on Rule 430B:
(A) Each prospectus filed by the Fund pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the
registration statement; and
(B) Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (x), or (xi) for the purpose of providing the information
required by Section 10(a) of the Securities Act shall be deemed to be
part of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness or
the date of the first contract of sale of securities in the offering
described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of
the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such effective date; or
(2) if the Fund is subject to Rule 430C: Each prospectus filed
pursuant to Rule 424(b) under the Securities Act as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
e. that for the purpose of determining liability of the Fund under
the Securities Act to any purchaser in the initial distribution of
securities:
The undersigned Fund undertakes that in a primary offering of
securities of the undersigned Fund pursuant to this registration
statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned Fund will be a seller to the purchaser and will be
considered to offer or sell such securities to the purchaser:
(1) Any preliminary prospectus or prospectus of the undersigned
Fund relating to the offering required to be filed pursuant to Rules
424under the Securities Act;
(2) free writing prospectus relating to the offering prepared by or
on behalf of the undersigned Fund or used or referred to by the
undersigned Funds;
(3) the portion of any other free writing prospectus or
advertisement pursuant to Rule 482 under the Securities Act relating to
the offering containing material information about the undersigned Fund
or its securities provided by or on behalf of the undersigned Fund; and
(4) any other communication that is an offer in the offering made
by the undersigned Fund to the purchaser.
5. If the Fund is filing a registration statement permitted by Rule
430A under the Securities Act, an undertaking that:
a. For the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Fund under Rule
424(b)(1) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
b. for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering
thereof.
6. Filings Incorporating Subsequent Exchange Act Documents by
Reference. Include the following if the registration statement
incorporates by reference any Exchange Act document filed subsequent to
the effective date of the registration statement:
The undersigned Fund hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Fund's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by
reference into the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
7. Request for acceleration of effective date or filing of
registration statement becoming effective upon filing. Include the
following if acceleration is requested of the effective date of the
registration statement pursuant to Rule 461 under the Securities Act,
or if a registration statement filed pursuant to General Instruction
A.2 of this Form will become effective upon filing with the Commission
pursuant to Rule 462(e) or (f) under the Securities Act, and:
a. Any provision or arrangement exists whereby the Fund may
indemnify a director, officer or controlling person of the Fund against
liabilities arising under the Securities Act, or
b. The underwriting agreement contains a provision whereby the Fund
indemnifies the underwriter or controlling persons of the underwriter
against such liabilities and a director, officer or controlling person
of the Fund is such an underwriter or controlling
[[Page 14552]]
person thereof or a member of any firm which is such an underwriter,
and
c. The benefits of such indemnification are not waived by such
persons:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Fund pursuant to the foregoing provisions,
or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Fund of expenses incurred or paid by a
director, officer or controlling person of the Fund in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Fund will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
8. An undertaking to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any prospectus or Statement of
Additional Information.
Signatures
Pursuant to the requirements of the Securities Act of 1933 and/or
the Investment Company Act of 1940, the Registrant has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of______, and State of____, on
the ____ day of ______.
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Registrant
By---------------------------------------------------------------------
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Signature
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Title
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the dates indicated.
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Signature
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Title
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Date
40. Amend Form 24F-2 (referenced in Sec. 274.24 of this chapter)
by:
a. Revising the first sentence of paragraph A.1. of the
``INSTRUCTIONS'' section; and
b. Revising the first sentence of paragraph A.3. of the
``INSTRUCTIONS'' section.
The revisions read as follows:
Note: The text of Form 24F-2 does not, and these amendments
will not, appear in the Code of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 24F-2
Annual Filing Under Rule 24f 2 of the Investment Company Act of 1940
INSTRUCTIONS
A. * * *
1. This Form should be used by an open-end management investment
company, closed-end management company that makes periodic repurchase
offers pursuant to Sec. 270.23c-3(b) of this chapter, face amount
certificate company, or unit investment trust (``issuer'') for annual
filings required by rule 24f-2 under the Investment Company Act of 1940
[15 U.S.C. 80a] (``Investment Company Act''). * * *
* * * * *
3. Pursuant to rule 101(a)(1)(iv) of Regulation S-T [17 CFR
232.101(a)(1)(iv)] this Form must be submitted in electronic format
using the Commission's Electronic Data Gathering, Analysis, and
Retrieval (``EDGAR'') system. * * *
* * * * *
By the Commission.
Dated: March 20, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05776 Filed 4-9-19; 8:45 am]
BILLING CODE 8011-01-P