---------------------------------------------------------------------------

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

    \329\ See General Instruction F of amended Form N-2.
    \330\ See General Instruction F.3 of amended Form N-2 (requiring
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); see
also Proposing Release, supra footnote 10, at text accompanying
nn.309-311.
    \331\ We also are amending Form N-2's current disclosure
requirements for incorporation by reference, by replacing 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 streamlines--but does not substantively
change (other than the website disclosure provision discussed
below)--the disclosure requirements for incorporation by reference
in current Form N-2.
    \332\ New General Instruction F.4.a of amended Form N-2; cf.
General Instruction VII.F of Form S-1; General Instruction F.4.b.(5)
of amended Form N-2; cf. Item 12(c)(1)(v) of Form S-1. We are
amending current General Instruction F.3 in its entirety, and moving
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 new General Instruction F.4.b of amended
Form N-2. We also are conforming certain incorporation by reference
provisions in Form N-2 to mirror parallel provisions in Form N-1A.
See new General Instruction F.2.a-c of amended Form N-2; cf. General
Instruction D.1.(a)-(c) of Form N-1A.
    \333\ See Proposing Release, supra footnote 10, at nn.313-317
and accompanying text.
    \334\ See SIFMA Comment Letter.
---------------------------------------------------------------------------

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

    \335\ See amended Investment Company Act rule 8b-16.
    \336\ Current rule 8b-16(b) (requiring 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.
    \337\ See Proposing Release, supra footnote 10, at n.323 and
accompanying text. See also Investor Experience Request for Comment,
supra footnote 274, in which we sought input from individual
investors on how to enhance fund disclosures.
    \338\ See Proposing Release, supra footnote 10, at 136.
    \339\ Id.
---------------------------------------------------------------------------

    The one commenter to address this aspect of the proposal stated
that a closed-end fund's annual report should include a full
description of the fund's current objectives, strategies and risks, as
many closed-end funds do not maintain a current registration statement,
which would otherwise include this information.\340\ One

commenter described difficulties faced by investors in determining an
affected fund's current investment objectives and policies, with
another requesting a single location where such key information could
be found.\341\
---------------------------------------------------------------------------

    \340\ See Peres Comment Letter (noting that ``[i]f there is a
change to an objective, strategy or risk in the past year, they
describe the change in the annual report. However, there is no
complete description of a fund's current objectives, strategies and
risks. To learn this information, an investor would need to look at
the fund's most recent registration statement (which could be from
decades ago) and review each annual report since that time.'').
    The Proposing Release requested comment on whether we should
adopt different disclosure requirements for funds that rely on rule
8b-16, including whether we should require such funds to summarize
in their annual reports certain key information that would be
required in a current prospectus. See Proposing Release, supra
footnote 10, at section II.H.5.
    \341\ See ABA Comment Letter (``[M]any Affected Funds were
organized many years ago, and since the relevant information may be
spread among the prospectus used for the Affected Fund's most recent
public offering (which may have taken place years or even decades
ago), proxy statements and reports to shareholders spanning many
years, it can be a burdensome undertaking to piece such information
together.''); see also Dale White Comment Letter (``There should
always be a current document where an investor can see a fund's
strategy, risks, performance, and costs each year.'').
---------------------------------------------------------------------------

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

    \342\ See paragraph (e) of amended Investment Company Act rule
8b-16.
    \343\ Id.
---------------------------------------------------------------------------

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

    \344\ See amended rule 8b-16(b)(2), (4).
---------------------------------------------------------------------------

J. Effective and Compliance Dates

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

    \345\ See Updated Disclosure Requirements and Summary Prospectus
for Variable Annuity and Variable Life Insurance Contracts,
Investment Company Act Release No. 33814 (March 11, 2020)
(``Variable Contract Summary Prospectus Adopting Release'').
---------------------------------------------------------------------------

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

    \346\ See supra section II.G.
    \347\ See ICI Comment Letter.
    \348\ To facilitate the transition to calculating fees on Form
24F-2, an interval fund's fee calculation should exclude excess
shares that were registered under the fund's last registration
statement on Form N-2 that remain unsold prior to the effectiveness
of rule 24f-2 as applied to interval funds.
---------------------------------------------------------------------------

     Rules 456 and 457 and Forms S-1, S-3, F-1 and F-3: The
amendments to rules 456 and 457 and Forms S-1, S-3, F-1 and F-3 under
the Securities Act will become effective August 1, 2021.
    Compliance Dates. We are adopting compliance dates for certain new
requirements to provide a transition period after the effective date of
the final rule.
     MDFP. As proposed, an annual report filed by a registered
CEF one year or more after the effective date of the final rule will be
required to include the MDFP disclosures.\349\ We received no comments
on this proposed compliance period. Affected funds must comply with
this requirement by August 1, 2021.
---------------------------------------------------------------------------

    \349\ See supra section II.H.2.b.
---------------------------------------------------------------------------

     Structured Data Requirements (Financial Statement, Cover
Page, and Prospectus Information). We proposed that all affected funds
subject to the Inline XBRL structured data reporting requirements for
financial statement, registration statement cover page, and prospectus
information that are eligible to file a short-form registration
statement would be required to comply with those provisions 18 months
after the effective date, and all other affected funds to comply 24
months after the effective date. The one commenter who addressed this
aspect of the release recommended that any new Inline XBRL requirements
have a compliance date later than that required for open-end
funds.\350\ We are extending the compliance period by an additional six
months to align more closely with the Inline XBRL compliance periods
for other fund registrants.\351\ Accordingly, affected funds that are
eligible to file a short-form registration statement will be required
to comply with those provisions 24 months after the effective date, or
August 1, 2022. All other affected funds subject to these requirements
must comply 30 months after the effective date, or February 1, 2023.
Affected funds will be permitted to file in Inline XBRL prior to the
compliance date once EDGAR has been modified to accept submissions in
Inline XBRL for all forms subject to the amendments, which is
anticipated to be March 2021. Notice of EDGAR system readiness to
accept filings in Inline XBRL will be provided in a manner similar to
notices of taxonomy updates and EDGAR Filer Manual updates.
---------------------------------------------------------------------------

    \350\ See ICI Comment Letter (citing Inline XBRL Adopting
Release, supra footnote 250, which requires open-end funds to comply
with the Inline XBRL requirements on September 17, 2020 (24 months
post-effective date) for ``large fund groups'' and September 17,
2021 (36 months post-effective date) for ``small fund groups'').
    \351\ Id.; see also Variable Contract Summary Prospectus
Adopting Release, supra footnote 345 (requiring variable contracts
to comply with the Inline XBRL requirements on January 1, 2023 (30
months post-effective date)).
---------------------------------------------------------------------------

     Structured Data Requirements (Form 24F-2). As proposed,
all filers on Form 24F-2 (including existing Form 24F-2 filers, such as
open-end funds and unit investment trusts, as well as interval funds)
will be required to file reports on the form in an XML structured data
format 18 months after the effective date, or February 1,

2022.\352\ The one commenter who addressed the proposed 18-month
transition period supported it.\353\
---------------------------------------------------------------------------

    \352\ See supra section II.H.1.d.
    \353\ See ICI Comment Letter.
---------------------------------------------------------------------------

III. Economic Analysis

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

    \354\ See supra section I for summary of final rule.
---------------------------------------------------------------------------

A. Introduction and Baseline

    We are sensitive to the economic effects that may result from the
final rule, including the benefits, costs, and the effects on
efficiency, competition, and capital formation. Section 3(f) of the
Exchange Act, section 2(b) of the Securities Act, and section 2(c) of
the Investment Company Act state that when engaging in rulemaking that
requires us to consider or determine whether an action is necessary or
appropriate in (or, with respect to the Investment Company Act,
consistent with) the public interest, we must consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition, and capital formation. Additionally, section
23(a)(2) of the Exchange Act requires us, when making rules or
regulations under the Exchange Act, to consider, among other matters,
the impact that any such rule or regulation would have on competition
and states that the Commission shall not adopt any such rule or
regulation which would impose a burden on competition that is not
necessary or appropriate in furtherance of the Exchange Act.
    We have considered the potential costs and benefits that would
result from the final rule, as well as the potential effects on
efficiency, competition, and capital formation. Many of the potential
economic effects of the final rule would stem from the statutory
mandates, while others would stem from the discretion we are
exercising. We discuss the potential economic effects of the amendments
to implement the statutory mandates in sections III.B and III.C. We
considered certain alternatives to our approach to implementing the
statutory mandates, as discussed in section III.D. We are also adopting
certain other amendments to tailor affected funds' disclosure and
regulatory framework. We discuss the potential economic effects of
these discretionary amendments, as well as reasonable alternatives to
these provisions, in section III.E. Where possible, we have attempted
to quantify the costs, benefits, and effects on efficiency,
competition, and capital formation expected to result from the final
rule. In some cases, however, we are unable to quantify the economic
effects because we lack the information necessary to provide a
reasonable and reliable estimate.
    The baseline we use to analyze the potential effects of the final
rule is the current set of legal requirements and market practices. The
final rule likely will have a significant impact on the security
offering requirements and disclosure practices of affected funds. The
overall magnitude of the benefits and the costs associated with the
final rule will depend on many factors, including the number of
affected funds that rely on the final rule. We recognize that some
affected funds would not satisfy the conditions in certain of the
amendments (e.g., those limited to WKSIs or funds that file a short-
form registration statement on Form N-2), and other affected funds may
satisfy the conditions but choose not to rely on the final rule. The
discussion below describes our understanding of the markets and issuers
that will be affected by the final rule.
1. Number of Affected Funds
    The final rule will affect BDCs and registered CEFs. As of June 30,
2019, there were 791 affected funds, including 105 BDCs and 686
registered CEFs. To estimate the number of BDCs, we use data from Form
10-K and Form 10-Q filings as of June 30, 2019, the latest data
available.\355\ We identify 51 listed BDCs and 54 unlisted BDCs. The
average net assets of the listed BDCs is approximately $820 million,
and the average of their total assets is $1.5 billion. Based on trading
data as of June 30, 2019, 44 of the listed BDCs have public float
greater than $75 million (i.e., one of the transaction requirement
thresholds for primary offerings under the short-form registration
instruction) and 15 of those BDCs have public float greater than $700
million (i.e., the WKSI public float threshold).\356\
---------------------------------------------------------------------------

    \355\ The estimated number of BDCs includes BDCs that have not
registered a securities offering on Form N-2. Certain of our
amendments, such as the requirement to tag certain Form N-2
prospectus disclosure items in Inline XBRL, will 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 amendments with respect to BDCs may be over-
estimates in certain respects.
    \356\ The data (as of June 30, 2019) 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.
---------------------------------------------------------------------------

    We use data from Morningstar and SEC filings to estimate the number
of registered CEFs.\357\ We identify 497 registered CEFs that were
listed on an exchange as of June 30, 2019, including 1 interval fund.
There were 189 unlisted registered CEFs as of June 30, 2019, including
60 interval funds. The average net assets of the listed registered CEFs
is approximately $551 million, while the average net assets of the
unlisted registered CEFs is approximately $382 million.\358\ Based on
trading data as of June 30, 2019, 455 of the listed registered CEFs
have public float greater than $75 million, and 85 of those funds have
public float greater than $700 million.\359\ Information about the
types

of offerings conducted by different categories of affected funds for
the period of July 1, 2014--June 30, 2019 is reflected in the below
table.\360\
---------------------------------------------------------------------------

    \357\ The estimated number of registered CEFs includes
registered CEFs that have not registered a securities offering under
the Securities Act. Certain of our amendments, such as the
structured data requirements, will apply somewhat differently to
these registered CEFs and may impose fewer burdens on them. For
example, a registration statement that is filed under only the
Investment Company Act is not required to include financial
highlights information under Item 4 of Form N-2, while registered
CEFs that file a registration statement under the Securities Act
must disclose financial highlights information and tag that
information in Inline XBRL. See General Instructions G and H of
amended Form N-2. Thus, our quantitative estimates of the costs and
paperwork burdens of certain of the amendments with respect to
registered CEFs may be over-estimates in certain respects.
    \358\ The average of net assets of registered interval funds is
$520 million.
    \359\ This includes the listed interval fund, which had public
float of approximately $73 million as of June 30, 2019. Data on
prices and shares outstanding, which is used to calculate the public
float, is taken from CRSP.
    \360\ 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 is
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.

                                                                         Table 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Listed registered     Unlisted  registered
         Types of offerings            Offering statistics         Listed BDCs           Unlisted BDCs               CEFs                   CEFs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Registered offerings...............  Number of offerings...  113...................  24...................  26...................  137
                                     Total amount raised...  $12.2 bil.............  $1.7 bil.............  $5.2 bil.............  $20.3 bil
                                     Average (median)        $107.9 mil ($60.0 mil)  $7.8 mil ($7.2 mil)..  $201.3 mil ($103.8     $176.3 mil ($31.0
                                      offering amount.                                                       mil).                  mil)
Regulation D offerings.............  Number of offerings...  21....................  67...................  1....................  165
                                     Total amount raised...  $12.3 bil.............  $9.1 bil.............  $15.1 mil............  $7.5 bil
                                     Average (median)        $584.7 mil ($100 mil).  $135.0 mil ($50.0      $15.1 mil ($15.1 mil)  $45.6 mil ($6.1 mil)
                                      offering amount.                                mil).
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As of September 2019, there were 7,995 mutual funds, 2,076 ETFs,
and 4,758 UITs. Thus, together with the 791 affected funds, there is a
total of 15,620 funds, affected and non-affected. This means that
affected funds represent about 5.1% of the total number of funds. As of
September 2019, mutual funds had approximately $20,156 billion in
assets, ETFs had approximately $4,024 billion in assets, UITs had
approximately $76 billion in assets, and affected funds had
approximately $459 billion in assets. Thus, affected funds represent
about 1.8% of total investment company assets.
    We use data from Morningstar and SEC filings to estimate the number
of affected ETPs. We identify 68 such ETPs as of December 31, 2019.
2. Current Securities Offering Requirements for Affected Funds
    The securities offering process for affected funds at present
differs from that for operating companies. Affected funds register
their securities offerings on Form N-2, while operating companies use
other forms (e.g., Form S-1 or Form S-3). As discussed in more detail
above in sections II.B, II.C, and II.F, registered investment companies
and BDCs are excluded from certain offering and communications rules
available to operating companies.
    Affected funds currently are expressly excluded from the WKSI
definition. As a result, even if they would otherwise meet the WKSI
definition, they are unable to, for example, file an automatic shelf
registration statement or communicate about an offering before filing a
registration statement.\361\
---------------------------------------------------------------------------

    \361\ See supra section II.C.
---------------------------------------------------------------------------

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

    \362\ See supra section II.B.1.
    \363\ See supra section II.F.
    \364\ See supra section II.E.
    \365\ This estimate is based on recent Form N-2 filings of the
49 listed BDCs. BDCs generally do not rely on existing Form N-2
backward incorporation by reference provisions because the form
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.
---------------------------------------------------------------------------

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

    \366\ See supra footnote 314.
---------------------------------------------------------------------------

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

    As discussed, the amendments to implement the statutory mandates
are designed to provide securities offering parity between affected
funds and operating companies and streamline the registration process
for BDCs and registered CEFs, consistent with the BDC Act and the
Registered CEF Act. We believe that the final rule will achieve this
goal and consequently result in significant benefits in a number of
areas, including by improving access to the public capital markets and
possibly lowering the cost of capital by, among other things, modifying
our rules related to affected funds' ability to qualify as WKSIs, to
use the full shelf registration process, and to engage in

certain communications during a registered offering.\367\ Additionally,
as discussed below, we believe that the final rule will provide
benefits to investors as well, including by increasing the flow of
valuable information that could be available to investors to inform
their investment decisions. Finally, we believe that the final rule
will provide cost-saving options to affected fund issuers and
underwriters.
---------------------------------------------------------------------------

    \367\ See also infra section III.E (discussing benefits
associated with our discretionary rule amendments).
---------------------------------------------------------------------------

1. Improved Access to Capital and Lower Cost of Capital
    We anticipate that the final rule will facilitate capital formation
and possibly lower the cost of capital by improving access to the
public capital markets for affected funds. The rule is designed to
reduce regulatory impediments to capital formation and provide more
flexibility to these funds to conduct registered securities offerings.
The amount of flexibility accorded by the final rule will depend on the
characteristics of the affected fund, consistent with our rules'
treatment of similarly-situated operating companies. For example, and
as explained below, certain affected funds like large listed BDCs and
large listed registered CEFs are expected to benefit more from the
final rule than unlisted BDCs and unlisted registered CEFs, including
unlisted interval funds. The final rule will provide the most
flexibility under the communications rules and the automatic shelf
registration system to eligible WKSIs. Other affected funds, such as
seasoned affected funds, also will benefit, albeit to a lesser degree,
from the other revisions to the offering process and our communications
rules.
a. Benefits From WKSI Status
    The largest increase in capital formation and reduction in cost of
capital that the final rule could generate will come from allowing
affected funds to obtain WKSI status. Affected funds that qualify as
WKSIs will enjoy additional flexibility compared to affected funds that
are non-WKSIs.\368\ There are 100 affected funds (15 listed BDCs and 85
listed registered CEFs) that meet the $700 million dollar public float
criterion as of June 30, 2019.\369\ A shelf registration statement and
any subsequent amendments filed by a WKSI are automatically effective
upon filing. This flexibility will allow affected funds that qualify as
WKSIs to promptly tap favorable conditions in the public market, to
structure terms of securities on a real-time basis to accommodate
investor demand, and to determine or change the plan of distribution in
response to changing market conditions. For example, because affected
funds typically trade at a discount to their NAV,\370\ affected funds
that are WKSIs will be able to act more quickly to raise capital when
their shares are trading at a premium,\371\ thus increasing the amount
of capital raised and enhancing capital formation.
---------------------------------------------------------------------------

    \368\ See supra section II.C.
    \369\ See supra section III.A.1.
    \370\ 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).
    \371\ See supra footnote 37 (discussing restrictions on affected
funds' ability to sell their shares at a price below NAV).
---------------------------------------------------------------------------

    Additionally, WKSIs are not required to pay any registration fees
at the time of filing a registration statement. They are only required
to pay the registration filing fee at the time securities are taken
down and sold off the shelf registration statement. This will provide
additional flexibility to qualifying affected funds in that they need
only incur such filing fees if and when they decide to proceed with an
offering. The final rule may also lower the cost of capital because it
will provide significant flexibility to affected funds that are WKSIs
and their underwriters in marketing securities. The final
communications rules will allow these funds to communicate at any time
regarding an offering.
    Requiring an affected fund to have at least $700 million in public
float to qualify as a WKSI will avoid providing affected funds with an
advantage in the competition for capital over certain operating
companies. For example, a lower public float threshold for affected
funds would provide them with a competitive advantage over operating
companies that may have similar characteristics to affected funds, such
as listed REITs, but have public float below $700 million. In a similar
vein, the use of alternative eligibility criteria for affected funds to
qualify as WKSIs would put them at competitive advantage compared to
similar operating companies without public float, such as unlisted
REITs. Moreover, reducing the $700 million threshold or providing
alternative eligibility criteria for affected funds to qualify as WKSIs
would likely lead to potential higher incidences of disclosure and fund
practices that may not comply with applicable law due to reduced staff
review.\372\
---------------------------------------------------------------------------

    \372\ See also infra section III.D (discussing considerations
related to an alternative of modifying the public float standards in
the WKSI definition by changing the required level of public float
or providing alternative eligibility criteria).
---------------------------------------------------------------------------

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

    \373\ See, e.g., 17 CFR 270.17a-8 (Investment Company Act rule
17a-8).
---------------------------------------------------------------------------

b. Benefits From Shelf Registration
    Other provisions of the final rule could also enhance capital
formation and lower the cost of offerings for affected funds that
qualify as seasoned funds and file a short-form registration statement
on Form N-2.\374\ For example,

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

    \374\ See supra section II.B.
    \375\ 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.
    \376\ See supra section III.A.1.
    \377\ See infra section IV.B.1. For purposes of the PRA, we
estimate that the hour burden of preparing and filing a post-
effective amendment is 125 hours. Reducing the number of post-
effective amendments by 128 filings would decrease the aggregate
annual burden of Form N-2 by 16,000 hours (125 hours x 128 post-
effective amendments = 16,000 hours). We estimate that the monetized
internal burden is $33,625 per post-effective amendment and the
external burden is $11,114 per post-effective amendment. See infra
section IV.B.1. The total annual cost is calculated by adding the
monetized internal burden ($33,625 x 128 post-effective amendments =
$4,304,000) to the cost of outside professionals ($11,114 x 128
post-effective amendments = $1,422,592). Although we have increased
the expected reduction in the number of post-effective amendments
discussed in the Proposing Release from 112 to 128 filings, the
estimated annual aggregate cost reduction has decreased from
$7,943,376 to $5,726,592 to better recognize how we have monetized
internal burdens for purposes of the PRA. See Proposing Release,
supra footnote 10, at n.359 and accompanying text; infra section
IV.B.1.
    \378\ 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 Proposing Release, supra footnote 10, at n.415 and
accompanying text (discussing the estimated number of Form 8-K
filings per BDC per year).
    \379\ See supra sections II.B.3.e and II.I.2.a.
---------------------------------------------------------------------------

    In general, we believe affected funds that qualify for the short-
form registration instruction will experience cost savings associated
with making fewer filings and will be able to use a more efficient
process to update their prospectus disclosure. This will decrease the
costs of eligible funds' registered offerings and will also allow them
to act more quickly to take advantage of favorable market conditions
(e.g., when trading at a premium). Certain seasoned funds registering
shelf offerings also will be able to omit certain information from
their prospectuses and use the same process as operating companies to
provide omitted information by filing a prospectus supplement, which
will generally make the shelf registration process less costly for
these funds as compared to the baseline.
    The final rule also may provide incremental cost savings to
affected funds that are eligible to file a short-form registration
statement in certain other respects. For example, the final rule will
reduce the costs of these funds seeking shareholder approval for
proposals to authorize, issue, modify, or exchange securities by
allowing them to incorporate by reference certain materials rather than
delivering these materials to security holders with the proxy
statement.\380\ We do not anticipate that these cost savings will be
substantial, however, as we understand that affected funds do not often
make these types of proposals to security holders. Affected funds that
are eligible to file a short-form registration statement also could
experience modest cost savings from the amendment to rule 418 since
they will no longer be required by that rule to furnish certain
information to the Commission or its staff promptly on request.\381\
---------------------------------------------------------------------------

    \380\ See supra section II.G.2.
    \381\ See supra section II.G.1.
---------------------------------------------------------------------------

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

    \382\ See supra section II.B.3.d.
    \383\ See supra section II.D.
    \384\ 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 rule.

---------------------------------------------------------------------------

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

    \385\ See ACC Comment Letter; CBD Comment Letter; SIFMA Comment
Letter.
    \386\ See Invesco Comment Letter.
---------------------------------------------------------------------------

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

    \387\ See ICI Comment Letter; Invesco Comment Letter.
---------------------------------------------------------------------------

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

    \388\ 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.
    \389\ See SIFMA Comment Letter.
---------------------------------------------------------------------------

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

    \390\ 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)].
    \391\ 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).
    \392\ See SIFMA Comment Letter; ACC Comment Letter; CBD Comment
Letter.
    \393\ See ICI Comment Letter.
---------------------------------------------------------------------------

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

    \394\ See supra section II.F.
    \395\ But see supra footnote 144 (explaining that affected funds
currently are permitted to engage in certain pre-filing test-the-
waters communications under Securities Act rule 163B).
---------------------------------------------------------------------------

    This standardization in the communications processes of affected
funds, by making them similar to those of operating companies, will
make it easier for underwriters to execute offerings by affected funds
and thus may decrease their compliance costs, which in turn may lead to
lower offering costs and potentially enhance capital formation.
Additionally, under the final rule, affected funds that qualify as
WKSIs can engage in the widest range of communications, including free
writing prospectus communications about an offering with any party
before a registration statement is filed. More generally, affected
funds will be able to engage in certain other pre-filing
communications, use free writing prospectuses after a registration
statement is filed, and use certain communications that are not subject
to prospectus liability. The changes in the communications rules for
affected funds may increase the amount of valuable information that
could be provided to investors before they make investment decisions,
particularly with respect to WKSIs. We believe that more information
could be provided on a timelier basis because the amendments will
eliminate regulatory barriers to the dissemination of that information,
and the markets may provide incentives for issuers, underwriters, and
broker-dealers to produce additional

information. We also believe that the increased flexibility of affected
funds in their communications with investors under the free writing
prospectus rules will maintain appropriate investor protection,
consistent with the protections that apply to affected funds'
communications under rule 482. For example, the rules that allow
affected funds to use free writing prospectuses are designed to assure
that written issuer-provided or issuer-used information is publicly
available. Additionally, the free writing prospectus will be a section
10(b) prospectus under the Securities Act and, as such, will be subject
to liability under section 12(a)(2) as well as the anti-fraud
provisions of the Federal securities laws.
    Increased information flow can help promote efficient capital
markets because the market may be able to value securities more
accurately. For example, the final rule will permit broker-dealers to
disseminate research about an affected fund if certain conditions are
met. While broker-dealers currently may disseminate such research under
rule 482, the amendments to rule 138 will likely reduce certain costs
to broker-dealers associated with rule 482 (e.g., filing costs and
concerns associated with prospectus liability). This could allow more
valuable information about affected funds to reach potential investors.
Another benefit of increasing the information flow is that investors
may become better informed in making portfolio allocation decisions in
accordance with their particular risk-return profiles. In addition, the
final rule may benefit broker-dealers who provide research reports on
affected funds by reducing their potential liability exposure
associated with such reports, relative to the baseline, which may
encourage them to provide additional research and enhance information
flow. Commenters generally agreed that the proposed rule would provide
more flexibility for affected funds to communicate and would increase
information flow.\396\
---------------------------------------------------------------------------

    \396\ See ACC Comment Letter; ICI Comment Letter; Invesco
Comment Letter.
---------------------------------------------------------------------------

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

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

    \397\ See also infra section III.E (discussing compliance and
other costs associated with the proposed discretionary amendments).
    \398\ See supra section II.F.1; infra section IV.B.4 (estimating
the annual paperwork burden for free writing prospectuses under
rules 163 and 433 for purposes of the PRA).
    \399\ But see infra Table 14 footnote 1 (discussing that only 10
WKSIs relied on rule 163 for the Commission's 2017 fiscal year).
    \400\ For purposes of the PRA, we estimate that, on average,
affected funds that are eligible to be WKSIs (estimated as 100
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 section IV.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).
---------------------------------------------------------------------------

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

    \401\ See supra section II.B.3.d.
---------------------------------------------------------------------------

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

    \402\ See supra section II.D.
    \403\ 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.
    \404\ For the purpose of the PRA, we estimate that there will be
43,546 notices per year per affected fund with an effective
Securities Act registration statement (estimated as 382 affected
funds). The annual cost of providing rule 173 notification is
calculated as the number of affected funds (382) x the number of
notices per year (43,546) x the cost per notice ($0.05). See infra
section IV.B.5.
---------------------------------------------------------------------------

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

and 17 CFR 240.10b-10 (rule 10b-5 under the Exchange Act)), which may
ameliorate the potential costs associated with reduced staff
review.\405\
---------------------------------------------------------------------------

    \405\ Certain of our discretionary amendments may also
ameliorate these costs. See infra section III.E.3 (discussing the
benefits and costs of the requirement to disclose material
unresolved staff comments) and section III.E.2 (discussing the
benefits and costs of the 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 amendments, instead of having all the information available
in one location, investors may need to separately access on a website
or request the incorporated materials. As a result, costs to investors
for assembling and assimilating necessary information could increase,
with a potentially stronger effect for retail investors (e.g., because
they generally may not have the technical capabilities or monetary
resources to efficiently search through several information sources).
We do not have data to assess if, and to what extent, this revision
will burden investors.
    However, an affected fund making a shelf offering under rule
415(a)(1)(x) is required to file a new registration statement every
three years, which provides investors with a periodic update of
consolidated information.\406\ The final rule will require that
affected funds provide in their annual reports certain information
currently disclosed in their prospectuses to make the information more
readily available in one document for investors.\407\ Further,
Securities Act Forms S-3 and F-3 have long permitted incorporation by
reference from the issuer's Exchange Act reports, and investors have
not indicated they are unduly burdened when investing in offerings
registered on these Forms.\408\ Studies have shown, however, that the
majority of investors in operating companies are institutional
investors, whereas the majority of investors in the securities of
affected funds are retail investors, who may face relatively higher
costs associated with searching for information distributed across
multiple documents.\409\ In addition, the requirement to backward and
forward incorporate by reference certain information into a short-form
registration statement could increase an affected fund's liability with
respect to information that has not previously been incorporated into
its registration statement because this information will now be part of
the registration statement. This could increase costs for relevant
funds, including potential legal costs (e.g., those associated with
additional review of materials that would be incorporated by reference
into the fund's registration statement, or counsel and other costs in
connection with potential legal actions). These potential cost
increases could be passed on to investors of affected funds.
---------------------------------------------------------------------------

    \406\ See supra footnote 29.
    \407\ See supra section II.I.2.a.
    \408\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44796.
    \409\ The average institutional holding is estimated to be
approximately 30% for BDCs and 21% for registered CEFs. See Covered
Investment Fund Research Reports Adopting Release, supra footnote
101, at 64199. The institutional ownership of U.S. public equities
was approximately 67% as of 2010. See Marshall E. Blume and Donald
B. Keim, Institutional Investors and Stock Market Liquidity: Trends
and Relationships, Working Paper, The Wharton School, University of
Pennsylvania (Aug. 21, 2012).
---------------------------------------------------------------------------

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

    \410\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44782.
---------------------------------------------------------------------------

D. Alternatives to Adopted Approach To Implementing Statutory Mandates

    We considered certain alternative approaches to implementing the
directives in the BDC Act and Registered CEF Act to allow affected
funds to use the securities offering rules that are available to
operating companies. Although the BDC Act identifies certain required
amendments to our rules and forms, we could have, for example, made
additional modifications to the relevant provisions for affected funds
or further revised the current registration and offering framework
affected funds use.
    For example, as discussed above, we considered modifying the public
float standards in the WKSI definition or the short-form registration
instruction by changing the required level of public float or providing
alternative eligibility criteria, such as the aggregate NAV of a
certain size for funds whose shares are not traded on an exchange.\411\
Several commenters supported changing the public float standards in the
WKSI definition for affected funds.\412\ These alternatives could have
allowed more affected funds to qualify as WKSIs or to file short-form
registration statements, with the associated benefits (e.g., lower
costs of registered offerings) and costs (e.g., potential higher
incidence of disclosure and fund practices that may not comply with
applicable law due to reduced staff review) discussed above. For
example, most interval funds do not list their securities on an
exchange and do not have ``public float,'' and these alternatives
therefore could have permitted these interval funds, as well as other
unlisted affected funds, to qualify as WKSIs or file short-form
registration statements. However, modifying the eligibility criteria in
the WKSI definition or the short-form registration instruction could
give affected funds that do not have the requisite public float under
the current WKSI definition or Form S-3 eligibility requirements an
advantage over certain operating companies that do not have public
float or do not meet the $700 million public float requirement.
In addition, certain of the benefits that flow from WKSI status or the
ability to use a short-form registration statement may be less relevant
to unlisted affected funds that engage in continuous

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

    \411\ See supra section II.C.
    \412\ See, e.g., ICI Comment Letter; ABA Comment Letter; Dechert
Comment Letter; CBD Comment Letter; TIAA Comment Letter.
    \413\ See supra paragraph accompanying footnotes 50-51.
---------------------------------------------------------------------------

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

    \414\ As previously recognized, unlisted registered CEFs would
not be eligible for certain of the amendments. See supra section
II.A.
---------------------------------------------------------------------------

E. Discussion of Discretionary Choices

    We discuss below the discretionary amendments that we are adopting,
in light of the changes to implement the BDC Act and Registered CEF Act
and the associated benefits and costs of those choices. We have tried
to quantify the impact of each of the amendments, but in many cases,
reliable, empirical evidence about the effects is not readily available
to the Commission.
    With respect to the proposed discretionary amendments, one
commenter stated that the proposal would impose regulatory and
compliance costs on unlisted affected funds, while at the same time
providing unlisted interval funds with only small benefits and
providing no benefits to other unlisted affected funds (e.g., tender
offer funds).\415\ We believe interval funds and other continuously-
offered unlisted affected funds will directly benefit from two of our
discretionary amendments.\416\ While the final rule also imposes
certain costs on these funds, we believe those costs are warranted, as
discussed in detail below. Moreover, we are not at this time adopting
the proposed new reporting requirements on Form 8-K that would have
imposed costs on unlisted affected funds.\417\
---------------------------------------------------------------------------

    \415\ See ABA Comment Letter.
    \416\ See infra sections III.E.1 and III.E.5.
    \417\ See supra section II.I.3.
---------------------------------------------------------------------------

1. New Registration Fee Payment Method for Interval Funds and Issuers
of Certain Exchange-Traded Products
    We are adopting a modernized approach to registration fee payment
for interval funds that will require them to pay securities
registration fees using the same method that mutual funds and ETFs use
today. In response to comments, we also are allowing certain ETPs that
are not registered under the Investment Company Act to use a similar
method to pay registration fees.
    With respect to interval funds, the final rule requires these funds
to pay their registration fees on a net basis once a year, rather than
having to pay registration fees when the fund files its registration
statement.\418\ We believe this approach will make the registration fee
payment process for interval funds more efficient. For example, it will
avoid the possibility that an interval fund will inadvertently sell
more shares than it has registered  and will not require the issuer to
periodically register new shares.
---------------------------------------------------------------------------

    \418\ See supra section II.G.3.
    \419\ 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 repurchased.
---------------------------------------------------------------------------

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

                                 Table 4
------------------------------------------------------------------------
                                                      Estimated average
                                 Current average      registration fee
                                registration fee      that will be paid
                               (paid upon filing)   under the amendments
                                       \1\           (paid at the end of
                                                    the fiscal year) \2\
------------------------------------------------------------------------
Year 1......................               $31,501                $8,376
Year 2......................  ....................                 7,015
Year 3......................  ....................                22,445
------------------------------------------------------------------------
Notes:
\1.\ The current average registration fee paid in year 1 is the average
  of the actual fees reported by the interval funds in the Calculation
  of Registration Fee table in Form N-2 in the year of registration with
  the Commission. For purposes of this analysis, we assume that interval
  funds did not register additional securities in years 2 or 3. If they
  did, the average registration fees under the current framework would
  be higher than $31,501.

\2.\ For each of the interval funds, the fees in years 1, 2, and 3 are
  estimated as [(dollar proceeds from shares issued + dollar cost of
  shares repurchased) / $1,000,000] x $129.80. The $129.80 is the fee
  rate (per million dollars) that funds pay to register shares for
  fiscal year 2020. Then we calculate the average fees per year.

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

    \420\ As discussed below, interval funds and other funds that
file on Form 24F-2 will be required to file the form in a structured
XML format under the amendments.
    \421\ For PRA purposes, we estimate an annual burden per
respondent of filing Form 24F-2 of two hours. See infra section
IV.B.6. At an estimated wage rate of $70 per hour, the annual dollar
cost for filing Form 24F-2 is $140 (2 hours x $70 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
section III.E.2.
---------------------------------------------------------------------------

    We believe the final rule will provide similar benefits to certain
ETPs that are not registered under the Investment Company Act by
allowing these ETPs to elect to register an indeterminate number of
securities and to pay registration fees in arrears on an annual net
basis. Since now ETPs pay registration fees in advance whether or not
they sell any securities and may not factor in redemptions in reducing
the amount of the registration fees owed, this change will allow them
to reduce their registration fees and shift their payment obligations
into future periods. The amendments will also avoid the possibility
that such an ETP will inadvertently sell more shares than it has
registered and will not require the issuer to periodically register new
shares. Moreover, the amendments will allow ETPs that are not
registered under the Investment Company Act to use a similar
registration fee payment method as ETFs that are registered under the
Investment Company Act.
    As an alternative, we considered allowing a wider range of affected
funds, such as registered CEFs that are tender offer funds, to rely on
rule 24f-2. This approach would have extended the benefits of rule 24f-
2 to additional affected funds. However, as discussed above, interval
funds have structural similarities to mutual funds and ETFs that other
affected funds do not. In particular, interval funds routinely
repurchase shares at NAV and are required to periodically offer to
repurchase their shares, and therefore are more likely to realize the
operational benefits of computing registration fees on a net annual
basis than are funds that are not required to periodically offer to
repurchase their shares at NAV.
2. Structured Data Requirements
    The final rule includes new structured data reporting requirements
for affected funds. Specifically, all affected funds will be required
to tag in Inline XBRL format certain Form N-2 prospectus disclosure
items. All affected funds also will be required to tag the information
on the cover page of Form N-2 using Inline XBRL. Finally, BDCs will be
required to tag financial statement information using Inline XBRL.
    Under the final rule, affected funds will be required to tag the
following Form N-2 prospectus disclosure items using Inline XBRL: Fee
Table; Senior Securities Table; Investment Objectives and Policies;
Risk Factors; Share Price Data; and Capital Stock, Long-Term Debt, and
Other Securities.\422\ These items provide important information about
an affected fund's key features, costs, and risks and may be
particularly useful to investors to inform their investment decisions.
With respect to the requirement that BDCs tag financial statement
information, unlike operating companies and registered investment
companies, BDCs currently are not required to report any structured
data.\423\ This requirement will extend to BDCs a requirement that
currently applies to operating companies.
---------------------------------------------------------------------------

    \422\ See supra section II.I.1.c.
    \423\ See supra section II.I.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, will provide important benefits
to investors seeking to access information about affected funds, both
directly and through information intermediaries such as data
aggregators and financial analysts. Providing a standardized,
interactive, computer-based framework for reporting could further
facilitate more efficient investor comparisons of important information
across affected funds by making it easier to aggregate and analyze
information through automated means, which could increase competition
for investor capital. The Inline XBRL tagging requirements may also
potentially increase the efficiency of capital formation to the extent
that making disclosures available in a structured format reduces some
of the information barriers facing prospective investors and makes it
easier for affected funds to attract investors. One commenter expressed
similar views.\424\
---------------------------------------------------------------------------

    \424\ See Calcbench Comment Letter.
---------------------------------------------------------------------------

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

    \425\ See supra section III.C.2 (discussing these costs).
---------------------------------------------------------------------------

    The cover page tagging requirement includes new check boxes that
will help identify whether a registration statement is, for example, an
automatic shelf registration statement or a short-form registration
statement.\426\ We already require registrants to tag all of the
information on the cover page of Form 10-K, Form 10-Q, Form 8-K, Form
20-F, and Form 40-F using Inline XBRL.\427\ The requirement to tag the
Form N-2 cover page in Inline XBRL is expected to benefit investors by
enabling investors and information intermediaries to automate their use
of the cover page information, including company name, the Act or Acts
to which the registration statement relates, and check boxes relating
to the effectiveness of the registration statement. This will enhance
the ability of investors and information intermediaries to identify,
count, sort, and analyze registrants and disclosures

to the extent these data points otherwise would be formatted, for
example, in HTML. The check boxes, which are required to be tagged in
Inline XBRL format, will allow investors and information intermediaries
to distinguish between different categories of registration statements
in much the same way they are currently able to do for operating
companies. The availability of information in Inline XBRL could enable
investors and information intermediaries to capture and analyze cover
page information more quickly and at a lower cost, as well as to search
and analyze the information dynamically. It could also facilitate
comparison of information across filers and reporting periods.
---------------------------------------------------------------------------

    \426\ See supra section II.I.1.b.
    \427\ See FAST Act Modernization Adopting Release, supra
footnote 66.
---------------------------------------------------------------------------

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

    \428\ See, e.g., Michael Cohn, AICPA sees 45% drop in XBRL costs
for small companies, Accounting Today (Aug. 15, 2018), available at
https://www.accountingtoday.com/news/aicpa-sees-45-drop-in-xbrl-costs-for-small-reporting-companies (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).
---------------------------------------------------------------------------

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

    \429\ 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 33,028 burden hours of in-house Inline
XBRL preparation (31,095 burden hours for tagging financial
statement information, 1,828 burden hours for certain prospectus
disclosure items, and 105 burden hours for Form N-2 cover page
information using Inline XBRL) and $3,712,565 in outside services
($3,555,931 for tagging financial statement information, $156,634
for certain prospectus disclosure items, and $0 for Form N-2 cover
page information using Inline XBRL). See infra section IV.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 (33,028 x $400 = $13,211,200). The estimated wage figure is
based on analysis in previous rulemakings. The average cost per BDC
is calculated by adding the monetized internal burden ($13,211,200)
to the cost of outside services ($3,712,565) and dividing by the
number of BDCs (105). See also supra footnote 355.
    \430\ 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 12,628 burden hours of in-
house Inline XBRL preparation (686 burden hours for Form N-2 cover
page information using Inline XBRL and 11,942 burden hours for
certain prospectus disclosure items) and $1,023,345 in outside
services ($0 for Form N-2 cover page information using Inline XBRL
and $1,023,345 for certain prospectus disclosure items). See infra
section IV.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 (12,628 x $400 = $5,051,200). 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 ($5,051,200) to the cost of outside
services ($1,023,345) and dividing by the number of registered CEFs
(686).
    \431\ 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 (2017),
available at https://www.cfainstitute.org/-/media/documents/survey/the-cost-of-structured-data-myth-vs-reality-august-2017.ashx.
---------------------------------------------------------------------------

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

    \432\ See XBRL US Comment Letter.
    \433\ See European Securities and Markets Authority, Feedback
Statement on the Consultation Paper on the Regulatory Technical
Standard on the European Single Electronic Format (ESEF) (Dec. 21,
2016), available at https://www.esma.europa.eu/sites/default/files/library/2016-1668_esma_feedback_statement_on_the_rts_on_esef_0.pdf.
---------------------------------------------------------------------------

    As an alternative, we could have allowed but not required affected
funds to present cover page, financial statement, and certain
prospectus disclosure information in Inline XBRL. Compared to the final
rule, a fully voluntary Inline XBRL program would

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

    \434\ 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).
    \435\ See XBRL US Comment Letter.
---------------------------------------------------------------------------

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

    \436\ 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.
    \437\ See XBRL US Comment Letter.
---------------------------------------------------------------------------

    As another alternative, we could have expanded the scope of
prospectus disclosure information required to be tagged in Inline XBRL
under the final rule. Compared to the final rule, this alternative
would improve the timeliness and usability of the required disclosure
information, but would potentially impose additional costs on affected
funds. To the extent that the other required prospectus disclosures of
affected funds contain information that is more specific to individual
funds without sufficient comparability or aggregation utility, the
benefits of having those additional required disclosures in a
structured format may be lower than the more limited subset of
disclosures that we are requiring affected funds to file in Inline
XBRL. As another alternative, we could have narrowed the scope of
prospectus disclosure information required to be tagged in Inline XBRL
under the rule. Compared to the final rule, this alternative could
decrease the timeliness and usability of the information required to be
disclosed, but could also potentially reduce costs for registrants.
Overall, the prospectus disclosures that affected funds will be
required to tag in Inline XBRL largely parallel the information that
mutual funds and ETFs are required to disclose. We also believe these
disclosures represent the information that will be most useful for
investors that seek to use structured data to assist with investment
decisions regarding affected funds.
    We also are requiring issuers that file Form 24F-2 (including
mutual funds and ETFs, as well as interval funds) to submit the form in
a structured XML format.\438\ We believe using a structured data format
will make it easier for issuers to accurately prepare and submit the
information Form 24F-2 requires and will make the submitted information
more useful to Commission staff. Automated validation processes could
help issuers compute registration fees accurately before submitting the
filing, which could reduce administrative burdens associated with
correcting inaccurate filings. A structured filing format could also
facilitate pre-population of previously-filed information. We estimate
the cost of tagging Form 24F-2 in a structured XML format to be $542
per fund.\439\
---------------------------------------------------------------------------

    \438\ See supra section II.I.1.d.
    \439\ We assume that the burden of tagging Form 24F-2 in a
structured XML format would be 2 hours for each filing. See infra
section IV.B.6. At an estimated wage rate of $271 per hour, the
dollar cost for filing Form 24F-2 in a structured XML format is $542
(2 hours x $271 per hour) per fund.
---------------------------------------------------------------------------

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

investor protection by making important information more readily
accessible to investors.
---------------------------------------------------------------------------

    \440\ See supra section II.I.2.a and section II.I.2.d.
    \441\ See supra section II.I.2.c.
    \442\ See supra section II.I.2.b.
    \443\ See supra section II.I.5.
---------------------------------------------------------------------------

    With respect to affected funds filing short-form registration
statements on Form N-2, the annual report requirements will compile
certain information that is already available in a fund's registration
statement. This could be beneficial to some investors in these funds
since information will be readily available in one document instead of
investors needing to compile it from several sources. As previously
discussed, given the ability of affected funds to use forward
incorporation by reference under the short-form registration
instruction, these funds' annual reports may become a more convenient
and comprehensive source of information about a particular seasoned
fund, relative to that fund's registration statement. At the same time,
the annual report requirements may increase the compliance costs for
seasoned funds because new information items will have to be added to
the annual report. However, because the annual report will be
incorporated by reference into the fund's prospectus, requiring
disclosure in both the prospectus and annual report should not require
duplicative disclosure. Moreover, specifying identical disclosure
requirements in both places may facilitate forward incorporation by
reference, by making clear that the same required disclosure will
satisfy both requirements. Alternatively, we could have required
affected funds to include in their annual reports more or less
information from their registration statements. While requiring less
information would reduce costs to affected funds by reducing the amount
of required annual report disclosure, it could also make it more
difficult for investors to find important fund information. Requiring
affected funds to include more prospectus information in their annual
reports could increase the length and complexity of annual reports and
make them less useful to investors overall. This alternative would also
increase affected funds' compliance costs.
    The requirement to disclose material unresolved staff comments in
the annual report is designed to mitigate the concern that other
aspects of the amendments may reduce certain affected funds' incentives
to resolve staff comments in a timely manner. We believe disclosure of
material unresolved staff comments will likely provide important
information to investors. This requirement may, however, impose certain
compliance costs to the extent a seasoned fund does not timely resolve
staff comments and hence will be required to provide such disclosure.
We do not believe these disclosure costs will be significant because
the information will be readily available to the affected fund. We
recognize, however, there could be some costs to affected funds
associated with compliance and legal review to the extent an affected
fund wants to provide additional information in its annual report
disclosure beyond that provided in the fund's written response to the
staff's comment (which would typically already be publicly available on
EDGAR). We also recognize, as some commenters suggested, that
determining whether a particular comment is ``material'' or
``unresolved'' involves some subjective judgment, which may contribute
to compliance and legal costs.\444\
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    \444\ See ICI Comment Letter; Invesco Comment Letter.
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    With respect to the requirement that BDCs provide financial
highlights information, we believe investors will benefit from
disclosure summarizing a BDC's financial statements. We believe the
costs associated with this requirement should be minimal since we
understand that it is general market practice for BDCs to include this
information in their registration statements.
    We believe the requirement for registered CEFs to include MDFP
disclosure in their annual shareholder reports will be beneficial to
investors by helping them assess a fund's performance over the prior
year and complementing other information in the report, which may make
the annual report disclosure more understandable as a whole. This
requirement will also promote parity between different types of funds,
as open-end funds and BDCs are already required to provide similar
disclosure in their annual reports. This requirement will likely
increase compliance burdens for registered CEFs, to the extent they do
not voluntarily provide MDFP disclosure already. We believe that a
majority of registered CEFs already provide MDFP-like disclosure in
their annual shareholder reports. We estimate the annual cost of
providing MDFP disclosure to be $6,400 per registered CEF,\445\
although this cost will likely be lower for affected funds that already
provide MDFP-like disclosure.
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    \445\ For the purpose of the PRA, we estimate that the proposed
amendments to require registered CEFs to provide MDFP in their
annual reports will result in an additional 16 burden hours for
registered CEFs. See infra section IV.B.3. We monetize the internal
burden by multiplying the burden hours by an estimated wage rate of
$400 per hour (16 x $400 = $6,400).
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    We considered adopting additional MDFP requirements, such as
requirements to: (1) Disclose the impact of particular investments
(including large positions and/or significant investments) or
investment types that contributed to or detracted from performance; (2)
explain a fund's performance in relation to its index; (3) explain how
the use of leverage affected fund performance; (4) explain the reason
for and effect of any large cash or temporary defensive positions on
fund performance; (5) explain the effect of any tax strategies, or the
effects of taxes, on fund performance; (6) explain the effect of non-
recurring or non-cash income on fund performance; (7) include general
discussion of purchases and sales of fund shares and the effects of any
share repurchases or tender offers on fund performance; and/or (8)
disclose whether the fund has high portfolio turnover and the effect of
portfolio turnover on fund performance. We also considered changing the
average annual total return table to provide additional or more useful
information to investors, such as requiring total return based on per-
share NAV, in addition to total return based on current market price.
Although one or more of these changes could result in additional,
potentially helpful information for investors, we also considered the
administrative costs that additional disclosure requirements would
impose and have determined not to adopt them at this time.
    Under the amendments to rule 8b-16, registered CEFs relying on
paragraph (b) of the rule must describe in their annual reports the
fund's current investment objectives and policies, and principal risks,
and certain key changes that occurred during the relevant year in
enough detail to allow investors to understand each change and how it
may affect the fund. We estimate that approximately 521 registered CEFs
relied on rule 8b-16 as of December 31, 2019 and will therefore provide
the new disclosure.\446\ These registered CEFs also will be required to
preface disclosure of these key changes with a legend clarifying that
the disclosures provide only a summary of certain changes that have
occurred in the past year, and that the summary may not reflect all of
the changes that have occurred. We believe these new disclosure
requirements will allow investors in funds relying on rule 8b-16(b) to
more easily identify and understand key information about their

investments by providing such information in one place. Because these
funds are already required to disclose in their annual reports the
enumerated changes to specified Form N-2 disclosure items--and
therefore already must have and maintain, among other things, updated
information about the investment objectives, policies and principal
risks that we are requiring them to disclose in full--the new
requirement will likely add only a small incremental compliance burden.
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    \446\ See infra footnote 561.
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4. Discretionary Amendments to Incorporation by Reference Requirements
    The final rule will modernize Form N-2's requirements for backward
incorporation by reference for all affected funds.\447\ Specifically,
we are requiring that an affected fund make information that is
incorporated by reference into its prospectus or SAI, as well as the
corresponding prospectus and SAI, readily available and accessible on a
website maintained by or for the fund and identified in the fund's
prospectus or SAI.
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    \447\ See supra section II.I.4.
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    We believe this new requirement will improve the information's
online accessibility for investors. In particular, this new requirement
will make the incorporated information, prospectus, and SAI more
accessible to retail investors online because we believe they may be
more inclined to look at a fund's website for information than to
search the EDGAR system.\448\ We recognize that investors without home
internet access, depending on their ability and preference to access
fund information electronically, might experience a reduction in their
ability to access information that is incorporated by reference into
its prospectus or SAI. However, affected funds will also be required to
provide incorporated materials upon request free of charge, in
recognition that some investors may prefer to review these materials in
paper.\449\
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    \448\ For example, results from 2011 investor testing sponsored
by the Commission suggest that an investor looking for a fund's
annual report is most likely to seek it out on the fund's website.
See Investor Testing of Selected Mutual Fund Annual Reports (Feb. 9,
2012), available at https://www.sec.gov/comments/s7-08-15/s70815-3.pdf. Additionally, a 2018 report by the Investment Company
Institute suggests that over 90% of U.S. households owning mutual
funds used the internet extensively. See ICI Research Perspective,
Ownership of Mutual Funds, Shareholder Sentiment, and Use of the
internet, 2019 (Oct. 2019), available at https://www.ici.org/pdf/per25-08.pdf.
    \449\ See supra paragraph accompanying footnote 410 (recognizing
the effects of allowing affected funds to not deliver final
prospectuses directly to investors if they meet certain
requirements).
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    This amendment also will facilitate the efficient use of
incorporation by reference by affected funds. For example, if an
investor requested a copy of the affected fund's prospectus in
accordance with rule 173, the fund would in some cases need to deliver
a much longer document if we did not amend Form N-2's backward
incorporation by reference provisions.\450\ We do not, however, expect
that the backward incorporation by reference amendment will
substantially reduce the amount of information affected funds deliver
to investors by mail or electronically. This is because we expect that
most affected funds will rely on rules 172 and 173 to satisfy their
prospectus delivery obligations. An issuer that uses these rules will
satisfy its final prospectus delivery obligations by filing the
prospectus with the Commission rather than delivering the prospectus
and any incorporated material to investors.\451\
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    \450\ See, e.g., supra footnote 365 and accompanying text.
    \451\ See supra section II.D.
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    We do not believe the requirement to make a fund's prospectus, SAI,
and incorporated materials available on a website will generate
significant compliance costs for affected funds because many funds
currently post their annual and semi-annual reports and other fund
information on their websites. We estimate the annual cost to comply
with the website posting requirements to be $496 per fund.\452\
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    \452\ 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 section IV.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 ($248).
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    Affected funds may also incur printing and mailing costs under the
final rule if some investors request paper copies of the prospectus
\453\ or of the information that has been incorporated by reference
into the prospectus or SAI but not delivered with the prospectus or
SAI.\454\ In another release, the Commission estimated that the annual
printing and mailing cost associated with providing copies of
prospectuses and other documents upon request would be approximately
$500 per registrant.\455\ We are similarly adopting a requirement to
send prospectuses and related information in this release, and we have
no reason to assume significant differences in the average lengths of
the associated materials or the frequency of investor requests under
the amendments we are adopting. We estimate that the printing and
mailing costs associated with the new requirements will be
approximately $750 per fund in recognition that the requirement to
deliver information that has been incorporated by reference may result
in greater overall costs since affected funds that are eligible to file
short-form registration statements under the final rule will be able to
use incorporation by reference more frequently.\456\ We anticipate,
however, that investors may be less likely to request copies of
materials that have been incorporated by reference into an affected
fund's prospectus or SAI, so we believe this requirement will only
incrementally increase costs.
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    \453\ See supra footnote 153.
    \454\ See supra section II.I.4.
    \455\ See Variable Contract Summary Prospectus Adopting Release,
supra footnote 345, at n.1233 and accompanying text.
    \456\ We requested 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.
Commenters did not provide any data in response.
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    Alternatively, we could have retained Form N-2's current backward
incorporation by reference requirements and continued to require funds
to deliver incorporated materials to new investors. Because current
General Instruction F of Form N-2 does not require affected funds to
make incorporated materials available online, funds would not have to
incur costs associated with website posting. However, because affected
funds that choose to rely on rules 172 and 173 will be deemed to have
delivered their disclosures upon filing with the Commission instead of
giving them to investors, the current backward incorporation delivery
requirement will not result in delivery of incorporated materials to a
fund's investors, thus making less accessible the disclosure materials
that might affect their investment decision.
    We are also modifying Form N-14 to decrease the disclosure burden
of the form and reduce the length of Form N-14 prospectuses in certain
circumstances.\457\ The amendments will allow BDCs to incorporate by
reference to the same extent as registered CEFs. This will provide for
more consistent treatment between registered CEFs and BDCs. We also are