[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Proposed Rules]
[Pages 14448-14552]
[FR Doc No: 2019-05776]

Vol. 84

Wednesday,

No. 69

April 10, 2019

Part II

Securities and Exchange Commission

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17 CFR Parts 229, 230 et al.

Securities Offering Reform for Closed-End Investment Companies;
Proposed Rule

Federal Register / Vol. 84 , No. 69 / Wednesday, April 10, 2019 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 232, 239, 240, 243, 249, 270, and 274

[Release Nos. 33-10619; 34-85382; IC-33427; File No. S7-03-19]
RIN 3235-AM31

Securities Offering Reform for Closed-End Investment Companies

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is
proposing rules that would modify the registration, communications, and
offering processes for business development companies (``BDCs'') and
other closed-end investment companies under the Securities Act of 1933.
As directed by Congress, we are proposing rules that would allow these
investment companies to use the securities offering rules that are
already available to operating companies. The proposed rules would
extend to closed-end investment companies offering reforms currently
available to operating company issuers by expanding the definition of
``well-known seasoned issuer'' to allow these investment companies to
qualify; streamlining the registration process for these investment
companies, including the process for shelf registration; permitting
these investment companies to satisfy their final prospectus delivery
requirements by filing the prospectus with the Commission; and
permitting additional communications by and about these investment
companies during a registered public offering. In addition, the
proposed rules would include amendments to our rules and forms intended
to tailor the disclosure and regulatory framework to these investment
companies. The proposed rules also include a modernized approach to
securities registration fee payment that would require closed-end
investment companies that operate as ``interval funds'' to pay
securities registration fees using the same method that mutual funds
use today. Lastly, we are proposing certain structured data reporting
requirements, including the use of structured data format for filings
on the form providing annual notice of securities sold pursuant to the
rule under the Investment Company Act of 1940 that prescribes the
method by which certain investment companies (including mutual funds)
calculate and pay registration fees.

DATES: Comments should be received by June 10, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment forms (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include
File Number S7-03-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-03-19. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (http://www.sec.gov/rules/proposed.shtml). Comments also are
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Asaf Barouk, Attorney-Adviser; J.
Matthew DeLesDernier, Senior Counsel; Sean Harrison, Senior Counsel;
Amy Miller, Senior Counsel; Angela Mokodean, Senior Counsel; Jacob D.
Krawitz, Branch Chief; David J. Marcinkus, Branch Chief; Amanda
Hollander Wagner, Branch Chief; or Brian McLaughlin Johnson, Assistant
Director, at<PHONE_NUMBER>, Investment Company Regulation Office;
Christian T. Sandoe, Assistant Director or Michael J. Spratt, Assistant
Director, at<PHONE_NUMBER>, Disclosure Review and Accounting Office;
Division of Investment Management; U.S. Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

SUPPLEMENTARY INFORMATION: The Commission is proposing for public
comment amendments to:
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 80a-1 et seq.

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Commission reference                                  CFR citation
                                                      (17 CFR)
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Securities Act of 1933            Rule 134..........  Sec.   230.134.
 (``Securities Act '') \1\.
                                  Rule 138..........  Sec.   230.138.
                                  Rule 139..........  Sec.   230.139.
                                  Rule 156..........  Sec.   230.156.
                                  Rule 163..........  Sec.   230.163.
                                  Rule 163A.........  Sec.   230.163A.
                                  Rule 164..........  Sec.   230.164.
                                  Rule 168..........  Sec.   230.168.
                                  Rule 169..........  Sec.   230.169.
                                  Rule 172..........  Sec.   230.172.
                                  Rule 173..........  Sec.   230.173.
                                  Rule 405..........  Sec.   230.405.
                                  Rule 415..........  Sec.   230.415.
                                  Rule 418..........  Sec.   230.418.
                                  Rule 424..........  Sec.   230.424.
                                  Rule 430B.........  Sec.   230.430B.
                                  Rule 433..........  Sec.   230.433.
                                  Rule 462..........  Sec.   230.462.
                                  Rule 497..........  Sec.   230.497.

Securities Exchange Act of 1934   Rule 13a-11.......  Sec.   240.13a-11.
 (``Exchange Act '') \2\.
                                  Rule 15d-11.......  Sec.   240.15d-11.
                                  Form 8-K..........  Sec.   249.308.
Investment Company Act of 1940    Rule 8b-16........  Sec.   270.8b-16.
 (``Investment Company Act '')
 \3\.
                                  Rule 23c-3........  Sec.   270.23c-3.
                                  Rule 24f-2........  Sec.   270.24f-2.
                                  Form 24F-2........  Sec.   274.24.
Securities Act and Investment     Form N-2..........  Sec.   239.14 and
 Company Act.                                          Sec.   274.11a-1.
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Table of Contents

I. Introduction
II. Discussion
    A. Scope of Closed-End Investment Companies Affected by the
Proposed Rules
    B. Registration Process
    1. Current Shelf Offering Process for Affected Funds
    2. Proposed Amendments to the Registration Process for Affected
Funds
    C. Well-Known Seasoned Issuer Status
    D. Final Prospectus Delivery Reforms
    E. Communications Reforms
    1. Offering Communications
    2. Broker-Dealer Research Reports
    F. Other Proposed Rule Amendments
    1. Rule 418 Supplemental Information
    2. Amendments to Incorporation by Reference Into Proxy
Statements
    G. New Registration Fee Payment Method for Interval Funds
    H. Disclosure and Reporting Parity Proposals
    1. Structured Data Requirements
    2. Periodic Reporting Requirements
    3. New Current Reporting Requirements for Affected Funds
    4. Online Availability of Information Incorporated by Reference
    5. Enhancements to Certain Registered CEFs' Annual Report
Disclosure
    I. Certain Staff No-Action Letters
    J. Conforming Changes to Form N-2
    K. Compliance Date
III. General Request for Comment
IV. Economic Analysis
    A. Introduction and Baseline
    1. Number of Affected Funds
    2. Current Securities Offering Requirements for Affected Funds
    3. Current Disclosure Obligations of Affected Funds
    B. Potential Benefits Resulting From the Proposed Implementation
of the Statutory Mandates
    1. Improved Access to Capital and Lower Cost of Capital
    2. Facilitated Communication With Investors
    C. Potential Costs Resulting From the Proposed Implementation of
the Statutory Mandates
    1. Compliance Costs
    2. Other Costs
    D. Alternatives to Proposed Approach to Implementing Statutory
Mandates
    E. Discussion of Discretionary Choices
    1. New Registration Fee Payment Method for Interval Funds
    2. Structured Data Requirements
    3. Periodic Reporting Requirements
    4. New Current Reporting Requirements for Affected Funds
    5. Online Availability of Information Incorporated by Reference
    F. Request for Comments
V. Paperwork Reduction Act Analysis
    A. Background
    B. Summary of the Proposed Amendments and Impact on Information
Collections
    1. Proposed Amendments to Form N-2 Registration Statement
    2. Proposed Structured Data Reporting Requirements
    3. Proposed New Annual Reporting Requirements Under Rule 30e-1
and Exchange Act Periodic Reporting Requirements for BDCs
    4. Securities Offering Communications
    5. Prospectus Delivery Requirements
    6. Proposed Form 8-K Reporting Requirements
    7. Form 24F-2
    C. Request for Comments
VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for and Objectives of the Proposed Actions
    B. Legal Basis
    C. Small Entities Subject to the Rule
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    1. Registration Process and Final Prospectus Delivery
    2. Communication Rules
    3. New Registration Fee Payment Method for Interval Funds
    4. Disclosure and Reporting Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    1. Alternatives to Proposed Approach to Implementing Statutory
Mandates
    2. Alternative Approaches to Discretionary Choices
    G. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority
Text of Proposed Rules and Forms

I. Introduction

    We are proposing rules that would modify the registration,
communications, and offering processes for business development
companies (``BDCs'') and registered closed-end investment companies
(``registered CEFs'' and, collectively with BDCs, ``affected funds'')
under the Securities Act.\4\ In 2005, the Commission adopted securities
offering reforms for operating companies to modernize the securities
offering and communication processes while maintaining the protection
of investors under the Securities Act.\5\ At that time, the Commission
specifically excluded all investment companies--including affected
funds--from the scope of the reforms.\6\ Now, as directed by Congress,
we are proposing rules that would allow affected funds to use the
securities offering rules that are already available to operating
companies.\7\
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    \4\ BDCs are a category of closed-end investment companies that
do not register under the Investment Company Act, but rather elect
to be subject to the provisions of sections 55 through 65 of the
Investment Company Act. See section 2(a)(48) of the Investment
Company Act [15 U.S.C. 80a-2(a)(48)]. Congress established BDCs for
the purpose of making capital more readily available to small,
developing and financially troubled companies that do not have ready
access to the public capital markets or other forms of conventional
financing. See H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21 (1980).
    \5\ Securities Offering Reform, Securities Act Release No. 8591
(July 19, 2005) [70 FR 44721 (Aug. 3, 2005)] (``Securities Offering
Reform Adopting Release''). In this release we generally use the
term ``operating company'' to refer to issuers that are not
investment companies and that are currently eligible to rely on the
rules we are proposing to amend.
    \6\ See, e.g., id. at 44727 (discussing the exclusion of
investment companies registered under the Investment Company Act and
BDCs from the definition of ``well-known seasoned issuer''); id. at
44735 (discussing the exclusion of such companies from safe harbors
for factual business information and forward-looking information);
id. at 44784 (discussing the exclusion of such companies from final
prospectus delivery reforms).
    \7\ See Part II.A infra concerning the definition of ``affected
funds.''
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    The Small Business Credit Availability Act (the ``BDC Act'')
directs us to allow a BDC to use the securities offering rules that are
available to other issuers required to file reports under section 13(a)
or section 15(d) of the Exchange Act.\8\ As discussed in detail below,
the BDC Act identifies with specificity the required revisions.\9\ The
Economic Growth, Regulatory Relief, and Consumer Protection Act (the
``Registered CEF Act'') (and, together with the BDC Act, the ``Acts'')
directs us to finalize rules to allow any registered CEF that is listed
on a national

securities exchange (a ``listed registered CEF'') or that makes
periodic repurchase offers under rule 23c-3 under the Investment
Company Act (``rule 23c-3'') \10\ (an ``interval fund'') to use the
securities offering rules that are available to other issuers that are
required to file reports under section 13(a) or section 15(d) of the
Exchange Act, subject to appropriate conditions.\11\ Unlike the BDC
Act, the Registered CEF Act does not identify with specificity the
revisions that are required.
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    \8\ Section 803(b) of Small Business Credit Availability Act,
Public Law 115-141, 132 Stat. 348 (2018) (``BDC Act''). This section
also directs us to make specified revisions to allow a BDC to use
the proxy rules that are available to such other issuers. Id.
Affected funds generally use the proxy rules that are available to
operating companies already. One current difference applicable to
these entities, however, is a more limited ability to incorporate
information into their proxy statements by reference. The BDC Act
directs that we eliminate this difference by providing these
entities parity with operating companies. Section 803(b)(2)(N) of
the BDC Act; see also infra Part II.F.2.
    \9\ See section 803(b)(2) of BDC Act.
    \10\ 17 CFR 270.23c-3.
    \11\ Section 509(a) of Economic Growth, Regulatory Relief, and
Consumer Protection Act, Public Law 115-174, 132 Stat. 1296 (2018)
(``Registered CEF Act''). The Registered CEF Act also refers to
proxy rules, as does the BDC Act. See supra footnote 8.
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    The proposed rules would institute a number of reforms:
     First, they would streamline the registration process to
allow eligible affected funds to use a short-form shelf registration
statement to sell securities ``off the shelf'' more quickly and
efficiently in response to market opportunities.
     Second, the proposed rules would allow affected funds to
qualify as ``well-known seasoned issuers'' (``WKSIs'') under rule 405
under the Securities Act.
     Third, they would allow affected funds to satisfy final
prospectus delivery requirements using the same method as operating
companies.
     Fourth, they would allow affected funds to use
communications rules currently available to operating companies, such
as the use of certain factual business information, forward-looking
information, a ``free writing prospectus,'' and broker-dealer research
reports.
     Finally, they would tailor the disclosure and regulatory
framework for affected funds in light of the proposed amendments to the
offering rules applicable to them. These proposed amendments include
structured data requirements to make it easier for investors and others
to analyze fund data; new annual report disclosure requirements to
provide key information in annual reports; a new requirement for
registered CEFs to file reports on Form 8-K in a manner similar to
operating companies and BDCs, including new Form 8-K items tailored to
registered CEFs and BDCs; and a proposal to require interval funds to
pay securities registration fees using the same method that mutual
funds and exchange-traded funds (``ETFs'') use today.
    As discussed in detail below, the proposed rules would affect
categories of affected funds differently just as categories of
operating companies are treated differently under these rules
currently. For example, some of the rules would apply to all affected
funds, that is, all BDCs and registered CEFs. Many of the proposed
rules, however, would apply only to ``seasoned funds.'' These are
affected funds that are current and timely in their reporting and
therefore generally eligible to file a short-form registration
statement under the proposal if they have at least $75 million in
``public float.'' \12\ Some of the proposed rules would apply only to
seasoned funds that also qualify as WKSIs, that is, seasoned funds that
generally have at least $700 million in public float. Table 1
summarizes these different impacts.
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    \12\ See infra footnote 18. Form S-3 defines an issuer's
``aggregate market value,'' commonly referred to as ``public
float,'' as the ``aggregate market value of the voting and non-
voting common equity held by non-affiliates.'' See General
Instruction I.B.1 of Form S-3. The determination of public float is
based on a public trading market, such as an exchange or certain
over-the-counter markets. See Securities Offering Reform Adopting
Release, supra footnote 5, at n.50.

                                                     Table 1
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                                                                   Entities affected  by
                Rule                 Summary description of rule     proposed changes       Discussed below in
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                                             REGISTRATION PROVISIONS
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Securities Act Rule 415............  Permits registration of      Seasoned Funds*.......  Parts II.B.1-II.B.2.a.
                                      securities to be offered
                                      on a delayed or a
                                      continuous basis.
Proposed General Instructions A.2    Provide for backward and     Seasoned Funds........  Part II.B.2.a.
 and F.3 of Form N-2.                 forward incorporation by
                                      reference.
Proposed General Instruction F.4.a.  Requires online posting of   Affected Funds........  Part II.H.4.
                                      information incorporated
                                      by reference.
Securities Act Rule 430B...........  Permits certain issuers to   Seasoned Funds........  Part II.B.2.b.
                                      omit certain information
                                      from their ``base''
                                      prospectuses and update
                                      the registration statement
                                      after effectiveness.
Securities Act Rules 424 and 497...  Provide the processes for    Affected Funds........  Part II.B.2.b.
                                      filing prospectus
                                      supplements.
Securities Act Rule 462............  Provides for effectiveness   WKSIs.................  Part II.B.2.a.
                                      of registration statements
                                      immediately upon filing
                                      with the Commission.
Securities Act Rule 418............  Exempts some registrants     Seasoned Funds........  Part II.F.1.
                                      from an obligation to
                                      furnish certain
                                      engineering, management,
                                      or similar reports.
Investment Company Act Rule 22c-3..  Subjects interval funds to   Interval Funds........  Part II.G.
                                      the registration fee
                                      payment system based on
                                      annual net sales.
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                                            COMMUNICATIONS PROVISIONS
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Securities Act Rule 134............  Permits issuers to publish   Affected Funds........  Part II.E.1.
                                      factual information about
                                      the issuer or the
                                      offering, including
                                      ``tombstone ads''.
Securities Act Rule 163A...........  Permits issuers to           Affected Funds........  Part II.E.1.
                                      communicate without risk
                                      of violating the gun-
                                      jumping provisions until
                                      30 days prior to filing a
                                      registration statement.
Securities Act Rules 168 and 169...  Permit the publication and   Affected Funds........  Part II.E.1.
                                      dissemination of regularly
                                      released factual and
                                      forward-looking
                                      information.
Securities Act Rules 164 and 433...  Permit use of a ``free       Affected Funds........  Part II.E.1.
                                      writing prospectus''.

Securities Act Rule 163............  Permits oral and written     WKSIs.................  Part II.E.1.
                                      communications by WKSIs at
                                      any time.
Securities Act Rule 138............  Permits a broker or dealer   Seasoned Funds........  Part II.E.2.
                                      to publish or distribute
                                      certain research about
                                      securities other than
                                      those they are
                                      distributing.
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                                            PROXY STATEMENT PROVISION
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Item 13 of Schedule 14A............  Permits certain registrants  Seasoned Funds........  Part II.F.2.
                                      to use incorporation by
                                      reference to provide
                                      information that otherwise
                                      must be furnished with
                                      certain types of proxy
                                      statements.
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                                         PROSPECTUS DELIVERY PROVISIONS
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Securities Act Rules 172 and 173...  Permit issuers, brokers,     Affected Funds........  Part II.D.
                                      and dealers to satisfy
                                      final prospectus delivery
                                      obligations if certain
                                      conditions are satisfied.
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                                      STRUCTURED DATA REPORTING PROVISIONS
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Structured Financial Statement Data  A requirement that BDCs tag  BDCs..................  Part II.H.1.a.
                                      their financial statements
                                      using Inline eXtensible
                                      Business Reporting
                                      Language (``Inline XBRL'')
                                      format.
Prospectus Structured Data           A requirement that           Affected Funds........  Parts II.H.1.b-
 Requirements.                        registrants tag certain                              II.H.1.c.
                                      information required by
                                      Form N-2 using Inline XBRL.
Form 24F-2 Structured Format.......  A requirement that filings   Form 24F-2 Filers.....  Part II.H.1.d.
                                      on Form 24F-2 be submitted
                                      in a structured format.
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                                          PERIODIC REPORTING PROVISIONS
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Investment Company Act Rule 8b-16..  A requirement that funds     Registered CEFs.......  Part II.H.5.
                                      that rely on the rule
                                      disclose certain
                                      enumerated changes in the
                                      annual report in enough
                                      detail to allow investors
                                      to understand each change
                                      and how it may affect the
                                      fund.
Proposed Item 24.4.h(2) of Form N-2  A requirement for            Seasoned Funds........  Part II.H.2.a.
                                      information about the
                                      investor's costs and
                                      expenses in the
                                      registrant's annual report.
Proposed Item 24.4.h(3)............  A requirement for            Seasoned Funds........  Part II.H.2.a.
of Form N-2........................   information about the
                                      share price of the
                                      registrant's stock and any
                                      premium or discount in the
                                      registrant's annual report.
Proposed Item 24.4.h(1) of Form N-2  A requirement for            Seasoned Funds........  Part II.H.2.a.
                                      information about each of
                                      a fund's classes of senior
                                      securities in the
                                      registrant's annual report.
Proposed Item 24.4.g of Form N-2...  A requirement for narrative  Registered CEFs.......  Part II.H.2.b.
                                      disclosure about the
                                      fund's performance in the
                                      fund's annual report.
Item 4 of Form N-2.................  Requires disclosure of       BDCs..................  Part II.H.2.c.
                                      certain financial
                                      information.
Proposed Item 24.4.h(4) of Form N-2  A requirement to disclose    Seasoned Funds........  Part II.H.2.d.
                                      outstanding material staff
                                      comments that remain
                                      unresolved for a
                                      substantial period of time.
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                                            CURRENT REPORT PROVISIONS
----------------------------------------------------------------------------------------------------------------
Exchange Act Rules 13a-11 and 15d-   Require registered CEFs to   Registered CEFs.......  Part II.H.3.a.
 11.                                  file current reports on
                                      Form 8-K.
Proposed Section 10 of Form 8-K....  Requires current reporting   Affected Funds........  Part II.H.3.b.
                                      of two new events specific
                                      to affected funds.
Regulation FD Rule 103.............  Provides that a failure to   Seasoned Funds........  Part II.H.3.d.
                                      make a public disclosure
                                      required solely by rule
                                      100 of Regulation FD will
                                      not disqualify a
                                      ``seasoned'' issuer from
                                      use of certain forms.
----------------------------------------------------------------------------------------------------------------
* Some of the proposed rule changes that are shown above as affecting ``seasoned funds'' would only affect those
  seasoned funds that elect to file a registration statement on Form N-2 using a proposed instruction permitting
  funds to use the form to file a short-form registration statement.

II. Discussion

A. Scope of Closed-End Investment Companies Affected by the Proposed
Rules

    While the rulemaking mandate of the BDC Act applies to all BDCs,
the mandate of the Registered CEF Act extends to most, but not all,
registered CEFs.\13\ Specifically, the BDC Act addresses both BDCs that
are listed on an exchange and those that are not, while the Registered
CEF Act extends to all registered CEFs that are listed on an exchange
as well as interval funds, but excludes other unlisted funds. We
propose to apply the proposed rules to all BDCs and registered CEFs,
with certain conditions and exceptions discussed below and generally
illustrated in Table 1 above.
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    \13\ See section 509(a) of Registered CEF Act.
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    Although the Registered CEF Act only requires us to allow interval
funds and listed registered CEFs to use the securities offering rules
available to operating companies, that Act does not preclude us from
exercising our discretion to extend these rules to all registered CEFs.
Except as noted below, we believe, for purposes of the relevant
securities offering and communications rules, that unlisted registered
CEFs are not distinguishable from unlisted BDCs, which the proposed
rules must cover, and that unlisted registered CEFs would benefit from
parity of treatment. Although certain benefits of the rules we are
proposing to amend are less likely to apply, by their existing terms,
to unlisted issuers,\14\ the scope of our proposed amendments would
generally treat unlisted BDCs, unlisted registered CEFs, and unlisted
operating companies in a consistent manner. We believe that this
approach would benefit unlisted registered CEFs and their investors,
including by providing new investor protections to investors in these
funds. It also could avoid adverse consequences that could result from
treating unlisted registered CEFs differently from all other registered
CEFs and unlisted BDCs. For example, such disparate treatment could
produce potential competitive disparities \15\ and the possibility of
anomalous results if an unlisted registered CEF were to list its shares
and at that time become subject to different offering requirements. The
proposal therefore would provide all BDCs and registered CEFs
additional flexibility in raising capital, subject to the conditions
and associated investor protections included in the proposed rules. We
recognize that despite this consistent treatment of affected funds,
unlisted affected funds may not qualify to rely on all of the rules we
propose to amend, by those rules' existing terms and conditions (for
example, most interval funds). However, these funds still would be able
to rely on many of the rules to gain additional flexibility in multiple
aspects of the offering process.\16\
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    \14\ For example, affected funds that do not list their
securities on an exchange and do not have ``public float''--such as
most interval funds--would generally not qualify to be WKSIs or to
file short-form registration statements. See, e.g., infra footnotes
35-37.
    \15\ See infra Part IV.B.1.
    \16\ For example, these funds would newly be able to satisfy
final prospectus delivery obligations by filing a prospectus with
the Commission under the conditions discussed in Part II.D infra,
and the proposed rules also would significantly expand these funds'
flexibility with respect to offering communications as discussed in
Part II.E infra. These funds would also be subject to the other
requirements we are proposing for affected funds, such as the
requirement to provide reports on Form 8-K discussed in Part II.H.3
infra. We are also proposing a modernized approach to interval
funds' payment of securities registration fees. See infra Part II.G.
---------------------------------------------------------------------------

    Although the BDC Act's requirements are more specific than those in
the Registered CEF Act, we believe they both share the overall purpose
of providing offering and communication rule parity to the investment
companies covered by the Acts. In particular, both Acts direct that we
make available to these investment companies the securities offering
rules that are available to other issuers required to file reports
under section 13 or 15(d) of the Exchange Act. The BDC Act expressly
and specifically requires that we apply many of the proposed amendments
to BDCs while the Registered CEF Act does not expressly and
specifically identify the required revisions for registered CEFs, but
the two Acts share similar broad mandates. We believe that, except
where dictated by meaningful differences between BDCs and registered
CEFs--or each type of entity's broader regulatory environment--
consistent application of the proposed rules across affected funds
would result in more efficient offering processes and more consistent
investor protections. Accordingly, the proposed rules would generally
apply the specific requirements of the BDC Act to both BDCs and
registered CEFs, with certain conditions and exceptions discussed
below.
    We request comment on the proposed scope of affected funds.
     Is the proposed scope of affected funds appropriate?
     Should open-end registered investment companies be
included in the scope of the affected funds? Why or why not? Should
some open-end registered investment companies but not others be
included? If so, which ones and why?
     Should any investment companies be removed from the scope
of affected funds? If so, which ones and why? Should the scope--or the
scope of any of the individual aspects of the proposed rules--be
narrowed to exclude registered CEFs that are neither interval funds nor
listed registered CEFs?
     We also request comment as to whether each proposed
amendment discussed throughout this release should include additional
or fewer types of investment companies.

B. Registration Process

    We are proposing amendments to our rules and forms to permit
affected funds to use the more flexible registration process currently
available to operating companies. Specifically, the proposed amendments
would allow affected funds to sell securities ``off the shelf'' more
quickly and efficiently in response to market opportunities.
1. Current Shelf Offering Process for Affected Funds
    Issuers, including affected funds, that are eligible to register
their securities offerings on Form S-3 may conduct primary offerings
``off the shelf'' under Securities Act rule 415(a)(1)(x), the provision
for offerings made on a delayed or continuous basis.\17\ In a rule
415(a)(1)(x) shelf offering, a seasoned issuer can register an
unallocated dollar amount of securities for sale at a later time.\18\
The issuer can then take down

securities ``off the shelf'' for sale in a public offering as market
conditions warrant. This allows seasoned issuers to quickly access the
public securities markets from time to time to take advantage of
favorable market conditions.\19\
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    \17\ Primary offerings that are not continuous in nature may
only be made on a delayed, or ``shelf,'' basis if they fit within
one of the narrow sets of permissible delayed offerings in Rule
415(a)(1), including rule 415(a)(1)(x). In a continuous offering, an
issuer must be ready and willing to sell the securities at all
times. The issuer may not suspend and resume the offering. See
Continuous or Delayed Offerings by Certain Closed-End Management
Investment Companies, Investment Company Act Release No. 19391 (Apr.
7, 1993) [58 FR 19361, 19362 (Apr. 14, 1993)]. An issuer also can
rely on rule 415(a)(1)(x) to make an immediate offering.
    \18\ In this release we use the term ``seasoned'' to refer
generally to an issuer that meets the registrant requirements in
General Instruction I.A of Form S-3 and, when referring to seasoned
funds, a fund that meets these Form S-3 registrant requirements as
well as certain proposed modifications for registered CEFs. Among
other things, General Instruction I.A requires that the registrant
(1) has been subject to the reporting requirements of sections 12 or
15(d) of the Exchange Act and has filed all of the material required
to be filed pursuant to sections 13, 14, or 15(d) of the Exchange
Act for at least twelve calendar months immediately preceding the
filing of the registration statement; and (2) has filed in a timely
manner all reports required to be filed during the twelve calendar
months and any portion of a month immediately preceding the filing
of the registration statement (with specified Form 8-K exceptions).
A foreign private issuer also can meet the registrant requirements
of Form F-3, in lieu of Form S-3. We focus in this release on Form
S-3 because a foreign investment company generally cannot make a
public offering of its securities in the United States. See section
7(d) of the Investment Company Act [15 U.S.C. 80a-7(d)].
    \19\ Issuers that rely on rule 415(a)(1)(x) must file a new
registration statement every three years, with unsold securities and
unused fees carried forward to the new registration statement. See
Securities Act rule 415(a)(5) [17 CFR 230.415(a)(5)]. If the new
registration statement is an automatic shelf registration statement
filed by a WKSI, it will be effective immediately upon filing.
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    Affected funds currently can make shelf offerings under rule
415(a)(1)(x) if they meet the eligibility criteria for Form S-3, even
though affected funds register their securities offerings on Form N-
2.\20\ Our rules for operating companies, however, are more flexible
and efficient than for affected funds. In particular, seasoned
operating companies can use a short-form registration statement on Form
S-3. Certain seasoned operating companies also can rely on Securities
Act rule 430B to omit certain information from the ``base'' prospectus
when the registration statement becomes effective and later provide
that information in a subsequent Exchange Act report incorporated by
reference, a prospectus supplement, or a post-effective amendment.\21\
The ability to ``forward incorporate'' information in Exchange Act
reports filed after the registration statement becomes effective allows
operating companies to efficiently update their prospectuses and access
capital markets without the expense and delay of filing post-effective
amendments in most cases.
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    \20\ See Revisions to the Eligibility Requirements for Primary
Securities Offerings on Forms S-3 and F-3, Securities Act Release
No. 8878 (Dec. 19, 2007) [72 FR 73534, 73537 n.36 (Dec. 27, 2007)]
(``Rule 415(a)(1)(x) permits shelf offerings of securities
`registered (or qualified to be registered) ' on Form S-3 or Form F-
3. We note that a closed-end investment company, including a
business development company . . . that meets the eligibility
standards enumerated in Form S-3, as revised by new General
Instruction I.B.6., may register its securities in reliance on Rule
415(a)(1)(x) notwithstanding the fact that closed-end funds register
their securities on Form N-2 rather than Form S-3.'' (emphasis
added)). Affected funds also can currently conduct offerings under
other provisions of rule 415(a)(1).
    \21\ The base prospectus of a shelf registration statement will
generally describe in broad terms the types of securities and
offerings that the issuer may conduct at some later time.
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    Affected funds, on the other hand, currently have limited ability
to incorporate information by reference into their registration
statements and cannot forward incorporate information from
subsequently-filed Exchange Act reports.\22\ When an affected fund
sells securities, including as part of a ``takedown off the shelf,''
its registration statement must include all required information.\23\
In particular, the affected fund's registration statement must include
current financial information, including any annual update required by
section 10(a)(3) of the Securities Act.\24\ Affected funds provide any
section 10(a)(3) update to the registration statement by filing a post-
effective amendment, which involves the expense and potential delay
associated with the fund's preparation of the amendment and our staff's
review and comment process.\25\
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    \22\ Form N-2 permits registrants to ``backward incorporate''
financial information from a previously-filed report under limited
circumstances: (1) A registered CEF can satisfy the requirements to
provide financial highlights in the prospectus, and financial
statements in the SAI, by incorporating this information by
reference to a previously-filed annual or semi-annual report filed
on Form N-CSR; and (2) a BDC may satisfy the requirement to provide
similar financial and other information by reference to a
previously-filed annual report on Form 10-K. See General Instruction
F of Form N-2.
    \23\ The fund's registration statement must include all required
information to avoid liability from selling securities from an out-
of-date prospectus and to satisfy section 10(a) of the Securities
Act. See infra footnotes 67-68 and accompanying text.
    \24\ Section 10(a)(3) of the Securities Act provides that when a
prospectus is used more than nine months after the effective date of
the registration statement, the information contained therein shall
be as of a date not more than sixteen months prior to such use. 15
U.S.C. 77j. An affected fund registering an offering under rule 415
also must undertake to file a post-effective amendment to the
registration statement: (1) To include any prospectus required by
section 10(a)(3) of the Securities Act; (2) to reflect in the
prospectus any facts or events after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; and (3) to include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement. See Item 34.4 of Form N-2.
    \25\ These post-effective amendments are filed pursuant to
section 8(c) of the Securities Act and must be declared effective,
typically by the staff acting pursuant to delegated authority. In
contrast, under Form S-3, an issuer's section 10(a)(3) update need
not be made through a separate post-effective amendment. Rather,
under that form, when the issuer files its annual report on Form 10-
K containing the issuer's audited financial statements for its most
recently completed fiscal year by the due date of the annual report,
it operates as a post-effective amendment to the registration
statement for purposes of section 10(a)(3). See Securities Offering
Reform Adopting Release, supra footnote 5, at n.61.
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    Affected funds also cannot currently rely on rule 430B, which
allows certain issuers to omit information from a base prospectus, or
the process that operating companies follow to file prospectus
supplements.\26\ In addition, affected funds cannot currently file
automatic shelf registration statements because only WKSIs can file
these registration statements. These differences can result in
additional expense or delay for affected funds relative to operating
companies and can affect the timing of an affected fund's capital
raising.\27\
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    \26\ Rule 430B is available for automatic shelf registration
statements filed by WKSIs and shelf registration statements filed by
certain issuers eligible to use Form S-3 for a primary offering.
Affected funds currently rely on Securities Act rule 430A and rule
430C, which do not permit an issuer to omit as much information as
permitted under rule 430B.
    \27\ Affected funds in particular may want greater flexibility
to control the timing of their capital raising because section 23(b)
of the Investment Company Act generally prohibits a registered CEF
from issuing its shares at a price below the fund's current net
asset value (``NAV'') without shareholder approval (and this
provision applies to BDCs as well with certain modifications). 15
U.S.C. 80a-23(b); 15 U.S.C. 80a-62. Because the shares of affected
funds often trade at a discount to NAV, these funds may want to
quickly access the markets when their shares are trading at a
premium. Selling securities ``off the shelf'' is one way to achieve
such quick access.
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2. Proposed Amendments to the Registration Process for Affected Funds
    Consistent with the BDC Act and the Registered CEF Act, we are
proposing to provide affected funds parity with operating companies by
permitting affected funds to:
     File a short-form registration statement on Form N-2 that
will function like a Form S-3 registration statement. An affected fund
eligible to file this short-form registration statement could use it to
register shelf offerings, including shelf registration statements filed
by WKSI affected funds that become effective automatically, and could
satisfy Form N-2's disclosure requirements by incorporating by
reference information from the fund's Exchange Act reports;
     Rely on rule 430B to omit information from their base
prospectuses, and to use the process operating companies follow to file
prospectus supplements; and
     Include additional information in periodic reports to
update their registration statements, provided that this information is
identified as being included for this purpose.
a. Short-Form Registration on Form N-2
    We are proposing a new instruction to Form N-2 to allow affected
funds to file a short-form registration statement on Form N-2 that will
function like a registration statement filed on Form

S-3. We generally refer to this proposed instruction, General
Instruction A.2, as the ``short-form registration instruction'' and
funds relying on this instruction as filing a short-form registration
statement on Form N-2.\28\ If a fund is eligible to file a registration
statement under this new instruction, the fund's registration statement
would incorporate certain past and future Exchange Act reports by
reference, allowing the fund to use a short-form registration statement
and avoid the need to make post-effective amendments in most cases. An
affected fund could use the proposed instruction to register a shelf
offering under rule 415(a)(1)(x), and we are proposing conforming
amendments to that rule to make this clear. But the proposed
instruction would not be limited to offerings under rule 415(a)(1)(x);
an affected fund could use the proposed instruction to register any of
the securities offerings that operating companies are permitted to
register on Form S-3.\29\
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    \28\ Proposed General Instruction A.2 of Form N-2. Some of the
required amendments and the conditions in our current rules are
available only to issuers that meet the eligibility and transaction
requirements of Form S-3 and are therefore eligible to file a short-
form registration statement on that form. The proposed short-form
registration instruction in Form N-2 is designed to facilitate these
amendments that we are proposing to implement the BDC Act and the
Registered CEF Act.
    \29\ See General Instruction I.B of Form S-3 (identifying
transactions that can be registered on the form); proposed General
Instruction A.2.c of Form N-2. Form S-3, and therefore the proposed
short-form registration instruction, also is available to a
majority-owned subsidiary that is a closed-end management investment
company eligible to register a securities offering on Form N-2 if
(1) the subsidiary independently satisfies the form's registrant
eligibility and transactional requirements; (2) the parent satisfies
the form's registrant requirements and the transaction requirement
for a primary offering of non-convertible securities; (3) the parent
satisfies the form's registrant eligibility and transactional
requirements and provides a full and unconditional guarantee of the
payment obligations on the securities being registered; (4) the
parent satisfies the form's registrant eligibility and transactional
requirements and the securities of the registrant subsidiary being
registered are guarantees of the payment obligations on the parent's
non-convertible securities; and (5) the parent satisfies the form's
registrant eligibility and transactional requirements and the
securities of the registrant subsidiary being registered are
guarantees of the payment obligations on the non-convertible
securities being registered by another majority-owned subsidiary.
See General Instruction I.C of Form S-3.
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Eligibility To File a Short-Form Registration Statement
    An affected fund would be able to file a short-form registration
statement under the proposed short-form registration instruction if:

 For either a BDC or a registered CEF, the fund meets the
registrant and transaction requirements of Form S-3 (i.e., the fund
could register the offering on Form S-3 if it were an operating
company); \30\ and
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    \30\ See proposed General Instructions A.2.a and A.2.c of Form
N-2; General Instructions I.A (registrant requirements) and I.B
(transaction requirements) of Form S-3.
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 For registered CEFs, the fund also has been registered under
the Investment Company Act for at least 12 calendar months immediately
preceding the filing of the registration statement and has timely filed
all reports required to be filed under section 30 of the Investment
Company Act during that time.\31\ This time period and timely-filing
requirement parallel the requirements in Form S-3 regarding an issuer's
Exchange Act reports.
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    \31\ Under the proposed amendment, the fund would also have to
have timely filed all reports required to be filed under section 30
of the Investment Company Act during any portion of a month
immediately preceding the filing of the registration statement. See
proposed General Instruction A.2.b of Form N-2.

    An affected fund would generally meet the registrant requirements
of Form S-3 if it has timely filed all reports and other materials
required under the Exchange Act during the prior year.\32\ An affected
fund would generally meet the transaction requirements of Form S-3 for
a primary offering if the fund's public float is $75 million or
more.\33\ Requiring affected funds to satisfy the requirements of Form
S-3 in order to file a short-form registration statement would provide
parity for affected funds and operating companies.
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    \32\ See General Instruction I.A.3 of Form S-3. In addition, we
are proposing two new Form 8-K reporting items for affected funds.
An affected fund's failure to timely file Form 8-K reports solely
under these proposed items would not affect the fund's ability to
file a short-form registration statement on Form N-2. See infra Part
II.H.3.
    \33\ See General Instruction I.B of Form S-3. For example,
certain issuers with less than a $75 million public float also are
eligible to use Form S-3 to register a primary offering but are
limited as to the amount of securities they can register. See
General Instruction I.B.6 of Form S-3. See also infra Part II.C
(discussing our consideration of a different level of public float
for an affected fund to qualify as a WKSI or to file a short-form
registration statement on Form N-2, or a different metric in lieu of
an affected fund's public float).
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    Certain affected funds, including most interval funds,\34\ do not
list their securities on an exchange and do not have public float. As a
result, there are some affected funds that generally would not be able
to satisfy the transaction requirement necessary to file a short-form
registration statement.\35\ Interval funds have their own offering
provision, Securities Act rule 415(a)(1)(xi),\36\ and certain post-
effective amendments to their registration statements are immediately
effective under rule 486(b) under the Securities Act.\37\ As a result,
interval funds currently have a tailored registration process that,
although different in certain respects from that of operating
companies, may provide many of the same efficiencies. In addition,
because interval funds make continuous offerings, they would not be
able to file a short-form registration statement that omits information
required to be in an issuer's prospectus when it is offering its
securities.
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    \34\ Only one interval fund is currently exchange-traded.
    \35\ The proposed short-form registration instruction is
designed to provide affected funds parity with operating companies
by permitting them to use the instruction to register the same
transactions that an operating company can register on Form S-3. To
register a primary offering of equity securities on Form S-3, an
issuer must have a requisite amount of public float. See General
Instruction I.B.1 of Form S-3. Alternatively, an issuer must have
shares listed on an exchange and limit the amount sold over a
twelve-month period to no more than one-third of the aggregate value
of voting and non-voting common equity held by non-affiliates. See
General Instruction I.B.6 of Form S-3. Interval funds that are not
exchange-listed and without public float would not be qualified to
register a primary offering of their shares on Form S-3.
    \36\ 17 CFR 230.415(a)(1)(xi).
    \37\ 17 CFR 230.486(b).
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    Along with satisfying the registrant requirements of Form S-3, a
registered CEF also must have timely filed all reports required under
section 30 of the Investment Company Act for the preceding 12 months in
order to register an offering under the proposed short-form
registration instruction.\38\ A registered CEF therefore must have
timely filed during the prior year all required Exchange Act reports,
such as annual and semi-annual reports to shareholders filed with the
Commission on Form N-CSR,\39\ as well as reports required only under
section 30 of the Investment Company Act, such as reports on new Forms
N-CEN \40\ and N-PORT.\41\
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    \38\ See proposed General Instruction A.2.b of Form N-2.
    \39\ 17 CFR 249.331 and 17 CFR 274.128. Reports on Form N-CSR
are filed both under the Exchange Act and the Investment Company
Act.
    \40\ 17 CFR 249.330 and 17 CFR 274.101.
    \41\ 17 CFR 274.150. In October 2016, we modernized the
reporting and disclosure of information by registered investment
companies. Specifically, we adopted a new monthly portfolio
reporting form, Form N-PORT, which replaces Form N-Q [17 CFR 249.332
and 17 CFR 274.130]. Form N-PORT requires registered investment
companies other than money market funds and small business
investment companies to report information about their monthly
portfolio holdings to the Commission in a structured data format on
a quarterly basis, 60 days after quarter end. See Investment Company
Reporting Modernization, Investment Company Act Release No. 32314
(Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (``Reporting
Modernization Release''); see also Amendments to the Timing
Requirements for Filing Reports on Form N-PORT, Investment Company
Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)]
(``N-PORT Modification Release''). We also adopted a new annual
reporting form, Form N-CEN, to be used by registered investment
companies to report annually certain census-type information. Fund
groups with $1 billion or more in net assets will begin filing
reports on Form N-PORT with the Commission by April 30, 2019 (for
the period ending March 31, 2019). Smaller fund groups (i.e., fund
groups with less than $1 billion in net assets) will be required to
begin submitting reports on Form N-PORT by April 30, 2020 (for the
period ending March 31, 2020). See also Investment Company Reporting
Modernization, Investment Company Act Release No. 32936 (Dec. 8,
2017) [82 FR 58731 (Dec. 14, 2017)].

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    An issuer's Exchange Act record provides the basic source of
information to the market and to potential purchasers, and investors in
the secondary market use that information in making their investment
decisions.\42\ Although all affected funds file reports under the
Exchange Act, registered CEFs also file reports under the Investment
Company Act. Investment Company Act reports also provide important
information to the market and investors, including information about an
affected fund's portfolio holdings that will be publicly reported on a
quarterly basis on Form N-PORT. We believe that the market will analyze
this portfolio holdings information in a similar manner to how it
analyzes financial statements for operating companies to determine
changes in prospects for growth and performance. Portfolio holdings
disclosure on Form N-PORT, for example, provides important information
that is comparable to information BDCs include in Exchange Act reports
for purposes of providing a quarterly flow of key information to the
market.\43\ Moreover, requiring registered CEFs to have timely filed
their Investment Company Act reports would also provide parity among
BDCs, registered CEFs, and operating companies. This is because once
Form N-PORT fully replaces Form N-Q,\44\ registered CEFs will only file
Exchange Act reports semi-annually on Form N-CSR, whereas BDCs and
operating companies file Exchange Act reports quarterly on Forms 10-K
and 10-Q.\45\ Under the proposal, all issuers would be required to have
filed their quarterly and other required reports in order to file a
short-form registration statement.\46\
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    \42\ See Shelf Registration, Securities Act Release No. 6499
(Nov. 17, 1983) [48 FR 52889 (Nov. 23, 1983)]. See also Securities
Offering Reform Adopting Release, supra footnote 5, at 44726
(recognizing that an ``issuer's Exchange Act record provides the
basic source of information to the market and to potential
purchasers regarding the issuer and its management, business,
financial condition, and prospects. Because an issuer's Exchange Act
reports and other publicly available information form the basis for
the market's evaluation of the issuer and the pricing of its
securities, investors in the secondary market use that information
in making their investment decisions.'').
    \43\ Exchange Act reports, such as reports on Form 10-Q or Form
N-CSR, include information required by Regulation S-X. Certain
reports on Form N-PORT must include the portfolio holdings
information required by the schedules set forth in rules 12-12
through 12-14 of Regulation S-X. See Part F of Form N-PORT. We also
require reports on Form N-PORT to include, in a structured format,
data elements that are otherwise required by Regulation S-X. See
Reporting Modernization Release, supra footnote 41, at 81894.
    \44\ Form N-Q will be rescinded on May 1, 2020. See supra
footnote 41.
    \45\ Reports on Form N-PORT with monthly information will be
filed with the Commission on a quarterly basis, but only information
reported for the third month of each fund's fiscal quarter on Form
N-PORT will be publicly available (and not until 60 days after the
end of the fiscal quarter).
    \46\ Affected funds historically must have timely filed reports
on Forms N-Q and N-SAR for the preceding 12 months in order to rely
on rule 415(a)(1)(x). This is because to rely on that rule, an
issuer must have timely filed required Exchange Act reports and Form
N-Q is, and Form N-SAR was, filed under both the Investment Company
Act and section 13(a) or 15(d) of the Exchange Act.
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Information Incorporated by Reference
    The same rules on incorporation by reference that apply to Form S-3
registration statements would apply to a short-form registration
statement filed on Form N-2.\47\ Specifically, an affected fund relying
on the short-form registration instruction would be required to:
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    \47\ See section 803(c)(1) of the BDC Act (directing us to
include an item or instruction that is similar to item 12 on Form S-
3 to provide that a BDC that would otherwise meet the requirements
of Form S-3 shall incorporate by reference the reports and documents
filed by the BDC under the Exchange Act into the registration
statement of the BDC filed on Form N-2). We would eliminate current
General Instruction F.3 of Form N-2 in its entirety and replace it
with proposed General Instruction F.3. In these proposed provisions
and others that are substantively identical to parallel provisions
in Form S-3, we have proposed conforming references to a fund's SAI.
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     Specifically incorporate by reference into the prospectus
and statement of additional information (``SAI''): (1) Its latest
annual report filed pursuant to section 13(a) or section 15(d) of the
Exchange Act that contains financial statements for the registrant's
latest fiscal year for which a Form N-CSR or Form 10-K was required to
be filed; and (2) all other reports filed pursuant to sections 13(a) or
15(d) of the Exchange Act since the end of the fiscal year covered by
the annual report (backward incorporation by reference); \48\ and
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    \48\ Proposed General Instruction F.3.a(1)-(2) of Form N-2; cf.
Item 12(a)(1)-(2) of Form S-3. In addition, if sales of a class of
capital stock are to be registered on Form N-2 and the same class is
registered under section 12 of the Exchange Act, the affected fund
must incorporate by reference the description of the class contained
in the Exchange Act registration statement with respect to that
class (including any amendment or reports filed for the purpose of
updating such description). Proposed General Instruction F.3.a(3) of
Form N-2; cf. Item 12(a)(3) of Form S-3.
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     State that all documents subsequently filed pursuant to
sections 13(a), 13(c), 14, or 15(d) of the Exchange Act prior to the
termination of the offering shall be deemed to be incorporated by
reference into the prospectus and SAI (forward incorporation by
reference).\49\
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    \49\ Proposed General Instruction F.3.b of Form N-2; cf. Item
12(b) of Form S-3.
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    We also are proposing to allow an affected fund filing a short-form
registration statement on Form N-2 to satisfy the disclosure
requirements for its prospectus or SAI by incorporating the information
by reference from Exchange Act reports.\50\ This approach, which is
substantively identical to a parallel item in Form S-3, would give
affected funds filing a short-form registration statement on Form N-2
the option to either provide required disclosure directly in the
prospectus or SAI or to satisfy Form N-2's disclosure requirements with
information incorporated by reference.\51\
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    \50\ See proposed General Instruction F.3. The proposed
amendments would permit a fund to use this incorporated information
to provide the disclosure required by Items 3-13 and Items 16-24 of
Form N-2. Proposed General Instruction F.3.c of Form N-2; cf. Item
12(d) of Form S-3.
    \51\ The BDC Act directs that we extend this parallel item in
Form S-3 (Item 12) to BDCs that meet Form S-3's requirements. See
supra footnote 47; Item 12(d) of Form S-3; see also section 509(a)
of the Registered CEF Act.
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    We considered requiring registered CEFs to incorporate by reference
into their prospectuses and SAIs reports filed on Forms N-PORT and Form
N-CEN. These forms provide important information to investors, other
market participants, and Commission staff, and we propose including
these forms in the timeliness requirement for registered CEFs to use
the new short-form registration statement instruction.\52\ This
information, however, is not specifically required disclosure under
Form N-2, and so incorporating it by reference would not update the
required disclosures on Form N-2. Taking this consideration into
account, we are not proposing to require such incorporation.
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    \52\ Proposed General Instruction A.2.b of Form N-2.
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    We are also proposing conforming changes to Form N-2's
undertakings.\53\ Form N-2 currently requires an

undertaking that would prevent seasoned funds from incorporating
information by reference as proposed because it requires these funds to
file post-effective amendments in certain circumstances (and would do
so regardless of whether the information had already been incorporated
by reference).\54\ In contrast, operating companies registering on Form
S-3 are not required to make this undertaking if the required
information is included in an Exchange Act report incorporated by
reference or in a prospectus supplement that is part of the
registration statement.\55\ To implement the statutory mandate and
provide parity for affected funds, we propose to amend Form N-2's
undertakings to provide the same approach for affected funds filing a
short-form registration statement on that form that applies to
operating companies that file on Form S-3.\56\
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    \53\ See section 803(b)(2)(P) of the BDC Act (directing us to
revise Item 34 of Form N-2 to require a BDC to provide undertakings
that are no more restrictive than the undertakings that are required
of a registrant pursuant to Item 512 of Regulation S-K, which are
the undertakings that apply to an operating company registering an
offering on Form S-3).
    \54\ Form N-2 currently requires an affected fund registering an
offering under rule 415 to undertake to file, during any period in
which offers or sales are being made, a post-effective amendment to
the registration statement under certain circumstances, including to
provide any prospectus required by section 10(a)(3) of the
Securities Act. Item 34.4.a(1) of Form N-2.
    \55\ See Item 512(a)(iii)(B) of Regulation S-K [17 CFR
229.512(a)(iii)(B)].
    \56\ Specifically, we propose to add a new provision to Item
34.4.a of Form N-2 stating that the requirement to undertake to file
a post-effective amendment would not apply if the registration
statement is filed under the proposed short-form registration
instruction and the information required to be included in a post-
effective amendment by Items 34.4.a(1)-(3) is contained in Exchange
Act reports that are incorporated by reference into the fund's
registration statement or is contained in a form of prospectus that
is part of the registration statement. See proposed Item 34.4.a of
Form N-2; cf. Item 512(a) of Regulation S-K.
     We also propose to revise Item 34 to make conforming changes to
mirror parallel undertakings in Item 512 of Regulation S-K. See,
e.g., proposed Item 34.4.a(2) of Form N-2; cf. Item 512(a)(1)(ii) of
Regulation S-K; proposed Item 34.4.d(1) of Form N-2; cf. Item
512(a)(5)(i) of Regulation S-K; proposed Item 34.4.e(2)-(3) of Form
N-2; cf. Item 512(a)(6)(ii)-(iii) of Regulation S-K; proposed Item
34.6 of Form N-2; cf. Item 512(b) of Regulation S-K; and proposed
Item 34.7 of Form N-2; cf. Item 512(h) of Regulation S-K.
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Affected Funds' Use of Rule 415(a)(1)(x) and Automatic Shelf
Registration Statements
    We are proposing two additional amendments to allow affected funds
to use the shelf registration system in parity with operating
companies. First, we propose to amend rule 415(a)(1)(x) to clarify that
affected funds may use that rule by adding references to a registration
statement filed under the proposed short-form registration
instruction.\57\ Second, we propose a new general instruction to permit
affected funds that would be WKSIs under the proposed amendments to
file an automatic shelf registration statement.\58\ A WKSI can register
unspecified amounts of different types or classes of securities on an
automatic shelf registration statement.\59\ The ability to use an
automatic shelf registration statement means that the registration
statement and any amendments will be effective immediately upon
filing.\60\ Automatic shelf registration provides WKSIs with
significant flexibility to take advantage of market windows, structure
terms of securities on a real-time basis to accommodate investor
demand, and determine or change the plan of distribution in response to
changing market conditions. WKSIs using an automatic shelf registration
statement also benefit by being able to pay filing fees at any time in
advance of a shelf takedown or on a ``pay-as-you-go'' basis at the time
of each takedown off the shelf registration statement in an amount
calculated for that takedown.\61\ Our proposed amendments would extend
these same benefits to affected funds that would be WKSIs under the
proposed amendments, as directed by the BDC Act and the Registered CEF
Act.\62\
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    \57\ See proposed rule 415(a)(1)(x) (revised to include
securities registered pursuant to General Instruction A.2 of Form N-
2). See also section 803(b)(2)(J) of the BDC Act (directing us to
revise rule 415(a)(1)(x) to provide that a BDC that would otherwise
meet the eligibility requirements of Form S-3 can register its
securities under that provision). We also are proposing to add a
reference to a Form N-2 registration statement filed pursuant to
General Instruction A.2 to rule 415(a)(2) to make clear that
affected funds registering offerings pursuant to rule 415(a)(1)(ix),
like other issuers relying on that provision, would not be subject
to the limitation that they register an amount of securities that
the issuer reasonably expected would be offered or sold within two
years from the date that the registration statement became
effective. Cf. Securities Offering Reform Adopting Release, supra
footnote 5, at 44774-44775.
    \58\ See proposed General Instruction B of Form N-2; section
803(c)(2) of the BDC Act (directing that we amend Form N-2 to
include an instruction that is similar to the instruction regarding
automatic shelf registration offerings by well-known seasoned
issuers on Form S-3 to provide that a BDC that is a well-known
seasoned issuer may file automatic shelf offerings on Form N-2). The
proposed instruction would provide that an affected fund that is a
WKSI may use the form as an automatic shelf registration statement
only for the transactions that are described in, and consistent with
the requirements of, General Instruction I.D of Form S-3. This
provides parity with operating companies because General Instruction
I.D of Form S-3 specifies the transactions and requirements for an
automatic shelf registration statement filed on Form S-3. Consistent
with General Instruction I.D of Form S-3, proposed General
Instruction B specifies that the form could not be used as an
automatic shelf registration statement for securities offerings
under rule 415(a)(1)(vii) or (viii).
    \59\ See rule 430B(a) under the Securities Act [17 CFR
230.430B(a)].
    \60\ See rule 462(e) and rule 462(f) under the Securities Act
[17 CFR 230.462(e) and 17 CFR 230.462(f)].
    \61\ See rule 457(r) and rule 456(b) under the Securities Act
[17 CFR 230.457(r) and 17 CFR 230.456(b)].
    \62\ We are proposing conforming amendments to Securities Act
rule 462(f) and to the registration fee table in Form N-2 to enhance
consistency with Form S-3 and to recognize that affected funds that
would be WKSIs could use the pay-as-you-go registration fee process.
---------------------------------------------------------------------------

    We request comment on these proposed amendments, including:
     Do the proposed amendments provide parity to affected
funds? Why or why not? Are there other changes that we should make that
would provide parity for affected funds? What changes and why?
     Currently, Form S-3 under specified circumstances allows
majority-owned subsidiaries of a parent issuer eligible to use Form S-3
to register offerings of certain non-convertible securities or
guarantees under General Instruction I.C of the form. Under the
proposed amendments, an affected fund could use the new short-form
registration instruction of Form N-2 to register the same types of
offerings that operating companies can register on Form S-3, including
offerings by majority-owned subsidiaries that are closed-end management
investment companies eligible to register a securities offering on Form
N-2. Is it appropriate to amend Form N-2 to provide a similar process
for affected funds to register the same types of offerings by majority-
owned subsidiaries that operating companies can register on Form S-3?
Would affected funds expect to register these offerings using the
proposed short-form registration instruction? How do affected funds
treat securities issued by majority-owned subsidiaries that are
investment companies when calculating asset coverage under sections 18
or 61 of the Investment Company Act? \63\ If affected funds do not
include these securities in calculating asset coverage, why not?
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 80a-18 and 80a-60.
---------------------------------------------------------------------------

     Rather than amending Form N-2, should we create a separate
registration form specifically for affected funds to file a short-form
registration statement?
     Should we require registered CEFs to have timely filed
reports under section 30 of the Investment Company Act during the prior
year in order to file a short-form registration on Form N-2, as
proposed?
     We are proposing to allow an affected fund filing a short-
form registration statement on Form N-2 to satisfy the disclosure
requirements for its prospectus or SAI by incorporating the information
by reference from Exchange Act reports. Are there any

specific prospectus or SAI disclosure items that an affected fund
should not be permitted to incorporate by reference into the
registration statement? If so, which ones and why?
     An affected fund filing a short-form registration
statement on Form N-2 would incorporate by reference into its
prospectus and SAI certain past and future Exchange Act reports. This
could increase an affected fund's liability with respect to information
that has not previously been incorporated into its registration
statement. Would this raise any concerns unique to affected funds? For
example, is there any information in registered CEFs' annual and semi-
annual reports that should not be incorporated by reference? If so,
which information and why?
     Are there any changes we should make to the registration
process for interval funds? Should we, for example, permit them to
forward incorporate if they would be eligible to rely on the proposed
short-form registration instruction but for their lack of public float?
Why or why not? Is there a basis to treat interval funds differently in
this respect than any other issuer that does not have public float?
Besides the additional flexibility in the aspects of the offering
process that interval funds would receive under this proposal,\64\ are
there any other ways in which we should modernize the offering process
for interval fund offerings?
---------------------------------------------------------------------------

    \64\ See supra footnote 16.
---------------------------------------------------------------------------

     Unlisted BDCs and unlisted registered CEFs also would not
generally have ``public float.'' Are there any changes we should make
to the shelf registration process for these funds?
     Are there any other line items or language from Forms S-1
or S-3 that we should include in Form N-2 to facilitate the
incorporation by reference regime (or to otherwise enhance or modernize
Form N-2 to provide parity with the operating company regime)? For
example, is it necessary or useful to add a new item for ``Material
Changes'' in Form N-2 that mirrors Item 11A of Form S-1 and Item 11(a)
of Form S-3? \65\ Those items generally provide that, where a
registrant is backward incorporating information by reference into a
new registration statement, it must disclose in the registration
statement any material changes that have not been disclosed in an
Exchange Act report being incorporated by reference. Would it be
necessary or useful to include a new item for ``Material Changes'' in
Form N-2 to remind registrants that, as currently required, the new
registration statement must include all material information? Would it
elicit any disclosure that is not otherwise required by Form N-2's
other items?
---------------------------------------------------------------------------

    \65\ See Item 11A of Form S-1 (directing a registrant that
elects to incorporate information by reference to describe any and
all material changes in the registrant's affairs which have occurred
since the end of the latest fiscal year for which audited financial
statements were included in the latest Form 10-K and that have not
been described in a Form 10-Q or Form 8-K filed under the Exchange
Act); see also Item 11(a) of Form S-3 (describing parallel
requirements).
---------------------------------------------------------------------------

     We are not proposing to require that registered CEFs
incorporate by reference reports filed on Forms N-PORT or N-CEN. Do
commenters agree that this is appropriate? Conversely, should the
reports on those forms be incorporated by reference? Should we permit
or require a fund to incorporate the exhibit to certain reports on Form
N-PORT that sets forth a registered CEF's complete portfolio holdings
presented using the form and content specified by Regulation S-X? Would
incorporating these reports allow funds to update any aspect of their
registration statement and in that way avoid having to provide the same
information through a prospectus supplement or post-effective
amendment?
     Are there incorporation by reference provisions in any
other registration forms filed by affected funds that should be
modified to provide parity or consistency across registration
statements, and if so, in what respect? For example, should we amend
General Instruction G of Form N-14 to provide that BDCs may incorporate
by reference to the same extent as registered CEFs? Would BDCs use this
ability to incorporate information by reference?
     Proposed General Instruction B cross-references General
Instructions II.E, F, and G and IV of Form S-3. These instructions
explain the application of general rules and regulations. Cross-
referencing these instructions would direct registrants' attention to
them without having to set forth the instructions in Form N-2 as well.
Would it be clearer, however, to set forth the substance of those
instructions in Form N-2?
b. Omitting Information From a Base Prospectus and Prospectus
Supplements
    Affected funds registering securities in shelf offerings under
Securities Act rule 415 can generally omit required information from
the base prospectus that is unknown or not reasonably available to the
fund when the registration statement becomes effective.\66\ Rule 430B
also permits WKSIs and certain issuers eligible to use Form S-3 for
primary offerings to omit certain additional information. A base
prospectus that omits statutorily-required information is not a final
prospectus under section 10(a) of the Securities Act.\67\ Filing a
prospectus supplement is one way to provide information required for a
prospectus to satisfy section 10(a).\68\
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    \66\ See Securities Act rule 409 [17 CFR 230.409].
    \67\ 15 U.S.C. 77j(a).
    \68\ Omitted information also may be provided in a post-
effective amendment or, where permitted, through Exchange Act
filings that are incorporated by reference.
---------------------------------------------------------------------------

    Our rules currently provide different processes for operating
companies and investment companies to file prospectuses. Operating
companies currently follow rule 424 to file prospectus supplements,
whereas investment companies follow rule 497. Although these rules
provide similar processes, they have certain key differences. For
example, rule 424(b) is designed to work together with rule
415(a)(1)(x), and provides additional time for an issuer to file a
prospectus. Rule 497 does not contain provisions specifically related
to offerings under rule 415(a)(1)(x) and requires the fund to file a
prospectus with the Commission before using it. Rule 424 also requires
an issuer to file a prospectus only if the issuer makes substantive
changes from or additions to a previously-filed prospectus, whereas
rule 497 requires funds to file every prospectus that varies from any
previously-filed prospectus.
    In order to provide parity with operating companies, the BDC Act
directs us to include a process for a BDC to file a prospectus in the
same manner as under rule 424(b).\69\ Consistent with this directive
and with the Registered CEF Act, we are proposing to amend rule 424(f)
to allow affected funds to file a prospectus under rule 424.\70\ Under
the proposed amendment, an affected fund would be able to file any type
of prospectus enumerated in rule 424(b) to update, or to include
information omitted from, a prospectus or in connection with a shelf
takedown. We also are proposing to amend rule 497 to provide that rule
424 would be the exclusive rule for affected funds to file a prospectus
supplement other than an advertisement that is deemed to be a

prospectus under rule 482.\71\ This would avoid any confusion that
might result if affected funds were permitted to file prospectuses
under both rule 424 and rule 497, while also continuing to require
affected funds to file rule 482 advertisements as they and other
investment companies do today.
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    \69\ See section 803(b)(2)(K) of the BDC Act.
    \70\ The proposed amendments would not apply to open-end funds
or other registered investment companies. Accordingly, those
investment companies would continue to file prospectuses pursuant to
rule 497. See proposed amendments to rule 424(f). We also are
proposing to amend rule 424(f) to state that references to the term
``form of prospectus'' in the rule includes the Statement of
Additional Information.
    \71\ See proposed Securities Act rule 497(l).
---------------------------------------------------------------------------

    We also are proposing an amendment to permit affected funds to use
rule 430B in parity with operating companies. That rule permits an
issuer to omit specified information from its base prospectus in two
circumstances. First, a WKSI filing an automatic shelf registration
statement can omit the plan of distribution and whether the offering is
a primary one or an offering on behalf of selling security holders. An
amendment to rule 430B is not required to achieve parity with respect
to this first use because, once affected funds are permitted to qualify
as WKSIs, those that are WKSIs would be able to rely on rule 430B as
currently written. Second, the rule also applies to issuers eligible to
file a registration statement on Form S-3 to register a primary
offering, where the issuer is registering securities for selling
security holders. In this case, the prospectus can omit the same
information that WKSIs can omit, as well as the identities of selling
security holders and the amount of securities to be registered on their
behalf, subject to conditions. Unlike the first use, this second use
would not be available to affected funds without a modification to the
rule. Accordingly, we are proposing an amendment to allow affected
funds eligible to register a primary offering under the proposed short-
form registration instruction to rely on rule 430B for this second use
as well. In addition, affected funds relying on rule 430B, like
operating companies, would undertake that for purposes of determining
liability under the Securities Act with respect to any purchaser, each
prospectus supplement is deemed part of the registration statement
containing the base prospectus to which the supplement relates. This is
measured as of the earlier of the date the prospectus supplement is
first used after effectiveness or the date of the first contract of
sale of securities in the offering described in the prospectus.\72\
---------------------------------------------------------------------------

    \72\ See proposed rule 430B(b). Rules 430B, 424, and 158 specify
when information contained in a prospectus supplement will be deemed
part of and included in the registration statement and circumstances
that will trigger a new effective date of the registration statement
for purposes of section 11(a) of the Securities Act. These rules
would apply to affected funds just as they apply to operating
companies. We also are proposing to amend the undertakings in Form
N-2 to require affected funds relying on rule 430B to make the same
undertakings required of operating companies that rely on the rule.
See proposed Item 34.4.d(1); cf. Item 512(a)(5)(i) of Regulation S-
K. See also supra footnote 53.
---------------------------------------------------------------------------

    We request comment on these proposed amendments, including:
     Should we amend rule 424(f) as proposed to allow affected
funds to file a prospectus under rule 424? Is this an effective means
to implement the parity requirements of the BDC Act and Registered CEF
Act? Why or why not?
     Are there additional amendments that we should make to
rules 430B, 424, or 497 to allow affected funds to omit information
from their base prospectuses and file prospectus supplements in parity
with operating companies?
     Should we make rule 424 the exclusive rule under which
affected funds must file prospectuses as proposed, or should we allow
affected funds to have the option to file a prospectus under rule 424
or rule 497? If we provided optionality, would that increase the
potential to cause confusion for funds or investors? Are there any
other consequences of requiring affected funds to use rule 424 that we
should consider? Rather than require affected funds to use rule 424 as
proposed, should we amend rule 497 to include the substantive
requirements of rule 424 for affected funds?
c. Additional Information in Periodic Reports
    Under the proposed amendments, certain affected funds would be
permitted to forward incorporate information from their Exchange Act
reports. These funds may wish to include information in their periodic
reports that is not required to be included in these reports in order
to update their registration statements. We therefore propose to
include a new instruction to Form N-2 that would allow a fund to
include additional information so as long as the fund includes a
statement in the report identifying information that it has included
for this purpose.\73\ This would provide context for investors in
considering this additional disclosure, akin to the context funds today
provide investors when they mail prospectus ``stickers'' updating
disclosure in the prospectus.
---------------------------------------------------------------------------

    \73\ Proposed Instruction 6.i of Item 24 of Form N-2.
---------------------------------------------------------------------------

    We request comment on this proposed instruction, including:
     Does the proposed instruction adequately provide a
mechanism for affected funds to update their registration statements
via their periodic reports?
     Does the proposed instruction provide sufficient guidance
to an affected fund regarding whether and how it may include additional
information in its periodic reports to update its registration
statement, and how to identify that information?
     Is there any reason we should not permit affected funds to
incorporate by reference information from their periodic reports that
is not required to be included in those reports, or should we further
prescribe how any additional information must be presented? Should we,
for example, require that any additional information appear after the
information affected funds are required to include in their annual
reports?
     In addition to affected funds' periodic reports, should we
also require an affected fund to identify information included in a
report on Form 8-K filed for the purpose of updating the fund's
registration statement?

C. Well-Known Seasoned Issuer Status

    We are proposing amendments that would allow an affected fund to
qualify as a WKSI. In 2005, the Commission created a new category of
issuer--a WKSI--that benefits to the greatest degree from the
modifications to our rules regarding communications and the
registration processes that the Commission adopted at that time.\74\ A
WKSI, for example, can file a registration statement or amendment that
becomes effective automatically in a broader variety of contexts than
non-WKSIs. Subject to certain conditions, our rules also permit a WKSI
to communicate at any time, including through a free writing
prospectus, without violating the ``gun-jumping'' provisions of the
Securities Act.\75\ In order for an issuer to qualify as a WKSI, the
issuer must meet the registrant requirements of Form S-3, i.e., it must
be ``seasoned,'' \76\ and generally must have at least $700 million in
``public float.'' \77\ An issuer is ineligible for

WKSI status if, among other bases: (1) It is not current and timely in
its Exchange Act reports, or (2) it is the subject of a judicial or
administrative decree or order arising out of a governmental action
involving violations of the anti-fraud provisions of the federal
securities laws (the ``anti-fraud prong'' of the ineligible issuer
definition).\78\
---------------------------------------------------------------------------

    \74\ Securities Offering Reform Adopting Release, supra footnote
5, at 44727.
    \75\ See infra Part II.E.1.
    \76\ See supra footnote 18.
    \77\ See paragraph (1)(i)(A) of the WKSI definition in rule 405
(providing that the issuer must have at least $700 million in
worldwide ``public float,'' that is, the market value of outstanding
voting and non-voting common equity held by non-affiliates). An
alternative basis for an issuer to satisfy this requirement is to
have issued, for cash, within the last three years, at least $1
billion in aggregate principal amount of non-convertible securities
through primary offerings registered under the Securities Act
(paragraph (1)(i)(B) of the WKSI definition). The definition also
includes provisions for transactions involving majority-owned
subsidiaries (paragraph (1)(ii) of the WKSI definition).
    \78\ See paragraph (1)(i) and (1)(vi) of the definition of
ineligible issuer in Securities Act rule 405.
---------------------------------------------------------------------------

    The BDC Act directs us to revise Securities Act rule 405 to allow a
BDC to qualify as a WKSI and the Registered CEF Act directs us to allow
registered CEFs covered by the Act to use the securities offering rules
that are available to operating companies.\79\ We are also proposing
conforming amendments to the definition of an ``ineligible issuer.''
Specifically:
---------------------------------------------------------------------------

    \79\ Section 803(b)(2)(A)(i).
---------------------------------------------------------------------------

     First, the WKSI definition specifically excludes BDCs and
registered investment companies. We propose to amend rule 405 so that
the exclusion does not apply to affected funds.\80\
---------------------------------------------------------------------------

    \80\ See proposed amendments to paragraph (1)(v) of rule 405.
---------------------------------------------------------------------------

     Second, the WKSI definition currently provides that an
issuer must meet the registrant requirements of Form S-3. We propose to
add a parallel reference to the registrant requirements of the proposed
short-form registration instruction.\81\
---------------------------------------------------------------------------

    \81\ See proposed amendments to paragraph (1)(v) of the WKSI
definition in rule 405. In addition, in certain places where the
WKSI definition currently refers to Form S-3, we propose to add
conforming references to a Form N-2 registration statement filed
under proposed General Instruction A.2 of Form N-2. See proposed
amendments to paragraph (1)(i) and (1)(i)(B)(2) of the definition of
WKSI in rule 405. See proposed General Instruction A.2 of Form N-2.
We also are proposing a conforming amendment to paragraph (2) of the
definition of WKSI to add a reference to Form N-CSR, the form on
which registered CEFs file their shareholder reports with the
Commission. See proposed amendment to paragraph (2) of the
definition of WKSI in Securities Act rule 405. See also infra Part
II.D.2.
---------------------------------------------------------------------------

     Third, we propose to amend the definition of ``ineligible
issuer'' to provide that a registered CEF would be ineligible if it has
failed to file all reports and materials required to be filed under
section 30 of the Investment Company Act during the preceding 12
months. This provision is consistent with the proposed short-form
registration instruction and would mirror the current Exchange Act
reporting provision in the ineligible issuer definition.\82\
---------------------------------------------------------------------------

    \82\ See supra footnote 78.
---------------------------------------------------------------------------

     Finally, we propose to amend the definition of ineligible
issuer to give effect to the current anti-fraud prong in that
definition in the context of affected funds. Specifically, we are
proposing a parallel anti-fraud prong for affected funds. The current
anti-fraud prong provides that an issuer that, within the past three
years, was the subject of a judicial or administrative decree or order
arising out of a governmental action involving violations of the anti-
fraud provisions of the federal securities laws would be an ineligible
issuer.\83\ The proposed new anti-fraud prong for affected funds would
provide that an affected fund would be an ineligible issuer if within
the past three years its investment adviser, including any sub-adviser,
was the subject of any judicial or administrative decree or order
arising out of a governmental action, that determines that the
investment adviser aided or abetted or caused the affected fund to have
violated the anti-fraud provisions of the federal securities laws.\84\
Investment companies typically are externally managed by an investment
adviser, which is primarily responsible for the day-to-day management
of the fund and the preparation of the fund's disclosures.
---------------------------------------------------------------------------

    \83\ See paragraph (1)(vi) of the ineligible issuer definition
in rule 405.
    \84\ See proposed paragraph (1)(ix) of the ineligible issuer
definition in rule 405. The proposed amendment's reference to an
affected fund's investment adviser would include any sub-adviser.
This is consistent with the Investment Company Act's definition of
an ``investment adviser'' to an investment company, which includes
sub-advisers. See section 2(a)(20) of the Investment Company Act.
Cf. proposed Item 10.01 of Form 8-K (providing that an affected fund
would be required to file a Form 8-K report if the fund's investment
adviser, including any sub-adviser, has determined to implement a
material change to the registrant's investment objectives or
policies, and such change has not been, and will not be, submitted
to shareholders for approval).
---------------------------------------------------------------------------

    We considered proposing a different level of public float for an
affected fund to qualify as a WKSI (or to file a short-form
registration statement on Form N-2), or a different metric in lieu of
an affected fund's public float, such as its net asset value for funds
whose shares are not traded on an exchange.\85\ Either of these types
of changes could permit additional affected funds to qualify as WKSIs
and enjoy the associated benefits. The BDC Act and the Registered CEF
Act, however, direct that we allow the funds covered by those Acts to
use the rules available to operating companies.
---------------------------------------------------------------------------

    \85\ We focus in this section on affected funds' public float
because we believe that affected funds would be more likely to
qualify for WKSI status on the basis of having $700 million or more
in public float than to have to have issued, for cash, within the
last three years, at least $1 billion in aggregate principal amount
of non-convertible securities in registered offerings. See supra
footnote 77.
---------------------------------------------------------------------------

    Specifically, the WKSI definition, including its $700 million
public float threshold, is meant to capture issuers that are
presumptively the most widely followed in the marketplace and whose
disclosures and other communications are subject to market scrutiny by
investors, the financial press, analysts, and others.\86\ As a result
of the active participation of these issuers in the markets and, among
other things, the wide following of these issuers by market
participants, the media, and institutional investors, the Commission
has previously stated that it believes that it is appropriate to
provide communications and registration flexibilities to WKSIs beyond
that provided to other issuers, including other seasoned issuers.\87\
---------------------------------------------------------------------------

    \86\ See id. at 44726-30.
    \87\ See id. at 44727.
---------------------------------------------------------------------------

    In adopting the current $700 million public float threshold for
WKSIs, the Commission observed that high levels of analyst coverage,
institutional ownership, and trading volume are useful indicators of
the scrutiny that an issuer receives from the market, recognizing that
no one statistic can fully capture the extent to which an issuer is
followed by the market.\88\ Operating company issuers with market
capitalization in excess of $700 million that conducted offerings from
1997 to 2004 typically had an average of 12 analysts following them
prior to the offering, which the Commission observed was likely a
conservative indicator of analyst scrutiny because it included only
sell-side analysts.\89\ Institutional investors accounted for an
average of 52% of equity ownership prior to offerings by issuers with
market capitalization above $700 million; these issuers had an average
daily trading volume of nearly $52 million prior to offerings in this
period; and these issuers accounted for significant percentages of
capital raised (e.g., 70% of equity capital raised from 1997 to
2004).\90\ The Commission observed that the issuers that would meet the
thresholds for WKSI status are the most active issuers in the U.S.
public capital markets.\91\
---------------------------------------------------------------------------

    \88\ See id. at 44728.
    \89\ Id.
    \90\ Id.
    \91\ Id. at 44727.
---------------------------------------------------------------------------

    Affected funds, in contrast, have limited analyst coverage relative
to operating companies and many have high levels of retail, rather than
institutional, investors.\92\ Affected funds

have relatively modest daily trading volumes: For example, the average
daily dollar volume of a listed affected fund (a listed BDC or listed
registered CEF) prior to offerings was $3.8 million in 2017, and listed
affected funds represented less than one percent of the daily dollar
trading volume on the New York Stock Exchange and NASDAQ in 2017.\93\
Affected funds also do not account for significant percentages of
capital raised, with affected funds (listed and non-listed) raising
about two percent of the total capital raised in 2017 in registered
offerings.\94\ Based on our consideration of the same criteria the
Commission evaluated in 2005, we do not believe that affected funds
would be likely to have a level of market following at lower levels of
public float than operating companies that would justify a lower public
float threshold or alternative metric to qualify as a WKSI. We also are
not aware of alternative indicia of a market following for affected
funds or any particular type of affected funds that would suggest a
lower public float threshold, or alternative metric in lieu of public
float, would be appropriate. We believe these same considerations also
support our proposal to require affected funds to have the same level
of public float to file a short-form registration statement--currently
$75 million--that applies to operating companies.\95\
---------------------------------------------------------------------------

    \92\ For example, listed BDCs having on average six security
analysts following them as of December 2017, and listed registered
CEFs having on average zero security analysts following them as of
December 2017. Data on analyst coverage is taken from the I/B/E/S
database (Thomson Reuters).
    \93\ Data on daily trading volume is taken from the TAQ
database. Data on securities offerings is taken from taken from
Securities Data Corporation's New Issues database (Thomson Reuters).
We estimated affected funds' average daily trading volume during a
period of a month prior to a securities offering. See also infra
footnote 383 and accompanying text (discussing institutional
ownership of affected funds and operating companies).
    \94\ Data on registered securities offerings are taken from
Securities Data Corporation's New Issues database (Thomson Reuters).
    \95\ See supra footnote 33 (explaining that there are other
bases to file a short-form registration statement on Form S-3 that
do not require an issuer to have $75 million in public float and
that these other bases would also be available to affected funds
filing a short-form registration statement on Form N-2).
---------------------------------------------------------------------------

    Indeed, based on the general level of affected funds' analyst
coverage, trading volume, and capital raised, we considered whether the
public float threshold should be higher for affected funds than for
operating companies. We determined not to propose a higher threshold,
however, because we believe the same public float threshold for all
issuers would be consistent with the general directive in the BDC Act
and the Registered CEF Act to provide the funds covered in those Acts
the securities offerings rules available to operating companies.
    We also considered whether to propose any modifications to the way
that an affected fund would calculate its public float. The Commission
recently adopted new Securities Act rule 139b to permit broker-dealers
to publish ``covered investment fund research reports,'' which include
reports covering affected funds.\96\ In that rulemaking the Commission
determined not to require broker-dealers to exclude shares held by the
fund's affiliates from the calculation of the fund's public float.\97\
Our approach to the public float calculation in rule 139b, however, was
designed to address operational challenges broker-dealers could
experience in obtaining affiliate shareholder information.\98\ Affected
funds should not experience the same operational difficulties in
calculating their own public float. Indeed, BDCs currently disclose
their public float net of affiliate holdings on Form 10-K, and
registered CEFs (as well as BDCs) that conduct offerings under rule
415(a)(1)(x) currently must determine their public float net of
affiliate holdings to evaluate their eligibility to use that rule.
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    \96\ See infra Part II.E.2.
    \97\ In new rule 139b, consistent with this proposal, we
generally provided that issuers covered in research reports
published under the rule must have the same level of public float
required for research reports on operating companies.
    \98\ See Covered Investment Fund Research Reports, Securities
Act Release No. 10580 (Nov. 30, 2018) [83 FR 26788 (Dec. 13, 2018)]
(``CIFRR Adopting Release'').
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    Not all affected funds will have public float or the level of
public float required to be a WKSI or to file a short-form registration
statement. For example, unlisted funds, including interval funds, will
generally not have public float. However, the same is true for
operating companies. For example there are many unlisted real estate
investment trusts that do not have a public float and cannot qualify as
a WKSI.\99\ An unlisted affected fund, like an unlisted operating
company, could list its shares and qualify as a WKSI or use a short-
form registration statement if it had the requisite public float and
met the other requirements. We request comment in this release on
extending the benefits of particular reforms to affected funds that
would not qualify because they do not have the requisite public
float.\100\
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    \99\ The determination of public float is based on a public
trading market, such as an exchange or certain over-the-counter
markets. See Securities Offering Reform Adopting Release, supra
footnote 5, at n.50.
    \100\ See, e.g., supra footnotes 35-37 and accompanying text;
requests for comment in supra Part II.B.2.a (requesting comment on
whether we should make any changes to the registration process for
interval funds that do not list their securities on an exchange and
do not have public float).
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    We request comment generally on the proposed amendments to the WKSI
and ineligible issuer definitions, including:
     Would these proposed amendments to the WKSI definition
provide parity to affected funds? Why or why not? Are there other
revisions that we should make to the definition to achieve that
objective?
     Are the proposed amendments to the definition of
ineligible issuer appropriate, and would they help give effect to the
current anti-fraud prong of the ineligible issuer definition in the
context of affected funds, in light of funds' management structure? If
not, what approach would better give effect to the anti-fraud prong in
the context of affected funds? Are the proposed amendments clear, and
would issuers understand what it means for an investment adviser,
including any sub-adviser, to have aided or abetted or caused the
issuer to have violated the anti-fraud provisions of the federal
securities laws? If not, how should we change, or provide guidance on,
the proposed provision? For example, should we clarify how the proposed
ineligible issuer definition would apply to a fund where the investment
adviser, including any sub-adviser, aided, abetted, or caused the fund
to have violated certain anti-fraud provisions within the three-year
look-back period that the proposed definition specifies, and then the
fund selected a new investment adviser within this same period?
     The activities of affected funds, unlike those of
operating companies, are substantively regulated under the Investment
Company Act. For example, certain provisions of the Investment Company
Act directly govern the operations of investment companies, such as
prohibitions on management self-dealing,\101\ breaches of fiduciary
duty,\102\ or changes in an investment company's business or investment
policies without shareholder approval.\103\ Neither the current
ineligible issuer definition in rule 405 nor our proposed amendments to
the definition would cover substantive provisions of the Investment
Company Act that do not involve a violation of the anti-fraud
provisions of the federal securities laws. Should we expand the
definition of ineligible issuer to include violations of non-antifraud
provisions of

the Investment Company Act? If so, which provisions of the Investment
Company Act? For example, should an affected fund be ineligible if it
is the subject of a judicial or administrative decree involving
violations of the self-dealing provisions of section 17 or 57 of the
Investment Company Act, or such a decree involving violations of the
asset coverage requirements of section 18 or 61 of the Investment
Company Act?
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    \101\ See section 17 of the Investment Company Act [15 U.S.C.
80a-17].
    \102\ See section 36 of the Investment Company Act [15 U.S.C.
80a-35].
    \103\ See section 13 of the Investment Company Act [15 U.S.C.
80a-13].
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     Should we adopt a different level of public float for an
affected fund to qualify as a WKSI (or to file a short-form
registration statement on Form N-2), or a different metric in lieu of
an affected fund's public float? If so, which level or metric and why?
     Should we, for example, provide for a different metric for
interval funds, whose shares are generally not listed on an exchange,
or for other unlisted affected funds? If so, which metric and why? For
example, would it be appropriate to allow these funds to use their net
asset values in lieu of or in addition to public float? Do interval
funds or other unlisted affected funds with net asset values of $700
million or more (or $75 million or more) have a similar degree of
market following and scrutiny as listed issuers with comparable amounts
of public float? Are there other metrics tailored to affected funds
that would indicate a similar degree of market following and scrutiny
as listed issuers with comparable amounts of public float? Would it be
appropriate to provide more advantageous provisions for interval funds
or other types of affected funds relative to operating companies?
Should we adopt any differences in the way that an affected fund would
calculate its public float?

D. Final Prospectus Delivery Reforms

    We propose to apply the alternative delivery method for operating
company final prospectuses to affected funds. As a result, an affected
fund would be allowed to satisfy its final prospectus delivery
obligations by filing its final prospectus with the Commission.
    The Securities Act requires registrants to deliver to each investor
in a registered offering a prospectus meeting the requirements of
section 10(a) (known as a ``final prospectus'').\104\ Section 5(b)(2)
makes it unlawful to deliver a security for the purpose of sale or for
delivery after sale unless accompanied or preceded by a final
prospectus. After the effective date of a registration statement, a
written communication that offers a security for sale, or confirms the
sale of a security, may be provided to investors if a final prospectus
is sent or given previously or at the same time. Otherwise, such a
communication is a prospectus and may not be provided unless it meets
the requirements of section 10(a).\105\
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    \104\ 15 U.S.C. 77j(a).
    \105\ 15 U.S.C. 77e(b)(2).
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    Rule 172 allows issuers, brokers, and dealers to satisfy final
prospectus delivery obligations if a final prospectus is or will be on
file with the Commission within the time required by the rules and
other conditions are satisfied.\106\ For example, rule 172 provides
that a final prospectus will be deemed to precede or accompany a
security for sale for purposes of section 5(b)(2) as long as the final
prospectus is filed with the Commission or it will be filed as part of
the registration statement.\107\ Rule 172 applies only to final
prospectuses and not to other documents.\108\ Rule 173 requires a
notice stating that a sale of securities was made pursuant to a
registration statement or in a transaction in which a final prospectus
would have been required to have been delivered in the absence of rule
172.\109\
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    \106\ 17 CFR 230.172; see also Securities Offering Reform
Adopting Release, supra footnote 5, at 44783.
    \107\ See id. In the event that the issuer fails to file such a
prospectus in a timely manner, the issuer must file the prospectus
as soon as practicable thereafter. 17 CFR 230.172(c)(3); see also
Securities Offering Reform Adopting Release, supra footnote 5, at
44784 (summarizing the effect of this ``cure'' provision).
    \108\ Id. at 44784.
    \109\ 17 CFR 230.173. This notification enables investors to
``trace'' their purchases of securities for purposes of asserting
their rights under the liability provisions of the federal
securities laws. See Securities Offering Reform Adopting Release,
supra footnote 5, at 44784. Rule 173(d) provides that a purchaser
who receives a notification may request a copy of the final
prospectus. We are proposing a conforming change to current Item
34.6 of Form N-2, under which funds currently undertake to provide
an SAI upon request, to also require an affected fund to undertake
to provide a prospectus upon request. See proposed Item 34.8 of Form
N-2.
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    Currently, affected funds are specifically excluded from the
issuers that may rely on these rules.\110\ The BDC Act directs us to
remove this exclusion for BDCs.\111\ To implement the BDC Act, and to
provide parity for registered CEFs consistent with the Registered CEF
Act, we propose to amend rules 172 and 173 to remove the exclusion for
offerings by affected funds.\112\
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    \110\ See rule 172(d)(1)-(2) under the Securities Act [17 CFR
230.172(d)(1)-(2)]; rule 173(f)(2)-(3) under the Securities Act [17
CFR 230.173(f)(2)-(3)].
    \111\ Section 803(b)(2)(L) of the BDC Act; see also section
509(a) of Registered CEF Act (requiring parity of securities
offering rules with operating companies for listed registered CEFs
and interval funds).
    \112\ See proposed rule 172(d) under the Securities Act;
proposed rule 173(f) under the Securities Act.
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    We request comment on the proposed revisions to the final
prospectus delivery rules.
     Are the proposed revisions to rules 172 and 173
appropriately tailored to affected funds? Should we add additional
conditions to reliance on rule 172 for some or all affected funds? If
so, which ones and why? For example, should we limit the availability
of rule 172 only to affected funds that have timely filed all reports
and other materials required under the Exchange Act and/or Investment
Company Act for a certain period of time prior to reliance on the rule?
As another example, should we limit the availability of rule 172 only
to seasoned funds that file a short-form registration statement on Form
N-2, or to funds that qualify for WKSI status?

E. Communications Reforms

1. Offering Communications
    The Securities Act restricts the types of offering communications
that issuers or other parties subject to the Act's provisions may use
in connection with a registered public offering.\113\ These provisions,
which we refer to as the ``gun-jumping provisions,'' were designed to
make the statutorily mandated prospectus the primary means for
investors to obtain information regarding a registered securities
offering.\114\ Accordingly, unless otherwise permitted:
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    \113\ Unless otherwise noted, offering communications generally
refer to written communications. Rule 405 provides that ``[e]xcept
as otherwise specifically provided or the context otherwise
requires, a written communication is any communication that is
written, printed, a radio or television broadcast, or a graphic
communication as defined in [rule 405].'' 17 CFR 230.405.
    \114\ See Securities Offering Reform Adopting Release, supra
footnote 5, at 44731.
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     Before an issuer files a registration statement, all
offers, in whatever form, are prohibited; \115\
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    \115\ See Securities Act section 5(c) [15 U.S.C. 77e(c)].
---------------------------------------------------------------------------

     After the issuer files a registration statement but before
it has become effective, the only written offers that are permitted are
those made using a preliminary prospectus that meets the requirements
of section 10 of the Securities Act, which must be filed with the
Commission; \116\ and
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    \116\ This is because after the filing of the registration
statement but before its effectiveness, offers made in writing
(including electronically), by radio, or by television are limited
to a ``statutory prospectus'' that conforms to the information
requirements of Securities Act section 10. See Securities Act
section 5(b)(1) [15 U.S.C. 77e(b)(1)] and Securities Act section 10
[15 U.S.C.77j].
---------------------------------------------------------------------------

     Even after the registration statement is declared
effective, offering participants still may make written offers only
through a statutory

prospectus, except that they may use additional written offering
materials if a final prospectus that meets the requirements of
Securities Act section 10(a) is sent or given prior to or with those
materials.\117\
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    \117\ See Securities Act section 2(a)(10) [15 U.S.C. 77b(a)(10)]
and section 5(b)(1) [15 U.S.C. 77e(b)(1)].
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    The Commission has previously adopted rules that provide operating
companies and other parties (such as underwriters) increased
flexibility in their communications as compared to the limitations
described above.\118\ The Commission adopted these rules, which we
refer to as the ``communications rules,'' because the Commission
believed that investors and the market could benefit from access to
greater communications under conditions that preserve important
investor protections. These communication rules, however, are generally
not available to affected funds, which are subject to a separate
framework governing communications with investors.\119\
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    \118\ See, e.g., Securities Offering Reform Adopting Release,
supra footnote 5, at 44731. See also rules 134 [17 CFR 230.134], 138
[17 CFR 203.138], 139 [17 CFR 230.139], 156 [17 CFR 230.156], 163
[17 CFR 230.163], 163A [17 CFR 230.163A], 164 [17 CFR 230.164], 168
[17 CFR 230.168], 169 [17 CFR 230.169], and 433 [17 CFR 230.433].
    \119\ See Securities Offering Reform Adopting Release, supra
footnote 5, at n.115 and accompanying text. Certain of the
communications rules expressly exclude registered investment
companies and BDCs from the types of issuers that may rely on them.
See, e.g., rules 134(g) [17 CFR 230.134(g)], 163(b)(3)(ii)-(iii) [17
CFR 230.163(b)(3)(ii)-(iii)], 163A(b)(4)(i)-(ii) [17 CFR
230.163A(b)(4)(i)-(ii)], 164(f) [17 CFR 230.164(f)], 168(d)(3) [17
CFR 230.168(d)(3)], and 169(d)(4) [17 CFR 230.169(d)(4)]. Other
communications rules, such as rule 139, do not expressly exclude
registered investment companies and BDCs but include conditions that
can make them unavailable for affected funds. See also CIFRR
Adopting Release, supra footnote 98 at 64183 (adopting new rule 139b
which covers a broker-dealers' distribution of research reports
concerning ``covered investment funds,'' which includes registered
investment companies and BDCs).
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    The BDC Act directs us to allow BDCs to use the same communications
rules available to operating companies, generally by removing a BDC
from the list of issuers that are ineligible for the exemptions
provided by these rules.\120\ To implement the BDC Act, and to provide
parity for registered CEFs consistent with the Registered CEF Act, we
propose to remove the exclusions for affected funds from the following