Release No. 33-7084

Release No. IC-20487

Fed. Reg. Aug. 24, 1994

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

ACTION: Final rule amendment.

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

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

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

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission is adopting substantially as proposed paragraph (a)(1)(xi) of rule 415 [17 CFR 230.415] under the Securities Act of 1933 [15 U.S.C. 77a] (the ''Securities Act''). The Commission also is adopting separately a related provision, new rule 486 [17 CFR 230.486] under the Securities Act.¹ Rule 486 permits closed-end investment companies making periodic repurchase offers to file certain post-effective amendments that become effective automatically, assisting those funds that make continuous or delayed offerings in maintaining continuously effective registration statements.

I. Background and Discussion

On April 7, 1993, the Commission adopted rule 23c-3 [17 CFR 270.23c-3] under the Investment Company Act of 1940 [15 U.S.C. 80a] (the ''Investment Company Act'').² Rule 23c-3, among other things, authorizes certain closed-end management investment companies and business development companies (''closed-end interval funds'') to make periodic repurchase offers for their own shares. The Commission recognized that closed-end interval funds may need to replenish their assets from time to time by selling new shares of common stock. To facilitate such sales, the Commission proposed to amend the shelf registration rule, rule 415 under the Securities Act, to permit closed- end interval funds to make delayed or continuous offerings.³

Comments generally favored the proposed amendment to rule 415. The Commission is adopting the amendment substantially as proposed.⁴ New paragraph (a)(1)(xi) of rule 415 permits closed-end interval funds to register ''shares of common stock which are to be offered and sold on a delayed or continuous basis.'' Most commenters agreed that closed-end interval funds need authority to make delayed as well as continuous offerings.⁵ For example, interval funds making offerings only at specific times, such as in offerings coinciding with periodic repurchases, would require authority to make delayed offerings.⁶ Offerings under paragraph (a)(1)(xi) are not subject to the two-year limitation in paragraph (a)(2).

Paragraph (a)(1)(xi) would apply only to offerings of common stock by closed-end interval funds and would not be available to other closed-end investment companies. Several commenters asserted that other closed-end companies need the ability to use shelf registration for delayed offerings.⁷ Closed-end interval funds will benefit from authority to undertake continuous or delayed offerings of equity securities to replenish assets periodically depleted by repurchases. While closed-end companies other than interval funds may repurchase shares occasionally and therefore seek to sell new securities, or may wish to offer additional shares depending on market conditions, closed- end interval funds have a fundamental policy of making periodic repurchase offers. Closed-end interval funds have a clear, ongoing need to make continuous or periodic offerings of shares, evidencing the ''bona fide intent to offer and sell'' traditionally required for delayed shelf offerings.⁸ Therefore, the Commission is retaining the limitation in paragraph 415(a)(1)(xi) to closed-end interval funds. While the Commission is not now authorizing other closed-end companies to make delayed offerings, it expects to continue to consider the matter.

II. Cost Benefit Analysis

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

III. Summary of Final Regulatory Flexibility Analysis

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

IV. Statutory Authority

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

List of Subjects in 17 CFR Part 230

Investment companies, Reports and recordkeeping requirements, Securities.

Text of Adopted Rule Amendment

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

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

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

Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 80a-37, unless otherwise noted. * * * * *

2. Section 230.415 is amended by removing the word ''or'' at the end of paragraph (a)(1)(ix), removing the period and adding the word '';or'' at the end of paragraph (a)(1)(x), and adding new paragraph (a)(1)(xi) to read as follows:

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

(a) * * *

(1) * * *

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

By the Commission.

Dated: August 17, 1994.

¹ See Post-Effective Amendments to Investment Company Registration Statements, Investment Company Act Release No. 20486.

² See Repurchase Offers by Closed-End Management Investment Companies, Investment Company Act Release No. 19399 (April 7, 1993), 58 FR 19330.

³ Continuous or Delayed Offerings by Certain Closed-End Management Investment Companies; Automatic Effectiveness of Certain Registration Statements and Post-Effective Amendments, Investment Company Act Release No. 19391 (April 7, 1993), 58 FR 19361.

⁴ As adopted, paragraph (a)(1)(xi) adds the word ''registered'' before the words ''closed-end management investment company'' to conform to the wording of rule 23c-3.

⁵ E.g., Letter from Investment Company Institute to Jonathan G. Katz, Secretary, SEC at 2 (June 14, 1993), File No. S7-15-93; Letter from American Bar Association to Jonathan G. Katz, Secretary, SEC at 3 (June 10, 1993), File No. S7-15-93; Letter from Dechert Price & Rhoads to Jonathan G. Katz, Secretary, SEC at 2 (June 14, 1993), File No. S7-15-93.

⁶ Delayed or continuous offerings by closed-end interval funds may require careful attention to share pricing. Rule 23c- 3(b)(7)(iii) applies section 23(b) to require that shares be priced by reference to the net asset value next determined after receipt of a purchase order, and generally requires daily calculation of net asset value when an interval fund is offering its shares.

⁷ E.g., Letter from Investment Company Institute, supra note 3, at 2, 4 (authority should be available to all closed-end companies that repurchase their own shares, even if not under rule 23c-3); Letter from American Bar Association, supra note 3, at 3-4 (should be available to all closed-end companies, or at least those similar to interval funds); Letter from Dechert Price & Rhoads, supra note 3, at 2-3 (should be available to all closed-end funds).

⁸ E.g., Proposed Revision of Regulation S-K and Guides for the Preparation and Filing of Registration Statements and Reports, Securities Act Release No. 6276 Sec. III.E. (Dec. 23, 1980), 46 FR 78, 88 (addressing proposed rule 462A, predecessor to rule 415; ''essential conditions'' of proposed shelf registration authority include ''a bona fide intent to offer and sell''); cf. Simplification of Registration Procedures for Primary Securities Offerings, Securities Act Release No. 6964, Sec. II.A.6. (Oct. 22, 1992), 57 FR 48970, 48974 (Form S-3 registrant eligible to file ''delayed basis'' shelf registration should do so only if the registration statement accurately reflects the registrant's current distribution plans and arrangements).

⁹ Inv. Co. Act Rel. 19391, supra note 2, Sec. IV, 58 FR at 19363.