On April 8, 2020, the Securities and Exchange Commission (“SEC”) adopted rule and form amendments under the Securities Act of 1933, as amended (“1933 Act”), the Securities Exchange Act of 1934, as amended (“1934 Act”), and the Investment Company Act of 1940, as amended (“1940 Act”) to modify certain registration, communications, and offering requirements for business development companies (“BDCs”) and registered closed-end investment companies (“CEFs”), including interval funds (BDCs and CEFs, collectively, are referred to herein as “affected funds”).¹ The Adopting Release implements Congressional directives contained in the Small Business Credit Availability Act concerning BDCs and the Economic Growth, Regulatory Relief, and Consumer Protection Act concerning CEFs (collectively, the “Acts”), which became law in 2018. The SEC initially proposed amendments pursuant to the Acts in March 2019.² The SEC’s approach in the Adopting Release was to implement reforms on a consistent basis for affected funds, even though the Acts treated BDCs and CEFs separately. The amendments will enable affected funds, or certain categories of affected funds, to utilize the securities offering rules that are already available to operating companies, and are designed to reduce regulatory costs, facilitate capital formation and modernize methods of providing information to investors. The specific significant amendments in the Adopting Release are outlined below.

• Shelf Offering Process and New Short-Form Registration Statement: The amendments streamline the registration process for certain affected funds by permitting them to use the more flexible registration process that is currently available to operating companies. Affected funds that meet certain eligibility criteria will be able to use a new short-form registration statement relying on a special instruction in Form N-2 to offer and sell securities “off the shelf” more quickly and efficiently in response to market opportunities.³

The rules on incorporation by reference that will apply to the new short-form registration statement will be the same as those that apply to Form S-3 registration statements. An affected fund relying on the short-form registration instruction will be required to incorporate by reference into its prospectus and statement of additional information (“SAI”) its latest annual report and all other reports filed pursuant to Sections 13(a) or 15(d) of the 1934 Act. It must also state that all documents subsequently filed pursuant to sections 13(a), 13(c), 14, or 15(d) of the 1934 Act prior to the termination of the offering shall be deemed to be incorporated by reference into the prospectus and SAI.

Additionally, affected funds will be able to use Rule 430B in parity with operating companies. This will enable an affected fund to omit certain information from its prospectus when: (i) a well-known seasoned issuer (“WKSI”) filing an automatic shelf registration statement may omit the plan of distribution and information as to whether the offering is a primary one or an offering on behalf of selling security holders; and (ii) if an issuer is eligible to file a registration statement on Form S-3 to register a primary offering pursuant to General Instruction I.B.1 of Form S-3, and is registering the resale of securities on behalf of selling security holders, it may omit the identities of selling security holders and the amount of securities to be registered on their behalf, subject to certain conditions.⁴

• Ability to Qualify for WKSI Status: The amendments allow certain eligible affected funds to qualify as WKSIs, and thus benefit from the more flexible market communications and registration rules available to them. To qualify as a WKSI, an affected fund generally must meet certain filing and reporting history requirements and have at least $700 million in public float (i.e., a worldwide market value of outstanding common equity held by non-affiliates).⁵ Because common equity issued by an unlisted fund does not have a public float, unlisted funds would not be eligible. The amendments define an “ineligible issuer” to include a registered CEF that has failed to file all reports and materials required to be filed under Section 30 of the 1940 Act during the preceding 12 months. Further, the amended definition provides that an affected fund is 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 determined the investment adviser aided or abetted or caused the affected fund to have violated the antifraud provisions of the federal securities laws.
• Immediate or Automatic Effectiveness of Certain Filings: Affected funds that conduct continuous offerings under Rule 415(a)(1)(ix) under the 1933 Act will now fall under the expanded scope of Rule 486 under the 1933 Act, permitting them to file post-effective amendments to their registration statements or file new registration statements on an immediately effective basis or on an automatically effective basis, subject to the conditions described in the rule.⁶ For example, a continuously offered affected fund that is not an interval fund will be able to file an immediately effective post-effective amendment to include updated financial information and non-material changes in its registration statement. Simultaneously with the amendments, the SEC withdrew prior no-action relief permitting continuously offered non-interval funds to rely on Rule 486 in instances that will be permitted by Rule 486, as amended by the Adopting Release.
• Communications and Prospectus Delivery Reforms: Under the amendments, affected funds will be permitted to use many of the communication rules currently available to operating companies, including safe harbors for certain factual business information and forward-looking information, “free writing prospectuses,” and certain broker-dealer research reports.⁷ The amendments will also permit affected funds to satisfy their final prospectus delivery obligations under Rule 172 under the 1933 Act by filing their prospectuses with the SEC, the same method as is available to operating companies subject to the 1933 Act.⁸ As is the case with operating companies that are subject to the 1933 Act, however, affected funds will be required by Rule 173 under the 1933 Act to deliver a copy of the affected fund’s final prospectus or a notice to purchasers stating that a sale of securities was made pursuant to a registration statement in which a final prospectus would have been required to have been delivered in the absence of Rule 172, and a revised undertaking in Form N-2 will require affected funds to deliver a prospectus to investors upon request.
• New Method for Interval Funds and Certain Exchange-Traded Products to Pay Registration Fees: Interval funds, which are a type of affected fund that makes periodic repurchase offers pursuant to Rule 23c-3 under the 1940 Act, are provided increased flexibility under the amendments. The amendments permit these funds to pay 1933 Act registration fees for their shares using the same method that mutual funds and exchange-traded funds use, based on net issuance of shares after sale instead of paying to register a specific number of shares at the time of filing.⁹ Similar treatment is also extended under the amendments to certain exchange-traded products that are not registered under the 1940 Act.
• Other Changes: To account for changes to the offering rules and to provide more consistency among similar types of investment vehicles, the amendments also tailor the disclosure and regulatory framework applicable to certain affected funds. These amendments include, among other things, new annual report disclosure requirements that provide key information to investors, including material unresolved staff comments and management’s discussion of fund performance. The amendments also require BDCs to submit their financial statement information using inline XBRL format, CEFs and BDCs to include Form N-2 cover page information using inline XBRL format, certain tagging of information in an affected fund’s prospectus using inline XBRL format, and filings on Form 24F-2 to be submitted in XML format. Additionally, the amendments permit online availability, rather than delivery, of previously filed materials incorporated by reference. Amendments to Form N-2’s General Instructions remove the requirement that an affected fund deliver to new investors information that it has incorporated by reference into its prospectus or SAI. However, affected funds will be required to provide incorporated materials upon request free of charge.

The rule and respective form amendments take effect on August 1, 2020, with the exception of the amendments related to registration fee payments by interval funds and certain exchange-traded products, which will become effective on August 1, 2021. The SEC has also set forth extended transition periods for certain requirements under the amendments.

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¹ Securities Offering Reform for Closed-End Investment Companies, SEC Rel. No. 34-88606 (April 8, 2020) (the “Adopting Release”), available at https://www.sec.gov/rules/final/2020/33-10771.pdf.

² Securities Offering Reform for Closed-End Investment Companies, SEC Rel. No. 33427 (Mar. 20, 2019) (the “Proposing Release”).

³ Adopting Release at 24. The short-form registration statement will be available to affected funds that meet certain filing and reporting history requirements and that have a public float of $75 million or more.

⁴ Adopting Release at 37.

⁵ Adopting Release at 39. Specifically, for an affected fund to qualify as a WKSI under the revised definition in Rule 405 under the 1933 Act, among other things, it must be current in its periodic report filings required under the 1934 Act or the 1940 Act, have been registered under the 1934 Act or the 1940 Act for at least twelve calendar months and meet the other requirements specified in General Instruction I.A. to Form S-3.

⁶ Adopting Release at 53.

⁷ Adopting Release at 61.

⁸ Adopting Release at 59.

⁹ Adopting Release at 73.