[Federal Register Volume 63, Number 241 (Wednesday, December 16, 1998)]
[Proposed Rules]
[Pages 69236-69247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33137]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 232, 270 and 274
[Release No. IC-23588; File No. S7-31-98]
RIN 3235-AG29
Deregistration of Certain Registered Investment Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Commission is proposing for public comment amendments to
the rule and form under the Investment Company Act of 1940 that govern
the deregistration of registered investment companies. The Commission
also is proposing to require that investment companies file the form
electronically through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (``EDGAR'') system. The proposed amendments are
designed to expedite the process for deregistering investment
companies.
DATES: Comments must be received on or before February 5, 1999.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Mail Stop 6-9, Securities and Exchange Commission, 450
5th Street, NW, Washington, DC 20549. Comments also may be submitted
electronically to the following E-mail address: rule-comments@sec.gov.
All comment letters should refer to File No. S7-31-98; this file number
should be included on the subject line if E-mail is used. Comment
letters will be available for public inspection and copying in the
Commission's Public Reference Room, 450 5th Street, NW, Washington, DC
20549. Electronically submitted comment letters also will be posted on
the Commission's Internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Robin Gross Lehv, Staff Attorney, or
Penelope W. Saltzman, Assistant Chief, at (202) 942-0690, Office of
Regulatory Policy, Division of Investment Management, Mail Stop 5-6,
Securities and Exchange Commission, 450 5th Street, NW, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: The Commission is requesting public comment
on proposed amendments to rule 8f-1 (17 CFR 270.8f-1) and Form N-8F (17
CFR 274.218) under the Investment Company Act of 1940 (15 U.S.C. 80a)
(the ``Investment Company Act'' or ``Act''), and to rule 101 of the
Commission's Regulation S-T (17 CFR 232.101).
I. Discussion
A registered investment company (``fund'') that ceases to do
business, including one that merges into another fund, generally will
file an application requesting that the Commission terminate its
registration under the Investment Company Act (i.e.,
``deregister'').\1\ Under section 8(f) of the Act, the Commission may
deregister the fund if it determines the fund is no longer an
``investment company.'' \2\
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\1\ If the fund did not deregister, it would continue to have
obligations under the Act such as filing annual reports with the
Commission. See 15 U.S.C. 80a-29(a).
\2\ 15 U.S.C. 80a-8(f).
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In order to expedite the deregistration process and assist funds in
preparing their applications, the Commission adopted rule 8f-1 and Form
N-8F in 1978.\3\ The rule and form were designed to provide a
convenient means for funds, in the most common situations, to apply for
a Commission order of deregistration. Rule 8f-1 describes the
circumstances in which funds may use Form N-8F to apply for a
deregistration order, and Form N-8F specifies the information a fund
must provide. Generally, the form may be used by any fund that: (i) Is
liquidating; (ii) is merging into another fund; or (iii) has no more
than 100 investors, has not made (and does not propose to make) a
public offering of its securities, and does not intend to engage in
business of any kind.
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\3\See Deregistration of Certain Investment Companies and
Quarterly Reports of Management Investment Companies, Investment
Company Act Release No. 10237 (May 11, 1978) (43 FR 21664 (May 19,
1978)).
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The Commission is proposing to revise Form N-8F to simplify the
form, eliminate unnecessary items,\4\ and refocus the questions to
better elicit the information the Commission needs to make the finding
under section 8(f) to deregister a fund.\5\ By refocusing the
questions, the proposed amendments are intended to reduce the need for
funds to amend their initial applications to provide additional
information. The Commission also is proposing to amend rule 8f-1 to
expand the types of circumstances in which a fund may use Form N-8F to
apply for a deregistration order. These circumstances would include a
fund that is deregistering because it (i) qualifies for the exclusion
from the definition of investment company provided by section 3(c)(7)
of the Act \6\ or (ii) has decided to become
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a business development company (``BDC'').\7\ Finally, the proposed
amendments would require that Form N-8F, like most other documents
filed by funds, be submitted electronically through the Commission's
EDGAR system.\8\ These amendments are designed to simplify and expedite
the process for deregistering a fund.
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\4\ Among other things, the proposed amendments would eliminate
descriptions of: (i) Registration statements previously filed by the
fund with the Commission, (ii) actions taken by the fund to
distribute any proxy materials, and (iii) actions taken under state
law with respect to the merger, including documents that have been
filed with the state in which the fund is registered. See Form N-8F,
items 2, 17(c), and 17(e).
\5\ For example, the proposed amendments replace the broad
question about the circumstances and details of the merger with a
specific question about the exchange ratio used to distribute assets
to investors and how the ratio was calculated. See Form N-8F, item
19; Proposed Form N-8F, item 17(d).
\6\ 15 U.S.C. 80a-3(c)(7). Section (c)(7) was added to the Act
in 1996. See National Securities Markets Improvement Act of 1996,
Pub. L. 104-290, sec. 209(a)(7)(A) (1996). The Commission also is
clarifying that any fund that qualifies for the exclusion from the
definition of ``investment company'' under section 3(c)(1) of the
Act (15 U.S.C. 80a-3(c)(1)) may use Form N-8F to apply to
deregister.
\7\ See 15 U.S.C. 80a-2(a)(48). A registered investment company
that elects to become a BDC is not required to file an application
for deregistration. Instead, the Commission generally issues an
order on its own motion deregistering the fund. See Interim
Notification Forms for Business Development Companies, Investment
Company Release No. 11703 (Mar. 26, 1981) (46 FR 19459 (Mar. 31,
1981)). The Commission believes, however, that making Form N-8F
available to funds that have elected to become BDCs would provide a
convenient method for those funds to notify the Commission of the
need to deregister them.
\8\ Proposed Regulation S-T rules 232.101(a)(1)(iv),
.101(c)(11). EDGAR is the Commission's computer system for the
receipt, acceptance, review and dissemination of documents submitted
to the Commission in electronic format. See Regulation S-T rules
232.10, .11(c) (17 CFR 232.10, .11(c)).
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II. General Request for Comment
Any persons wishing to submit comments on the proposed rule and
form changes, to suggest additional changes (including changes to
provisions of the rule and form that the Commission is not proposing to
amend), or to submit comments on other matters that might affect the
proposals, are requested to do so. The Commission encourages commenters
suggesting alternative approaches to submit proposed rule and form
text. The Commission requests comment whether the proposals, if
adopted, would promote efficiency, competition, and capital formation.
Comments will be considered by the Commission in satisfying its
responsibilities under section 2(c) of the Investment Company Act.\9\
The Commission encourages commenters to provide data to support their
views.
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\9\ Section 2(c) requires the Commission, when it engages in
rulemaking and is required to consider whether an action is
consistent with the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. 15 U.S.C. 80a-2(c).
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III. Cost-Benefit Analysis
The proposed rule and form amendments are designed to decrease the
regulatory burdens for funds that apply for a deregistration order. The
amendments would (i) revise the content and format of Form N-8F, making
it easier to understand and complete, (ii) expand the circumstances
under which funds may use the form to apply to deregister, and (iii)
require the form to be filed electronically.
The Commission believes these changes will result in cost and time
savings for registered investment companies. The Commission estimates
that the proposed amendments to the form would reduce by approximately
fifty percent the average time it takes each applicant to complete the
form.\10\ In addition, the proposed amended form is designed to improve
the quality of the information applicants provide. As a result, the
Commission expects to reduce by half the number of applications that
require additional or clarifying information from applicants.\11\ Based
on previous cost estimates, the Commission believes the proposed
amendments to Form N-8F would save the funds over $5,000 annually.\12\
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\10\ The proposed amended form would eliminate many of the
questions asked by the current form. The amended form also would
break up many of the existing compound questions into several
separate questions. Therefore, although the actual number of
questions on the amended form would be more than the number on the
current form, the amended form should take less time to complete.
\11\ When the Commission does not have sufficient information to
determine whether it can deregister a fund, the staff sends a
comment letter to the applicant requesting additional or clarifying
information. Applicants provide the information by letter or by
amendment to the application. In 1997, for example, out of a sample
of 123 applications filed on Form N-8F, the staff issued comment
letters regarding 97 applications, and the Commission received
amendments to 105. Based on a review of comment letters sent to
applicants from August 5, 1996 through September 15, 1997, the
Commission estimates that, by eliminating some items on the form and
clarifying other items, half of these comment letters would be
unnecessary in the future.
\12\ The Commission believes the form typically is completed by
support staff. Based on an estimated cost of $15 per hour for a
clerical worker to complete Form N-8F and an estimate of 130
applications filed each year, the Commission estimates the current
total annual cost of filing the form is $11,700 (130 x $15 x 6
hrs.), while the total annual cost of filing the proposed amended
form would be $5,850 (130 x $15 x 3 hrs.).
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The Commission requests comment on this cost-benefit analysis.
Commenters are encouraged to provide empirical data relating to any
costs and benefits associated with the proposed rule and form
amendments.
IV. Paperwork Reduction Act
Certain provisions of the proposed amendments to rule 8f-1 and Form
N-8F contain ``collection of information'' requirements within the
meaning of the Paperwork Reduction Act of 1995 [44 U.S.C. 3501-3520],
and the Commission has submitted them to the Office of Management and
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5
CFR 1320.11. The title for the collection of information is ``Form N-
8F.'' The OMB control number for this collection of information is
3235-0157. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a valid control number.
The proposed collection of information is not mandatory, but is
recommended for all funds that seek to deregister under the
circumstances described in rule 8f-1. The responses will not be kept
confidential.
The proposed amended form requests applicants to provide
information the Commission needs to determine that the applicant has
ceased to be an investment company under the Act. This information
includes: (i) General identifying information; (ii) information about
distributions made to shareholders; (iii) information about assets and
liabilities; (iv) information about events leading to the request to
deregister; and (v) information about the conclusion of fund business.
Based on Commission staff estimates the reporting and recordkeeping
burden for current Form N-8F is approximately six hours.\13\ The
Commission estimates that if the form is amended as proposed, the
amendments will reduce the reporting and recordkeeping burden to three
hours per respondent. Based on past experience, the Commission
estimates that each year approximately 130 funds will apply to
deregister, and that each applicant will apply only once. Therefore,
the Commission estimates that the annual reporting and recordkeeping
burden for the proposed amended form will be 3 hours per applicant, and
390 hours total for all applicants.
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\13\ In connection with previous Paperwork Reduction Act
submissions to the Office of Management and Budget, the Commission
requested comment on the staff's estimate that the time required to
complete Form N-8F ranges from approximately two to 12 hours, with
an average of six hours. See, e.g., Proposed Collections; Request
For Public Comment (62 FR 3721 (Jan. 24, 1997)). This estimate
included any amendments to the application that may have been
required. The Commission received no comments on these estimates.
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Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments in order to: (i) Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (ii) evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information; (iii) enhance the
quality, utility, and clarity of the information to
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be collected; and (iv) minimize the burden of the collection of
information on those who are to respond, including through the use of
automated collection techniques or other forms of information
technology. Persons who wish to submit comments on the collection of
information requirements should direct them to the following persons:
(i) Desk Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 3208, New Executive Office Building, Washington, D.C. 20503; and
(ii) Jonathan G. Katz, Secretary, Mail Stop 6-9, Securities and
Exchange Commission, 450 5th Street, NW, Washington, DC, 20549 with
reference to File No. S7-31-98. OMB is required to make a decision
concerning the collections of information between thirty and sixty days
after publication. Therefore, a comment to OMB is best assured of
having its full effect if OMB receives it within thirty days of
publication.
V. Summary of Initial Regulatory Flexibility Analysis
The Commission has prepared an Initial Regulatory Flexibility
Analysis (``IRFA'') in accordance with 5 U.S.C. 603 regarding the
proposed amendments to rule 8f-1 and Form N-8F. The following
summarizes the IRFA.
Applications currently filed on Form N-8F often do not contain the
information needed by the Commission to make its determination under
section 8(f) that the fund has ceased to be an investment company. In
addition, funds that qualified for an exception from the definition of
``investment company'' under section 3(c)(7) of the Act (``section
3(c)(7) funds'') and BDCs did not exist when rule 8f-1 and Form N-8F
were adopted, and therefore are not covered by the rule and form. To
address these problems, the Commission is proposing amendments to the
rule and form to (i) simplify and clarify their language and format and
(ii) permit section 3(c)(7) funds and BDCs to use Form N-8F. These
amendments are designed to improve the quality of information provided
on the form and to reduce the time and effort required to complete the
form. The Commission also is proposing to require funds to file Form N-
8F electronically through the EDGAR system to facilitate the filing and
availability of applications.
A small business or small organization for purposes of the
Investment Company Act is a fund that, together with other funds in the
same group of related investment companies, has net assets of $50
million or less as of the end of its most recent fiscal year.\14\ Of
approximately 3900 active registered investment companies (including
BDCs), 339 funds are small entities. Any of these 339 funds that
applies to deregister under circumstances described in proposed amended
rule 8f-1 could use Form N-8F.
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\14\ Rule 0-10 (17 CFR 270.0-10).
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The IRFA states that the proposed rules would not impose any new
reporting or recordkeeping requirements. The Commission also believes
that there are no rules that duplicate, overlap or conflict with the
proposed amendments.
The IRFA discusses the various alternatives considered by the
Commission in connection with the proposed amendments that might
minimize the effect on small entities. These include: (a) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources of small entities; (b)
the clarification, consolidation or simplification of compliance and
reporting requirements under the rule for small entities; (c) the use
of performance rather than design standards; and (d) an exemption from
coverage of the rule or any part thereof, for small entities.
The Commission believes that the proposed amendments would decrease
burdens on small investment companies by facilitating and expediting
the deregistration process. The Commission expects that the proposed
amendments to Form N-8F will reduce the time and costs involved in
deregistering for all funds that use the form, including small
entities. The proposed amendments do not impose new burdens on
respondents other than the requirement that the form be filed through
the EDGAR system. The Commission believes this requirement would not be
a burden for small entities, and may reduce the time it takes to file
an application. Like all registered investment companies, small funds
currently must file disclosure and other forms on EDGAR.
The IRFA states that the Commission believes that further
clarification, consolidation, or simplification of the compliance
requirements is not necessary. In addition, the IRFA notes that
performance standards are not feasible for applications for
deregistration orders and that the proposed amendments would reduce the
compliance burdens for all funds, including small entities. The IRFA
notes that an exemption from any of the proposed requirements for small
entities would likely increase the time to file and process
deregistration applications and, therefore, would increase their
regulatory burden.
The IRFA includes information concerning the solicitation of
comments with respect to the IRFA generally, and in particular, the
number of small entities that would be affected by the proposed rules.
Cost-benefit information reflected in the ``Cost-Benefit Analysis''
section of this Release also is reflected in the IRFA. A copy of the
IRFA may be obtained by contacting Robin Gross Lehv, Mail Stop 5-6,
Securities and Exchange Commission, 450 5th Street, NW, Washington, DC
20549.
VI. Statutory Authority
The Commission is proposing to amend rule 8f-1 and Form N-8F
pursuant to the authority set forth in section 38(a) (15 U.S.C. 80a-
37(a)) of the Investment Company Act.
List of Subjects
17 CFR Part 232
Reporting and recordkeeping requirements.
17 CFR Part 270
Investment companies, Securities.
17 CFR Part 274
Investment companies, Reporting and recordkeeping requirements.
Text of Proposed Rule and Form Amendments
For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is proposed to be amended as follows:
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
1. The authority citation for part 232 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80-30 and 80a-37.
2. Section 232.101 is amended in paragraph (a)(1)(iv) by removing
the phrase ``, 8(f)'' and by removing the phrase ``, 80a-8(f)''.
3. Section 232.101 is amended in paragraph (c)(11) by removing the
phrase ``8(f),'' and by removing the phrase ``80a-8(f),''.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
4. The authority citation for part 270 continues to read, in part,
as follows:
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Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39
unless otherwise noted;
* * * * *
5. Section 270.8f-1 is revised to read as follows:
Sec. 270.8f-1 Deregistration of certain registered investment
companies.
A registered investment company that seeks a Commission order
declaring that it is no longer an investment company may file an
application with the Commission on Form N-8F (17 CFR 274.218) if the
investment company:
(a) Has sold substantially all of its assets to another registered
investment company or merged into or consolidated with another
registered investment company;
(b) Has distributed substantially all of its assets to its
shareholders and has completed, or is in the process of, winding up its
affairs;
(c) Qualifies for an exclusion from the definition of ``investment
company'' under section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or section
3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
(d) Has become a business development company.
Note to Sec. 270.8f-1: Applicants who are not eligible to use
Form N-8F to apply to deregister may apply under rule 0-2 (17 CFR
270.0-2).
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
6. The authority citation for part 274 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, and 80a-29, unless otherwise noted.
7. Section 274.218 and Form N-8F are revised to read as follows:
Sec. 274.218 Form N-8F, application for deregistration of certain
registered investment companies.
This form is to be used as the application for an order of the
Commission in cases in which the applicant is a registered investment
company that:
(a) Has sold substantially all of its assets to another registered
investment company or merged into or consolidated with another
registered investment company;
(b) Has distributed substantially all of its assets to its
shareholders and has completed, or is in the process of, winding up its
affairs;
(c) Qualifies for an exclusion from the definition of ``investment
company'' under section 3(c)(1) (15 U.S.C. 80a-3(c)(1)) or section
3(c)(7) (15 U.S.C. 80a-3(c)(7)) of the Act; or
(d) Has become a business development company.
[Form N-8F does not, and the amendments will not, appear in the
Code of Federal Regulations. A copy of Form N-8F is attached as an
Appendix to this document.]
Dated: December 4, 1998.
By the Commission.
Margaret H. McFarland
Deputy Secretary.
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[FR Doc. 98-33137 Filed 12-15-98; 8:45 am]
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