Investment companies: Deregistration of registered investment companies; electronic filing requirements,

[Federal Register: April 21, 1999 (Volume 64, Number 76)]

[Rules and Regulations]

[Page 19469-19479]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21ap99-4]

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 270 and 274

[Release No. IC-23786; File No. S7-31-98]

RIN 3235-AG29

Deregistration of Certain Registered Investment Companies

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Commission is adopting 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 adopting amendments that require investment companies to file the form electronically through the Commission's Electronic Data Gathering, Analysis, and Retrieval (``EDGAR'') system. The amendments are designed to expedite the process for deregistering investment companies.

EFFECTIVE DATE: The rule amendments will become effective June 1, 1999.

FOR FURTHER INFORMATION CONTACT: Robin Gross Lehv, Staff Attorney, or Penelope Saltzman, Senior Counsel, at (202) 942-0690, Office of Regulatory Policy, Division of Investment Management, Securities and Exchange Commission, 450 5th Street, N.W.,

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Washington, D.C. 20549-0506. For additional information, including questions about filing Form N-8F, contact the Office of Investment Company Regulation, Division of Investment Management, at (202) 942- 0564, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0506.

SUPPLEMENTARY INFORMATION: The Commission is adopting 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].

1. Discussion

   Under section 8(f) of the Investment Company Act, the Commission may deregister a registered investment company (``fund'') if it determines the fund is no longer an ``investment company.\1\ In order to expedite the deregistration process and assist funds in preparing their applications, in 1978 the Commission adopted rule 8f-1 and Form N-8F.\2\ 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 that a fund must provide.

   \1\ 15 U.S.C. 80a-8(f).

   \2\ 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)].

   In December 1998, the Commission proposed to revise Form N-8F to simplify the form, eliminate unnecessary items, and refocus the questions to better elicit the information we need to make the finding under section 8(f) to deregister a fund.\3\ We also proposed 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.\4\ Finally, we proposed to require that Form N-8F, like most other documents filedby funds, be submitted electronically through the Commission's EDGAR system.

   \3\ See Deregistration of Certain Registered Investment Companies, Investment Company Act Release No. 23588 (Dec. 4, 1998)

   [63 FR 69236 (Dec. 16, 1998)] (``Proposing Release'').

   \4\ Under the proposed amendments, a fund could use the form if it (i) has sold substantially all of its assets to another fund or merged into or consolidated with another fund, (ii) has distributed substantially all of its assets to its shareholders and completed, or is in the process of, winding up its affairs, (iii) qualifies for an exclusion from the definition of investment company under section 3(c)(1) or section 3(c)(7) of the Act, or (iv) has decided to become a business development company.

   The Commission received one comment letter, which supported the proposed amendments and urged their prompt adoption.\5\ The commenter agreed that the amendments would facilitate completion of the form and expedite the deregistration process. We are adopting the amendments substantially as proposed, with minor technical modifications \6\ in response to issues raised by the commenter.\7\

   \5\ See Letter from Investment Company Institute (Feb. 5, 1999) (placed in File No. S7-31-98).

   \6\ Among other technical changes, we deleted the question requesting the date that the fund fileda notice of registration, because that information is not necessary to our determination under section 8(f) if the fund provides its registration number, as requested by the form. See Proposed Form N-8F, item 10; Amended Form N-8F, item 3.

   \7\ Form N-8F contains a reminder, but not a requirement, that a deregistering fund must file a final Form N-SAR [17 CFR 274.101] in accordance with other rules under the Act. See Amended Form N-8F, instruction 6. The commenter suggested that the Commission eliminate the obligation to file a final Form N-SAR in certain circumstances. We are considering amendments to Form N-SAR, and will consider the commenter's suggestion in the context of that rulemaking.

2. Cost-Benefit Analysis

   The Commission is sensitive to the costs and benefits that result from its rules. The rule and form amendments are designed to decrease the regulatory burdens for funds that apply for a deregistration order. The amendments (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 filedelectronically.

   As explained in greater detail in the cost-benefit analysis of the Proposing Release, the Commission believes these changes will result in cost and time savings for registered investment companies. Specifically, we estimated that the amendments will reduce the average time that it takes to complete the form by about 50 percent, and will similarly reduce the number of applications that require the applicant to provide additional or clarifying information.\8\ The one comment letter we received agreed that the proposed amendments would expedite the registration process, but did not provide specific estimates of any costs or benefits of the amendments.

   \8\ 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 filedeach 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 amended form would be $5,850 (130 x $15 x 3 hrs.).

3. Paperwork Reduction Act

   Certain provisions of the amendments to rule 8f-1 and Form N-8F constitute a ``collection of information'' requirement within the meaning of the Paperwork Reduction Act of 1995 [44 U.S.C. 3501-3520]. The Commission solicited, but did not receive, comments on the collection of information requirements in the Proposing Release. The Commission submitted the proposed amendments to the Office of Management and Budget (``OMB'') pursuant to 44 U.S.C. 3507(d) and received approval of the amendments'' collection of information requirements (OMB control number 3235-0157).\9\ An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.

   \9\ As stated in the Proposing Release, the Commission estimates that the amendments will reduce the reporting and recordkeeping burden of the rule and form to 3 hours per respondent. Based on past experience, we estimate that each year approximately 130 funds will apply to deregister, and that each applicant will apply only once. Therefore, we estimate that the annual reporting and recordkeeping burden for the amended form will be 3 hours per applicant, and 390 hours total for all applicants.

   The 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 amended rule does not require that the collection of information be made public or kept confidential by the parties.

4. Summary of Final Regulatory Flexibility Analysis

   A Final Regulatory Flexibility Analysis (``FRFA'') concerning rule 8f-1 and Form N-8F has been prepared in accordance with 5 U.S.C. 604. An Initial Regulatory Flexibility Analysis (``IRFA'') was prepared in accordance with 5 U.S.C. 603, and a summary of the IRFA was included in the Proposing Release. The Commission received no comments on the IRFA.

   The FRFA notes that the amendments are intended to improve the quality of information provided on the form and to reduce the time and effort required to complete the form. The amendments do not impose new burdens on respondents other than the requirement that the form be filedthrough the EDGAR system. The amendments will not impose any new reporting or recordkeeping requirements.

   As discussed more fully in the FRFA, the amendments will affect small

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   businesses or small organizations (collectively, ``small entities''), as defined by the Commission's rules, in the same manner as all other entities who use Form N-8F to deregister. The Commission believes the amendments will decrease burdens on all funds by facilitating and expediting the deregistration process, saving them time and money.

   The FRFA states that for purposes of the Investment Company Act and the Regulatory Flexibility Act, a small entity is a fund that, together with other funds in the same group of related funds, has net assets of $50 million or less as of the end of its most recent fiscal year.\10\ Of approximately 3900 active funds (including business development companies), 339 funds are small entities. Any of these 339 funds that applies to deregister under circumstances described in amended rule 8f- 1 could use Form N-8F.

   \10\ Rule 0-10 under the Investment Company Act [17 CFR 270.0- 10].

   Finally, the FRFA notes that the Commission considered various alternatives that might minimize the economic impact of the amendments on small entities. These include: (i) The establishment of differing compliance requirements that take into account the resources available to small entities; (ii) the clarification, consolidation, or simplification of compliance requirements under the rule for small entities; (iii) the use of performance rather than design standards; and (iv) an exemption from coverage of the rule, or any part thereof, for small entities. The FRFA concludes that alternative requirements or simplification or consolidation of the requirements is unnecessary because the amendments are designed to reduce the compliance burdens for all funds, including small entities. In addition, an exemption from any of the requirements for small entities would increase their regulatory burden rather than decrease it.

   A copy of the FRFA may be obtained by contacting Robin Gross Lehv, Division of Investment Management, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0506.

5. Statutory Authority

   The Commission is amending 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 Rule and Form Amendments

   For the reasons set out in the preamble, Title 17, Chapter II of the Code of Federal Regulations is 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.

      Sec. 232.101 [Amended]

   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:

      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 file an application to deregister may follow the general guidance for filing applications under rule 0-2 (17 CFR 270.0-2) of this chapter.

      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 must 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.

      Note: 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: April 15, 1999.

      By the Commission. Jonathan G. Katz, Secretary.

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