Document ID: SEC-2008-0719-0001
Agency: sec
Document Type: Rule
Title: Definition of Eligible Portfolio Company Under the Investment Company Act of 1940
Posted Date: 2008-05-20T04:00Z

[Federal Register: May 20, 2008 (Volume 73, Number 98)]
[Rules and Regulations]               
[Page 29044-29052]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20my08-3]                         

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 270

[Release No. IC-28266; File No. S7-37-04]
RIN 3235-AJ31

 
Definition of Eligible Portfolio Company Under the Investment 
Company Act of 1940

AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Final rule.

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SUMMARY: The Commission is adopting an amendment to a rule under the 
Investment Company Act of 1940 to

[[Page 29045]]

more closely align the definition of eligible portfolio company, and 
the investment activities of business development companies (``BDCs''), 
with the purpose that Congress intended. The amendment expands the 
definition of eligible portfolio company to include certain companies 
that list their securities on a national securities exchange.

DATES: Effective Date: July 21, 2008.

FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior 
Counsel, Office of Chief Counsel, Division of Investment Management, 
(202) 551-6840, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-5030.

SUPPLEMENTARY INFORMATION: The Commission today is adopting amendments 
to Rule 2a-46 [17 CFR 270.2a-46] under the Investment Company Act of 
1940 [15 U.S.C. 80a]. \1\
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    \1\ The amendments were proposed in Definition of Eligible 
Portfolio Company under the Investment Company Act of 1940, 
Investment Company Act Release No. 27539 (Oct. 25, 2006) [71 FR 
64093 (Oct. 31, 2006)] (``Reproposing Release'').
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Table of Contents

I. Executive Summary
II. Background
III. Discussion
    A. Rule 2a-46(b)
    B. Use of Standard Based on Market Capitalization
    C. Dollar Level of Standard
IV. Cost-Benefit Analysis
V. Consideration of Promotion of Efficiency, Competition and Capital 
Formation
VI. Paperwork Reduction Act
VII. Final Regulatory Flexibility Analysis
VIII. Statutory Authority
Text of Rule

I. Executive Summary

    A BDC is a closed-end investment company that Congress established 
for the purpose of making capital more readily available to certain 
types of companies. Under the Investment Company Act (``Investment 
Company Act'' or ``Act''), a BDC must invest at least 70 percent of its 
assets in ``eligible portfolio company'' securities and certain other 
securities. Rule 2a-46 defines the term eligible portfolio company to 
include any company whose securities are not listed on a national 
securities exchange (``Exchange''). \2\ When we adopted Rule 2a-46 in 
2006, we also requested comment on whether to further expand the 
definition to include Exchange-listed companies that have (i) less than 
$75 million in public float or (ii) less than $150 million in market 
capitalization or less than $250 million in market capitalization. \3\ 
Today we are amending Rule 2a-46 to expand the definition of eligible 
portfolio company to include Exchange-listed companies that have less 
than $250 million in market capitalization.
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    \2\ Definition of Eligible Portfolio Company under the 
Investment Company Act of 1940, Investment Company Act Release No. 
27538 (Oct. 25, 2006) [71 FR 64086 (Oct. 31, 2006)] (``Adopting 
Release'').
    \3\ See Reproposing Release, supra note 1.
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II. Background

    Congress established BDCs as a new category of closed-end 
investment companies when it enacted the Small Business Investment 
Incentive Act (``SBIIA'') in 1980. \4\ Congress intended that BDCs 
would make capital more readily available to certain types of 
companies. \5\ To accomplish this purpose, the Investment Company Act 
generally prohibits a BDC from making any investment unless, at the 
time of the investment, at least 70 percent of its total assets (``70% 
basket'') are invested in securities of certain specific types of 
companies, including ``eligible portfolio companies.'' \6\
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    \4\ Small Business Investment Incentive Act of 1980, Public Law 
No. 96-477, 94 Stat. 2274 (1980) (codified at scattered sections of 
the United States Code).
    \5\ See generally H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21 
(1980) (``House Report'').
    \6\ See Section 2(a)(46) of the Investment Company Act 
(statutory definition of eligible portfolio company) [15 U.S.C. 80a-
2(a)(46)]. See also Section 55(a) of the Investment Company Act 
(regulating the activities of BDCs) [15 U.S.C. 80a-54(a)]. Among 
other things, the 70% basket may include securities of eligible 
portfolio companies purchased in transactions not involving any 
public offering, securities of eligible portfolio companies already 
controlled by the BDC without regard to the nature of the offering, 
and securities of certain financially distressed companies that do 
not meet the definition of eligible portfolio company and that are 
purchased in transactions not involving any public offering. See 
Section 55(a).
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    The Investment Company Act defines eligible portfolio company to 
include any domestic operating company \7\ that does not have a class 
of securities with respect to which a member of an Exchange, broker, or 
dealer may extend margin credit pursuant to rules promulgated by the 
Federal Reserve Board under Section 7 of the Securities Exchange Act of 
1934 (``Exchange Act''). \8\ At the time that Section 2(a)(46) was 
adopted, Congress generally perceived the Federal Reserve Board's 
definition of ``margin security'' to be a ``rational and objective test 
for determining whether an issuer has ready access to the securities 
markets.'' \9\ Nevertheless, Congress recognized that the definition of 
eligible portfolio company as adopted, and, in particular, the 
definition's reliance on the Federal Reserve Board's margin rules, 
might need to be adjusted in the future. \10\ Accordingly, Congress 
specifically gave the Commission rulemaking authority under Section 
2(a)(46)(C)(iv) of the Investment Company Act to expand the definition 
of eligible portfolio company. \11\
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    \7\ Section 2(a)(46) of the Investment Company Act defines 
eligible portfolio company to include any company that satisfies the 
criteria set forth in each of Section 2(a)(46)(A) and Section 
2(a)(46)(B) in addition to one of the three criteria set forth in 
Section 2(a)(46)(C). Section 2(a)(46)(A) defines eligible portfolio 
company to include any company organized under the laws of, and with 
its principal place of business in, one or more states of the United 
States. Section 2(a)(46)(B) of the Investment Company Act generally 
excludes from the definition of eligible portfolio company any 
company that meets the definition of investment company under 
Section 3 of the Investment Company Act, or that is excluded from 
the definition of investment company by Section 3(c) of the Act, but 
includes as an eligible portfolio company any small BDC that is 
licensed by the Small Business Administration and that is a wholly-
owned subsidiary of a BDC.
    \8\ Section 2(a)(46)(C)(i). See also Section 2(a)(46)(C)(ii) 
(defines eligible portfolio company to include companies that are 
controlled by the investing BDC or certain of its affiliates); 
Section 2(a)(46)(C)(iii) (defines eligible portfolio company to 
include certain very small companies).
    \9\ House Report at 31. The House Report also indicated that 
Section 2(a)(46)(C)(i) was ``intended to cover companies which are 
unable to borrow money through conventional sources or which do not 
have ready access to the public capital markets.'' Id. at 30. In 
1980, the Federal Reserve Board periodically published lists of each 
company that had a class of securities that was marginable under its 
rules. Companies that were not listed as having a class of 
marginable securities qualified as eligible portfolio companies.
    \10\ See House Report at 31.
    \11\ Under Section 2(a)(46)(C)(iv), the term eligible portfolio 
company includes any issuer that, in addition to meeting the 
requirements of Sections 2(a)(46)(A) and (B), ``meets such other 
criteria as the Commission may, by rule, establish as consistent 
with the public interest, the protection of investors, and the 
purposes fairly intended by the policy and provisions of [the 
Act].'' See House Report at 23 (``* * * the Commission is given 
rulemaking authority to expand the class of eligible portfolio 
companies, following certain specific standards.''). The legislative 
history of the SBIIA also makes clear that the intent of this 
provision ``is to enable the Commission through the administrative 
process to broaden, if appropriate, the category of eligible 
portfolio company.'' Congress also noted its expectation that ``the 
Commission would institute [rulemaking] proceedings to consider 
whether the definition of eligible portfolio company can be 
expanded, consistent with the purpose of the legislation, to 
increase the flow of capital to small, developing businesses or 
financially troubled businesses.'' See House Report at 31. In 
providing the Commission with rulemaking authority, Congress noted 
``[a]mong the objective factors which the Commission may consider in 
[rulemaking] proceedings are the size of such companies, the extent 
of their public ownership, and their operating history as going 
concerns and public companies.'' Id.
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    Since 1980, the Federal Reserve Board has periodically amended its 
definition of margin security to increase the types of securities that 
would fall within that definition under its rules. In 1998, for reasons 
unrelated to small business capital formation, the Federal Reserve 
Board amended its definition of margin

[[Page 29046]]

security to include all equity securities that trade on an Exchange or 
are listed on the NASDAQ Stock Market, and most debt securities. This 
amendment had the result of significantly reducing the companies that 
qualify as eligible portfolio companies under Section 2(a)(46) of the 
Investment Company Act. \12\
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    \12\ Securities Credit Transactions; Borrowing By Brokers and 
Dealers, 63 FR 2805 (1998) (adopting final rule amendment). As a 
result of these amendments, companies that would have been 
considered eligible portfolio companies in 1980 may no longer meet 
that definition. See Definition of Eligible Portfolio Company under 
the Investment Company Act of 1940, Investment Company Act Release 
No. 26647 (Nov. 1, 2004) [69 FR 64815 (Nov. 8, 2004)] (``2004 
Proposing Release'') at nn.19-24.
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    In 2006, we adopted two rules, Rules 2a-46 and 55a-1 under the Act, 
to address the impact of the Federal Reserve Board's amendment to its 
definition of margin security on the definition of eligible portfolio 
company. \13\ Rule 2a-46 defines eligible portfolio company to include 
all domestic operating companies \14\ whose securities are not listed 
on an Exchange. \15\ Rule 55a-1 conditionally permits a BDC to continue 
to invest in any company that qualified as an eligible portfolio 
company under Rule 2a-46 when the BDC made its initial investment(s) in 
it, but that subsequently does not meet the definition of eligible 
portfolio company because it no longer meets the requirements of that 
rule. \16\
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    \13\ See Adopting Release, supra note 2.
    \14\ Rule 2a-46 incorporates the provisions of Sections 
2(a)(46)(A) and (B). See supra note 7.
    \15\ 17 CFR 270.2a-46.
    \16\ 17 CFR 270.55a-1.
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    When we adopted Rules 2a-46 and 55a-1, we also proposed to amend 
Rule 2a-46 to expand the definition of eligible portfolio company to 
include certain public domestic operating companies that list their 
securities on an Exchange. \17\ This proposal was designed to address 
concerns that part of the rule (proposed in 2004, but not adopted \18\) 
would be unworkable and too narrow. \19\
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    \17\ See Reproposing Release, supra note 1.
    \18\ See 2004 Proposing Release, supra note 12 (proposed a 
definition of eligible portfolio company that would have included 
certain financially-troubled Exchange-listed companies).
    \19\ For example, some commenters had stated that the proposed 
rule would not include some small companies that list their 
securities on an Exchange but that nevertheless may have 
difficulties accessing conventional sources of capital and raising 
additional capital on the public markets. See Reproposing Release, 
supra note 1 at n.12 and accompanying text.
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    In the Reproposing Release, we requested comment on alternatives 
that would expand the definition of eligible portfolio company to 
include domestic operating companies with securities listed on an 
Exchange. We asked whether we should expand the definition to include 
any such company with (i) a public float of less than $75 million or 
(ii) market capitalization of less than $150 million or market 
capitalization of less than $250 million. \20\ We explained that the 
$75 million public float standard incorporates the size-based standard 
used in Form S-3 and Rule 12b-2 which the Commission has used to 
delineate between small, unseasoned companies, and larger seasoned 
companies whose securities are listed on an Exchange. \21\ We explained 
that the market capitalization alternatives are similar to definitions 
of ``micro-cap'' company used generally by market participants. \22\ We 
also noted that some who had commented on Rule 2a-46 when it was 
initially proposed had stated that companies with market 
capitalizations in this range generally have limited (if any) analyst 
coverage, have lower trading volume and are owned by fewer 
institutional investors than companies with higher market 
capitalizations. \23\ These commenters concluded that such companies 
have difficulty accessing the public capital markets. \24\
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    \20\ See Reproposing Release, supra note 1.
    \21\ See, e.g., Form S-3 [17 CFR 239.13]; Rule 12b-2 under the 
Exchange Act [17 CFR 240.12b-2].
    \22\ See Reproposing Release, supra note 1 at nn.38-40 and 
accompanying text.
    \23\ Id. at nn.34-43 and accompanying text.
    \24\ E.g., comments of Williams & Jensen (Feb. 17, 2006); 
comments of Representatives Sue Kelly and Nydia Vel[aacute]szquez 
(Jan. 5, 2005) (commenting on the 2004 Proposing Release).
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    We received letters from fifteen commenters (including eight BDCs 
and one legal counsel to BDCs). \25\ Fourteen commenters favored the 
$250 million market capitalization standard. \26\ Several commenters 
specifically noted that companies meeting such a standard ``often have 
difficulty accessing traditional capital sources.'' \27\ Commenters 
also stated that the $250 million market capitalization standard is 
similar to what most market participants use to identify micro-cap 
companies, and that these companies have less analyst coverage, 
institutional ownership and lower trading volume. \28\
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    \25\ The eight BDCs were Allied Capital Corp., American Capital 
Strategies Ltd., Apollo Investment Corp., Ares Capital Corp., 
Gladstone Management, Harris & Harris Group, Inc., MCG Capital Corp. 
and NGP Capital Resources Company. We also received comments from 
two trade associations (The Financial Roundtable and U.S. Chamber of 
Commerce), one legal counsel to BDCs (Williams & Jensen), one 
investment banker (Ferghana Partners Inc.), one investment adviser 
(ThinkEquity Partners LLC) and two individuals. These letters are 
available for inspection in the Commission's Public Reference Room 
at 100 F Street, NE., Washington, DC 20549 (File No. S7-37-04), and 
may be viewed at http://www.sec.gov/rules/proposed/
s73704.shtml#27539.
    \26\ One commenter did not address this issue. Comments of 
Kathryn Ellis (Nov. 26, 2006). In addition, commenters generally 
disagreed with the adoption of a public float standard. See infra 
Section III.B.
    Two commenters also suggested that we include a provision that 
would in the future adjust the standard that we adopt today to 
reflect inflation. Comments of American Capital Strategies Ltd. 
(Dec. 24, 2006); comments of Apollo Investment Corp. (Jan. 2, 2007). 
We did not propose such a provision and therefore have not included 
it in Rule 2a-46.
    \27\ See, e.g., comments of Apollo Investment Corp. (Jan. 2, 
2007); comments of Gladstone Management (Nov. 2, 2006). See also 
comments of Allied Capital Management (Dec. 21, 2006) (``Public 
companies with a market capitalization of up to $250 million . . . 
often have trouble accessing the traditional capital markets despite 
the fact that their shares are listed on an exchange.'').
    \28\ See, e.g., comments of Gladstone Management (Nov. 2, 2006); 
comments of American Capital Strategies Ltd. (Dec. 24, 2006); 
comments of Apollo Investment Corp. (Jan. 2, 2007).
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    In addition, in support of the $250 million market capitalization 
standard, one commenter provided information about public companies 
that have received financing over the past several years and the types 
of financing that they have received. \29\ Specifically, the commenter 
submitted information regarding public companies that were able to 
access the public markets, either by engaging in initial public 
offerings or by issuing follow-on equity and debt financing. \30\ The 
commenter also provided information regarding the public companies that 
had obtained capital through private investment transactions. \31\ In 
addition, the commenter provided information regarding the average 
institutional leveraged loan size and average high yield issuance size. 
\32\ Based on this information, the commenter concluded that companies 
with less than $250 million market capitalization are having difficulty 
accessing traditional capital sources. \33\ Accordingly, the commenter 
urged the Commission to adopt the $250

[[Page 29047]]

million market capitalization standard. \34\
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    \29\ Comments of Williams & Jensen (Apr. 19, 2007, May 30, 
2007). This commenter also provided information regarding the 
investment practices of BDCs. The commenter, focusing on five of the 
largest BDCs, provided a description of each BDC's investment focus, 
the number of companies in each BDC's portfolio, and the number of 
individual investments each BDC made that was greater than $100 
million. The commenter also provided the average revenue of the 
portfolio companies that are held by four BDCs. Comments of Williams 
& Jensen (May 30, 2007).
    \30\ Comments of Williams & Jensen (Apr. 19, 2007).
    \31\ Comments of Williams & Jensen (May 30, 2007).
    \32\ Id.
    \33\ Comments of Williams & Jensen (Apr. 19, 2007, May 30, 
2007).
    \34\ Comments of Williams & Jensen (Feb. 17, 2006, Apr. 19, 
2007, May 30, 2007).
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III. Discussion

A. Rule 2a-46(b)

    After carefully considering the comments received in response to 
both the Reproposing Release and the 2004 Proposing Release, we are 
amending Rule 2a-46 to include new paragraph (b). \35\ Rule 2a-46(b) 
expands the definition of eligible portfolio company to include any 
domestic operating company that has a class of securities listed on an 
Exchange and that has a market capitalization \36\ of less than $250 
million (calculated using the price at which the company's common 
equity is last sold, or the average of the bid and asked prices of the 
company's common equity, in the principal market for such common 
equity) on any day in the 60-day period immediately before the BDC's 
acquisition of its securities. \37\ We believe that the new rule is 
consistent with the public interest, the protection of investors and 
the purposes fairly intended by the policy and provisions of the 
Investment Company Act.
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    \35\ We are also designating the current text of Rule 2a-46 as 
paragraph (a) of the rule.
    \36\ A company's market capitalization for purposes of the rule 
is the aggregate market value of the company's outstanding voting 
and non-voting common equity securities. See, e.g., Reproposing 
Release, supra note 1 at n.16.
    \37\ Rule 2a-46(b). This method of calculating market 
capitalization was used in both of the proposed market 
capitalization alternatives in the reproposal. See Reproposing 
Release, supra note 1 at n.16. We received no comment on this 
method, and we are adopting it as proposed.
    We note that the method of calculating market capitalization is 
stated solely for purposes of determining a company's qualification 
as an eligible portfolio company. A BDC is required to value its 
interests in portfolio companies for purposes of calculating the 
BDC's net asset value consistent with Section 2(a)(41) of the 
Investment Company Act.
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B. Use of Standard Based on Market Capitalization

    As discussed above, one of the alternatives that we proposed used a 
public float standard, and the options proposed in the other 
alternative used a market capitalization standard. \38\ We have decided 
to adopt a market capitalization standard for the reasons discussed 
below. For purposes of Rule 2a-46(b), market capitalization is the 
aggregate value of a company's outstanding voting and non-voting equity 
securities. \39\ In contrast, a company's public float is a company's 
market capitalization minus the aggregate market value of common equity 
held by the company's affiliates. \40\
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    \38\ See supra note 20 and accompanying text.
    \39\ See supra note 36.
    \40\ See, e.g., Reproposing Release, supra note 1 at n.16.
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    We requested comment on whether it would be burdensome for a BDC to 
determine a company's eligible portfolio company status if the standard 
is based on public float rather than market capitalization. \41\ 
Adopting a public float standard in Rule 2a-46(b) would have imposed 
burdens that are not present in other Commission rules that incorporate 
such a standard. These other Commission rules typically are rules in 
which a company is responsible for calculating its own public float to 
determine its eligibility in connection with certain registration or 
reporting requirements. \42\ Section 55 of the Investment Company Act, 
however, effectively requires a BDC to determine whether a target 
company qualifies as an eligible portfolio company before investing in 
it as part of the BDC's 70% basket. \43\ Consequently it is the BDC, 
rather than the target company, that must determine whether a target 
company meets the definition of eligible portfolio company under Rule 
2a-46(b).
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    \41\ Id. at text following n.51.
    \42\ See supra note 21.
    \43\ Section 55(a) of the Investment Company Act.
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    Accordingly, although several commenters stated that both public 
float and market capitalization are good indicators of whether a 
company is small and unseasoned, all commenters who addressed this 
issue preferred a market capitalization standard. \44\ Commenters 
stated that information about a company's market capitalization is 
readily available through third-party sources, while information about 
a company's public float is not. \45\ Commenters generally explained 
that, in order for a BDC to calculate a company's public float, as 
proposed, it would have to determine the number of shares owned by the 
company's affiliates, which is information not readily available on a 
current basis through third-party sources. \46\ The BDC therefore would 
have to communicate with possible target companies to determine whether 
they would qualify under the definition of eligible portfolio company 
before making any investment decision.
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    \44\ See, e.g., comments of American Capital Strategies Ltd. 
(Dec. 24, 2006); comments of Gladstone Management (Nov. 2, 2006); 
comments of Apollo Investment Corp. (Jan. 3, 2007).
    \45\ See, e.g., id.
    \46\ See, e.g., comments of American Capital Strategies Ltd. 
(Dec. 24, 2006); comments of Ares Capital Corp. (Jan. 2, 2007). 
Although Exchange Act reporting companies are required to disclose 
their public float on the cover of Form 10-K [17 CFR 249.310], the 
form requires a filer to disclose its public float as of the last 
business day of the filer's most recently completed second fiscal 
quarter. Because Rule 2a-46(b) defines an eligible portfolio company 
to be a company that meets the requisite size standard on any day in 
the 60-day period immediately before the BDC's acquisition of the 
company's securities, the public float information on a company's 
Form 10-K always would have been outdated for purposes of the 
proposed public float alternative.
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    Commenters argued that requiring BDCs to determine a company's 
public float within the requirements of the proposed rule would place 
an unnecessary burden on BDCs and thereby impede appropriate investment 
activity. \47\ In contrast, under the adopted market capitalization 
standard, a BDC may use information obtained from third parties to 
assist it in determining whether a possible investment target is an 
eligible portfolio company. In this regard, we note that under the 
adopted market capitalization standard, a BDC may use information 
obtained from independent third parties to assist it in determining 
whether a possible target company is an eligible portfolio company 
without communicating with the target company directly. In light of 
these burdens and the general public availability of information 
regarding a company's market capitalization, we agree with commenters 
that a market capitalization standard is appropriate for purposes of 
Rule 2a-46.
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    \47\ See, e.g., comments of American Capital Strategies Ltd. 
(Dec. 24, 2006).
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C. Dollar Level of Standard

    We are adopting new Rule 2a-46(b) to define eligible portfolio 
company to include any company that is listed on an Exchange with 
market capitalization of less than $250 million. The new standard, 
consistent with legislative intent, broadens the definition of eligible 
portfolio company. \48\ We estimate that, based on January 31, 2008 
data, 6,062 companies, representing 61.3% (6,062/9,883) of all public 
domestic operating companies, qualify as eligible portfolio companies 
under Rule 2a-46(a). We further estimate that 1,649 Exchange-listed 
companies qualify as eligible portfolio companies under Rule 2a-46(b). 
\49\ Accordingly, we estimate that 7,711 companies, representing 78% 
(7,711/9,883) of all public domestic operating companies

[[Page 29048]]

qualify as eligible portfolio companies under Rule 2a-46 as amended.
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    \48\ Supra note 11. As discussed above, the $250 million market 
capitalization standard is a level similar to what most market 
participants generally view to be ``micro-cap'' companies, a term 
used to identify small public companies. See Reproposing Release, 
supra note 1 at nn.38-40 and accompanying text.
    \49\ We note that our estimates reflect only companies with less 
than $250 million market capitalization whose securities are listed 
on Nasdaq, the New York Stock Exchange (``NYSE'') and the American 
Stock Exchange (``Amex'').
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    In the Reproposing Release, we noted a general concern raised by 
commenters in response to the 2004 Proposing Release \50\ that 
companies with market capitalization up to $300 million are followed by 
fewer analysts, have lower institutional ownership and have lower 
trading volume than companies at higher levels of market 
capitalization. \51\ These commenters concluded that companies having 
market capitalization below that amount may have more difficulty 
accessing public capital. We generally agreed that there may be some 
correlation between the size of a company, based on these factors, and 
the ability of a company to access public capital. \52\ We specifically 
requested comment on whether any of the alternative standards would 
better align the definition of eligible portfolio company with the 
purpose that Congress intended when it adopted the SBIIA.
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    \50\ Supra note 12.
    \51\ Comments of Representatives Sue Kelly and Nydia Velazquez 
at n.12 (Jan. 5, 2005); comments of Williams & Jensen (Feb. 17, 
2006). These commenters also referred to analysis prepared by our 
Office of Economic Affairs (``OEA'') in connection with Securities 
Offering Reform. See memorandum dated December 3, 2004 (``OEA 
Memorandum'') attached to comments of Williams & Jensen (Feb. 17, 
2006), infra note 58.
    \52\ See Reproposing Release, supra note 1 at text following 
n.36.
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    Commenters universally favored the $250 million market 
capitalization standard. Commenters argued that companies with market 
capitalization of less than $250 million often have difficulty 
accessing traditional forms of capital and that adoption of the 
standard thus would be consistent with Congressional intent. \53\ One 
commenter also provided information regarding the limited number of 
follow-on offerings of equity and debt securities by Exchange-listed 
companies and stated that this information ``clearly demonstrates that 
the vast majority of companies with market capitalizations of $250 
million or less * * * have significantly limited access'' to the public 
equity and debt markets. \54\ This commenter also argued that market 
participants that provide public capital are not servicing the needs of 
these companies. \55\
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    \53\ E.g., comments of Allied Capital Management (Dec. 21, 
2006); comments of Apollo Investment Corp. (Jan. 2, 2007).
    \54\ See comments of Williams & Jensen (Apr. 19, 2007).
    \55\ Comments of Williams & Jensen (May 30, 2007).
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    Most commenters responding to the alternatives proposed in the 
Reproposing Release also argued that companies with less than $250 
million market capitalization have difficulty accessing public capital 
because generally these companies are followed by fewer analysts, have 
lower institutional ownership and lower trading volume than larger 
companies. \56\ One commenter specifically noted that companies with 
less than $250 million market capitalization ``have spotty analyst 
coverage at best, * * * few or no institutional investors, and * * * 
thin trading volumes'' and that ``these are characteristics of 
companies that would not in today's market have ready access to public 
capital.'' \57\ This commenter referred to information developed by our 
Office of Economic Analysis (``OEA'') about those factors that were 
prepared for purposes other than this rulemaking. \58\
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    \56\ See, e.g., comments of Gladstone Management (Nov. 2, 2006); 
comments of Apollo Investment Corp. (Jan. 2, 2007); comments of Ares 
Capital Corp. (Jan. 2, 2007).
    \57\ Comments of Williams & Jensen (Apr. 19, 2007).
    \58\ The commenter had attached to its comment letter statistics 
that were prepared in connection with the Final Report of the 
Advisory Committee on Smaller Public Companies. See Background 
Statistics: Market Capitalization & Revenue of Public Companies, 
August 1, 2005, at Table 7 (Analyst Coverage and Institutional 
Holdings by Market Capitalization), attached to comments of Williams 
& Jensen (Apr. 19, 2007). This commenter had attached to a prior 
comment letter an earlier memorandum prepared by OEA that sets forth 
data regarding analyst coverage, institutional ownership and average 
daily trading for publicly traded companies between 1997 and 2003. 
See OEA Memorandum dated December 3, 2004 attached to comments of 
Williams & Jensen (Feb. 17, 2006) (exhibit entitled ``SEC Data 
Demonstrates Lack of Market Following for Companies with Market 
Capitalizations of $300 million or Less''). OEA prepared this 
memorandum in connection with the Securities Offering Reform 
rulemaking. See Securities Offering Reform, Securities Act Release 
No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)].
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    As we stated in the Reproposing Release, we believe that there is 
some correlation between analyst coverage, institutional ownership and 
trading volume and the ability of a company to access public capital. 
\59\ Based on the comments we received, and our review of those factors 
with respect to companies with less than $250 million market 
capitalization, we believe that a distinction can be made with respect 
to a company's ability to access public capital at $250 million market 
capitalization. OEA has considered this information and determined that 
fewer than 50% of companies with market capitalizations of less than 
$250 million are followed by more than two analysts and that these 
companies generally have lower institutional ownership and are more 
thinly traded than larger companies.
---------------------------------------------------------------------------

    \59\ See Reproposing Release, supra note 1 at n.37 and 
accompanying text.
---------------------------------------------------------------------------

    Moreover, in the Reproposing Release we requested comment on 
whether adoption of a $250 million market capitalization standard would 
result in BDCs focusing their investment activities in companies at the 
higher end of the standard to the detriment of smaller companies. \60\ 
Commenters responded that adoption of a $250 million market 
capitalization standard would not have this result, with some arguing 
further that larger companies do not necessarily present a more 
attractive investment in comparison to smaller companies. \61\ 
Commenters also argued that historically, BDCs have not invested in 
larger non-public companies at the expense of smaller non-public 
companies, and that there is no reason to suggest that this would occur 
in the context of public companies. \62\ In light of these comments, we 
are persuaded that our adoption of the $250 million market 
capitalization standard is not likely to result in BDCs focusing their 
investment activity on larger companies to the detriment of smaller 
companies.
---------------------------------------------------------------------------

    \60\ See id. at n.47 and accompanying text. We requested comment 
on this issue in response to a comment made by one commenter to the 
2004 Proposing Release. This commenter raised the concern that BDCs 
might not provide financing for smaller Exchange-listed companies if 
the Commission adopts a standard higher than $100 million market 
capitalization. See comments of Capital Southwest Corp. (Dec. 28, 
2004).
    \61\ See, e.g., comments of MCG Capital Corp. (Dec. 27, 2006); 
comments of American Capital Strategies Ltd. (Dec. 24, 2006).
    \62\ See comments of Harris & Harris Group (Jan. 3, 2007); 
comments of ThinkEquity Partners LLC (Dec. 6, 2006).
---------------------------------------------------------------------------

    Accordingly, we conclude that adoption of the $250 million market 
capitalization standard is an appropriate standard for purposes of the 
amended rule and we believe that it is consistent with the public 
interest, the protection of investors and the purposes fairly intended 
by the policies and provisions of the Investment Company Act. \63\
---------------------------------------------------------------------------

    \63\ We are persuaded that our adoption of the $250 million 
market capitalization standard is not inconsistent with our other 
rules that distinguish between smaller and larger companies because 
of the different purposes of these rules. For example, Form S-3 
incorporates a $75 million public float standard (in addition to 
other factors) to identify those companies about which sufficient 
information is publicly available to allow them to take advantage of 
our integrated disclosure system. 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 (Dec. 
27, 2007)]; Simplification of Registration for Primary Securities 
Offerings, Securities Act Release No. 6943 (July 16, 1992) [57 FR 
32461 (July 22, 1992)]. In contrast, Rule 2a-46(b) incorporates a 
$250 million market capitalization standard to identify companies 
that are having difficulty accessing public capital and may benefit 
from greater access to BDC financing.

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[[Page 29049]]

IV. Cost-Benefit Analysis

    We are sensitive to the costs and benefits that result from our 
rules. In the Reproposing Release we requested public comment and 
specific data regarding the costs and benefits of reproposed Rule 2a-
46(b). As discussed below, we received one comment regarding the 
Commission's estimate of the companies that would benefit from the 
reproposed rule. \64\
---------------------------------------------------------------------------

    \64\ Comments of Williams & Jensen (Apr. 19, 2007).
---------------------------------------------------------------------------

A. Benefits

    Rule 2a-46(b) more closely aligns the definition of eligible 
portfolio company, and the investment activities of BDCs, with the 
purpose that Congress intended. Specifically, Rule 2a-46(b) expands the 
definition of eligible portfolio company to include any domestic 
operating company with a class of securities listed on an Exchange that 
has a market capitalization of less than $250 million.
    Many public companies that are included as eligible portfolio 
companies under Rule 2a-46(b) may need capital for continued 
development and growth, but, notwithstanding that their securities are 
listed on an Exchange, may find it difficult to raise capital through 
additional offerings or borrow money through other sources. By amending 
the definition of eligible portfolio company to include these 
companies, such companies will benefit because of the expanded sources 
of capital from which the companies may seek to obtain financing. 
Increased competition among capital providers will benefit shareholders 
of companies seeking capital.
    Rule 2a-46(b) also benefits BDCs by expanding the universe of 
investments that BDCs may include as part of their 70% basket. This 
will allow BDCs to make additional investments to companies that 
qualify as eligible portfolio companies under the rule, which in turn 
could benefit BDC shareholders. Rule 2a-46(b) also benefits BDCs by 
addressing the uncertainty caused by changes in the margin rules in the 
operation of BDCs.
    In the Reproposing Release, OEA estimated, using June 30, 2006 
data, that there were a total of 1,562 domestic operating companies 
whose securities were listed on Nasdaq, the NYSE and Amex that have a 
market capitalization of less than $250 million. At that time OEA 
estimated that 6,041 domestic operating companies that qualified as 
eligible portfolio companies under Rule 2a-46 as initially adopted. 
Accordingly, OEA calculated that 7,603 companies, representing 77.2% 
(7,603/9,845 \65\) of public domestic operating companies, would 
qualify as eligible portfolio companies if the $250 million market 
capitalization standard was adopted.
---------------------------------------------------------------------------

    \65\ See infra note 69.
---------------------------------------------------------------------------

    Using January 31, 2008 data, OEA estimates that there were a total 
of 1,649 domestic operating companies whose securities were listed on 
Nasdaq, the NYSE and the Amex that have a market capitalization of less 
than $250 million. OEA further estimates that approximately 6,062 
companies qualify as eligible portfolio companies under Rule 2a-46, as 
initially adopted (now Rule 2a-46(a)). Accordingly, OEA calculates that 
7,711 companies, representing 78% percent (7,711/9,883 \66\) of public 
domestic operating companies, qualify as eligible portfolio companies 
under amended Rule 2a-46.
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

    OEA reached its estimates by first calculating the number of 
companies whose securities were listed on Nasdaq, the NYSE and the 
Amex. OEA then deducted from this estimate all foreign companies, 
investment companies and companies that are excluded from the 
definition of investment company by Section 3(c) of the Investment 
Company Act (because both Section 2(a)(46) of the Investment Company 
Act and Rule 2a-46 exclude these types of companies from the definition 
of eligible portfolio company), and corrected for cases where 
individual companies had multiple classes of securities listed. OEA 
then determined the number of companies that had a market 
capitalization of less than $250 million. \67\ Using the same 
methodology, OEA determined the number of companies that qualify as 
eligible portfolio companies under Rule 2a-46(a). \68\ OEA then 
calculated the total number of eligible portfolio companies and the 
percentage of the total public domestic operating companies that would 
qualify as eligible portfolio companies under amended Rule 2a-46. \69\
---------------------------------------------------------------------------

    \67\ See supra note 49.
    \68\ See Adopting Release, supra note 2 at text preceding n.31.
    \69\ OEA estimated the total number of public domestic operating 
companies by calculating the number of companies whose securities 
were listed on Nasdaq, the NYSE and the Amex, in addition to those 
companies whose securities were trading through the over-the-counter 
bulletin board and on Pink Sheets LLC, correcting these figures for 
cases where individual companies had multiple classes of securities 
listed, and then removing from these figures foreign companies, 
investment companies, and companies that are excluded from the 
definition of investment company by Section 3(c).
---------------------------------------------------------------------------

    As noted above, one commenter stated that the Reproposing Release 
overstated the percentage of companies that would benefit under Rule 
2a-46, as amended by the reproposed rule. \70\ The commenter noted, 
however, that regardless of whether or not the Commission overstated 
the percentage of companies, ``the percentage in and of itself adds 
little analytical weight in describing which public companies need 
access to capital. * * *'' The commenter concluded that ``we believe 
that there is no precise percentage of public companies that can or 
should be targeted. * * *'' \71\ While the commenter agreed that 
foreign companies, investment companies and most companies that are 
excluded from the definition of investment company by Section 3(c) of 
the Investment Company Act are excluded from qualifying as eligible 
portfolio companies under the Investment Company Act, the commenter 
suggested that these companies should still be included as part of the 
total number of public companies. Thus, the commenter suggested that 
the benefits of the rule should be calculated by comparing the total 
number of companies that would be eligible portfolio companies under 
the rule to the total number of public companies.
---------------------------------------------------------------------------

    \70\ Williams & Jensen (Apr. 19, 2007).
    \71\ Id.
---------------------------------------------------------------------------

    As discussed previously, Section 2(a)(46) excludes from the 
definition of eligible portfolio companies foreign companies, 
investment companies and most companies that are excluded from the 
definition of investment company by Section 3(c). Therefore, in 
determining the benefits of Rule 2a-46 as amended for purposes of this 
analysis, we believe that it is appropriate to compare the number of 
companies that meet the definition of eligible portfolio company under 
the rule with the number of companies that are not statutorily 
precluded from being treated as eligible portfolio companies.
    This commenter also argued that public companies listed on the OTC 
Bulletin Board with market capitalizations of between $0 and $25 
million should be excluded from OEA's calculations. \72\ The commenter 
explained that although these companies qualify as eligible portfolio 
companies, ``they are not likely to seek or be seriously considered 
appropriate investments for a BDC.'' \73\ OEA's calculations are 
intended to show the number of all companies that would fall within the 
definition of eligible portfolio company under Rule 2a-46(b), however, 
regardless of whether any particular company or size of company

[[Page 29050]]

would be seriously considered by a BDC for investment purposes. 
Accordingly, we have not recalculated the numbers and percentages 
stated above to reflect the commenter's view.
---------------------------------------------------------------------------

    \72\ Id.
    \73\ Id.
---------------------------------------------------------------------------

B. Costs

    We received no comments on the potential costs of our adoption of 
the new standard. Although Rule 2a-46(b) might impose certain 
administrative compliance costs on BDCs, it is our understanding that 
these costs are similar to the types of compliance costs that a BDC 
currently undertakes when it invests in a company. Specifically, a BDC 
will need to determine, prior to investing in a company, if the company 
has a class of securities listed on an Exchange and whether that 
company's market capitalization was less than $250 million as of a date 
within 60 days prior to the date of the BDC's investment. Costs in 
obtaining this information, however, will be minimal because 
information about the market capitalization of companies is readily 
available from third-party sources. Finally, we anticipate that Rule 
2a-46(b) will impose only minimal, if any, costs on portfolio 
companies.

V. Consideration of Promotion of Efficiency, Competition and Capital 
Formation

    Section 2(c) of the Investment Company Act mandates that the 
Commission, when engaging in rulemaking that requires it to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition and capital 
formation. \74\ In the Reproposing Release, we requested comment on our 
analysis of the impact of Rule 2a-46(b) on efficiency, competition and 
capital formation. As discussed in Section II of this Release, 
commenters generally supported expanding the definition to include 
Exchange-listed companies with less than $250 million market 
capitalization because of their belief that these companies often have 
difficulty accessing capital. \75\ Some commenters also argued that 
expanding the rule to include Exchange-listed companies with less than 
$250 million market capitalization would allow BDCs to compete with 
other capital providers, and that such competition would benefit 
shareholders of companies seeking capital. \76\ We have decided to 
amend Rule 2a-46 to expand the definition of eligible portfolio company 
to include Exchange-listed companies that have a market capitalization 
of less than $250 million.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 80a-2(c).
    \75\ See supra note 27 and accompanying text.
    \76\ See, e.g., comments of Williams & Jensen (Apr. 19, 2007); 
comments of Apollo Investment Corp. (Jan. 2, 2007).
---------------------------------------------------------------------------

    Rule 2a-46(b) is designed to promote efficiency, competition and 
capital formation. Efficiency will be enhanced because Rule 2a-46(b) 
expands the definition of eligible portfolio company so as to allow 
BDCs to compete with other entities that provide capital to certain 
companies. Competition for financing may result in lower cost capital 
for current funding needs or may replace higher cost capital previously 
issued, which could potentially allow companies desiring capital to 
take on additional or different investment projects. Thus, Rule 2a-
46(b) will promote a more efficient allocation of capital. Rule 2a-
46(b) in our view also will promote efficiency by providing a workable 
test for determining whether a company is an eligible portfolio 
company.
    We also believe Rule 2a-46(b) will promote competition. Rule 2a-
46(b) allows BDCs more easily to compete with other capital providers, 
and such competition benefits shareholders of BDCs, companies receiving 
the capital and shareholders of companies receiving capital. The market 
for private equity and debt investments can be highly competitive. 
Since their establishment, BDCs have competed with various sources of 
capital, including private equity funds (including venture capital 
funds), hedge funds, investment banks and other BDCs, to provide 
financing to certain companies. We believe that Rule 2a-46(b) will 
encourage such competition. Such competition also benefits the 
qualifying companies in need of capital and their shareholders because 
such companies can more readily consider BDCs as a source of financing. 
To the extent that BDCs provide either additional or less expensive 
capital to these companies, those companies may be more competitive in 
the marketplace.
    Finally, we believe that Rule 2a-46(b) may promote capital 
formation. BDC investments represent additional capital to companies. 
By expanding the definition of eligible portfolio company, Rule 2a-
46(b) may result in additional capital investments by BDCs. We estimate 
that a total of 1,649 public domestic operating companies would qualify 
as eligible portfolio companies under Rule 2a-46(b). The rule provides 
greater access to public capital by increasing these companies' access 
to BDC financing.

VI. Paperwork Reduction Act

    The Commission has determined that Rule 2a-46 as amended does not 
involve a collection of information pursuant to the provisions of the 
Paperwork Reduction Act [44 U.S.C. 3501 et seq.].

VII. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 604. It relates to Rule 2a-46(b) under the 
Investment Company Act. An Initial Regulatory Flexibility Analysis 
(``IRFA'') was prepared in accordance with 5 U.S.C. 603 and was 
published in the Reproposing Release. \77\
---------------------------------------------------------------------------

    \77\ Reproposing Release supra note 1 at Section VII.
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Amendment

    As described previously in this Release, Rule 2a-46(b) more closely 
aligns the definition of eligible portfolio company, and the investment 
activities of BDCs, with the purpose that Congress intended. 
Specifically, Rule 2a-46(b) will expand the definition of eligible 
portfolio company to include any domestic operating company with a 
class of securities listed on an Exchange that has a market 
capitalization of less than $250 million. These companies may need BDC 
financing for continued growth and development, but, notwithstanding 
the fact that their securities are listed on an Exchange, may find it 
difficult to raise additional capital in new offerings or borrow money 
through other conventional sources.

B. Significant Issues Raised by Public Comment

    When the Commission reproposed Rule 2a-46(b), comment was requested 
on the reproposal and the accompanying IRFA. None of the comment 
letters specifically addressed the IRFA.

C. Small Entities Subject to the Rule

    Rule 2a-46(b) will affect BDCs and companies that qualify as small 
entities under the Regulatory Flexibility Act. For purposes of the 
Regulatory Flexibility Act, a BDC is a small entity if it, together 
with other investment companies in the same group of related investment 
companies, has net assets of $50 million or less as of the end of its

[[Page 29051]]

most recent fiscal year. \78\ As of June 2007, there were 73 BDCs, of 
which 43 were small entities. A company other than an investment 
company is a small entity under the Regulatory Flexibility Act if it 
had total assets of $5 million or less on the last day of its most 
recent fiscal year. \79\ We estimate there are approximately 20 
Exchange-listed companies that may be considered small entities. \80\
---------------------------------------------------------------------------

    \78\ 17 CFR 270.0-10.
    \79\ 17 CFR 230.157; 17 CFR 240.0-10.
    \80\ We noted in the Reproposing Release that at that time we 
calculated that there were approximately 2,500 companies, other than 
investment companies, that may be considered small entities. See 
Reproposing Release supra note 1 at text following n.72. This figure 
inadvertently included companies whose securities are not listed on 
an Exchange. Rule 2a-46(b), however, only pertains to companies 
whose securities are listed on an Exchange. As discussed above, we 
estimate that there are only approximately 20 Exchange-listed 
companies that may be considered small entities.
---------------------------------------------------------------------------

    As discussed in this Release, Rule 2a-46(b) is intended to benefit 
certain companies that need capital for continued development and 
growth, but may be unable to borrow money through conventional sources 
despite their securities being listed on an Exchange. Rule 2a-46(b) 
will also benefit BDCs, including those that are small entities, by 
expanding the number of companies that BDCs may include as part of 
their 70% basket. Because none of the comment letters specifically 
addressed the IRFA, we continue to believe that those BDCs and 
companies that are small entities for purposes of the Regulatory 
Flexibility Act would not be disproportionately affected by the amended 
rule.

D. Reporting, Recordkeeping and Other Compliance Requirements

    Rule 2a-46(b) will not impose any new reporting or recordkeeping 
requirements on BDCs or on companies. It also will impose only minimal, 
if any, compliance requirements on portfolio companies.
    Rule 2a-46(b) will impose minimal compliance requirements on BDCs, 
including small entities. A BDC would need to determine, prior to 
investing in a company, if the company has a class of securities listed 
on an Exchange and whether that company's market capitalization was 
less than $250 million as of a date within 60 days prior to the date of 
the BDC's investment. We anticipate that the costs associated with 
obtaining this information would be minimal because such information is 
readily available from third-party sources. Furthermore, it is our 
understanding that these costs are similar to the types of compliance 
costs that a BDC currently undertakes when it invests in an issuer.

E. Commission Action To Minimize Adverse Impact on Small Entities

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish our stated objectives, while 
minimizing any significant adverse impact on small entities. 
Alternatives in this category would include: (1) Establishing different 
compliance or reporting standards that take into account the resources 
available to small entities; (2) clarifying, consolidating, or 
simplifying the compliance requirements for small entities; (3) the use 
of performance rather than design standards; and (4) exempting small 
entities from the coverage of the rules, or any part thereof.
    Establishing different compliance or reporting requirements for 
small entities would not be appropriate under Rule 2a-46(b). Rule 2a-46 
will not impose any reporting requirements on BDCs or on companies. It 
will also not impose any compliance requirements on portfolio 
companies. Rule 2a-46(b) will, however, impose some compliance 
requirements on BDCs that are intended to ensure that BDCs invest 
primarily in certain types of companies. These requirements should, 
however, impose only minimal burdens on BDCs.
    We believe that clarifying, consolidating or simplifying the 
compliance requirements for small entities would be inappropriate. As 
discussed above, Rule 2a-46(b) will not impose any compliance 
requirements on portfolio companies. As noted, Rule 2a-46(b) will 
impose some compliance requirements on BDCs, which we believe will 
impose minimal burdens on BDCs. These requirements are designed to 
ensure that BDCs will invest in companies in accordance with the rule.
    We believe that using performance rather than design standards 
would add unnecessary complexity. Rule 2a-46(b) provides a clear, 
bright-line, workable test for determining whether a company is an 
eligible portfolio company. A standard based on performance could be 
unduly complicated and cause further uncertainty to BDCs, including 
those that are small entities, when determining whether a company is an 
eligible portfolio company. Likewise, the use of a performance standard 
would bring uncertainty to companies in determining whether they meet 
the definition of eligible portfolio company.
    Finally, we believe that it would be inappropriate to exempt BDCs 
that are small entities from the coverage of Rule 2a-46(b). Rule 2a-
46(b) should benefit BDCs and companies, including those that are small 
entities, by expanding the definition of eligible portfolio company to 
include certain companies whose securities are listed on an Exchange. 
Exempting BDCs and companies that are small entities from the amended 
rule would be contradictory to the purpose of this rulemaking.

VIII. Statutory Authority

    We are amending Rule 2a-46 pursuant to our rulemaking authority 
under Sections 2(a)(46)(C)(iv) and 38(a) of the Investment Company Act.

List of Subjects in 17 CFR Part 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of Rule

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

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
1. 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, and 80a-
39, unless otherwise noted.
* * * * *

0
2. Revise Sec.  270.2a-46 to read as follows:

Sec.  270.2a-46  Certain issuers as eligible portfolio companies.

    The term eligible portfolio company shall include any issuer that 
meets the requirements set forth in paragraphs (A) and (B) of section 
2(a)(46) of the Act (15 U.S.C. 80a-2(a)(46)(A) and (B)) and that:
    (a) Does not have any class of securities listed on a national 
securities exchange; or
    (b) Has a class of securities listed on a national securities 
exchange, but has an aggregate market value of outstanding voting and 
non-voting common equity of less than $250 million. For purposes of 
this paragraph:
    (1) The aggregate market value of an issuer's outstanding voting 
and non-voting common equity shall be computed by use of the price at 
which the common equity was last sold, or the average of the bid and 
asked prices of such common equity, in the principal market for such 
common equity as of a date within 60 days prior to the date of 
acquisition of its securities by a business development company; and
    (2) Common equity has the same meaning as in 17 CFR 230.405.

    Dated: May 15, 2008.

[[Page 29052]]

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8-11254 Filed 5-19-08; 8:45 am]

BILLING CODE 8010-01-P