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Code · REGISTER · 2006-10-31 · Office of Assistant Secretary for Administration, HUD · Proposed Rules

Proposed Rules. Notice

34,482 words·~157 min read·/register/2006/10/31/06-9020

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 7590-01-P 71 210 Tuesday, October 31, 2006 Notices Part V Department of Housing and Urban Development Notice of Opportunity To Register Early and Other Important Information for Electronic Application Submission via Grants.gov; Notice DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR-5107-N-01] Notice of Opportunity To Register Early and Other Important Information for Electronic Application Submission via Grants.gov AGENCY: Office of Assistant Secretary for Administration, HUD.
ACTION: Notice. SUMMARY: The purpose of this notice is to provide instructions and advice to potential applicants applying for funding under HUD's competitive grant programs that are available through Grants.gov. This notice provides information to help applicants better understand the electronic submission process. To facilitate the Fiscal Year
(FY)2007 federal grant application process, prospective applicants for HUD funding should immediately begin the registration process or renew their registration from prior years. HUD believes that by facilitating a better understanding of the electronic submission process, applicants will be able to more easily make the transition to electronic application submission. Grants.gov is the Federal portal for applicants to electronically find and apply for over 1,000 funding opportunities made available by the twenty-six federal grant-making agencies. Grants.gov offers the applicant community a common Web site where applicants can use one password and ID to apply for a variety of federal assistance programs. To date, all 26 Federal grant-making agencies have posted their funding opportunities and electronic application packages to Grants.gov. To apply on-line electronically, Grants.gov requires an electronically authorized signature, known as eAuthentication. This requirement for an authenticated electronic signature serves to protect the applicant and the applicant's information, and to assure federal agencies that they are interacting with officials authorized to submit applications on behalf of applicant entities. Through this notice, HUD is encouraging applicants to complete or update their registration, in advance of HUD posting its FY2007 grant opportunities. HUD found that issuing an Early Registration Notice in FY2006 eliminated many of the registration issues that applicants faced in FY2005, the first year that HUD used Grants.gov for posting its annual SuperNOFA. HUD believes that by issuing this notice in advance of the FY2007 funding cycle, applicants will have sufficient time to carefully review registration and submission requirements and to have their questions addressed regarding the registration and submission processes. HUD anticipates that it will post its funding opportunities in late 2006 or early 2007. HUD strongly encourages prospective applicants for FY2007 HUD grants to register or renew their registration for application submission via Grants.gov as soon as possible by following the instructions in this notice. DATES: Early registration commences with the issuance of this notice and ends when HUD publishes its SuperNOFA. FOR FURTHER INFORMATION CONTACT: If you need further information about this Notice, contact the NOFA Information Center, at
(800)HUD-8929 ((800) 483-8929). Persons with hearing or speech impairments may access this number via TTY by calling the Federal Information Relay Service at
(800)HUD-2209 ((800) 483-2209). The NOFA Information Center is open between the hours of 10 a.m. to 6:30 p.m. Eastern Standard Time, Monday through Friday, except on federal holidays. If you have questions about registration or submissions issues, contact the Grants.gov Contact Center at
(800)518-GRANTS (4726). Full Text of Announcement This Notice is divided into two sections. Section 1 describes the registration process including steps to renew/update an existing registration. Section 2 provides guidance to applicants that are experiencing upload or transmission issues. In FY2006, HUD successfully received over 5,000 applications via grants.gov. Less than 1% of applicants experienced submission issues. While these numbers are relatively small, HUD strives to assist all applicants in gaining a better understanding of the electronic submission process. This notice also serves to remind applicants to submit their applications in advance of the deadline date and when the Grants.gov help desk is open so that if issues arise, there is sufficient time to provide timely assistance. Appendix A of this notice provides step-by step registration instructions to follow. Appendix B provides information on Do's and Don'ts regarding electronic application submission. Section 1—Completing the Registration Process for New Applicants and Updating a Registration for Applicants That Are Currently Registered A. The Need To Register With Grants.gov Many federal grant-making agencies provide funding to organizational entities and some agencies are permitted to fund individuals; however, HUD only provides funding to organizations. This information, therefore, is directed to HUD applicants that are organizational entities. Before an applicant can apply for a grant opportunity, the applicant must first register with Grants.gov to provide and obtain certain identifying information. Please note, however, that registration is a multi-step process. In addition, the registration process requires the applicant to provide information at Web sites other than Grants.gov. Registration protects both the applicant and the applicable federal agencies. Registration confirms that the applicant has designated a certain individual or entity to submit an application on behalf of the applicant and assures the federal agency that it is interacting with the designated representative of the applicant that has been authorized to submit the application. B. Registration Steps for Organizations 1. Use of DUNS Numbers. In 2003, the federal government adopted a policy that applicants must obtain a Data Universal Numbering System
(DUNS)number in order to receive funding. In order to submit an electronic application via Grants.gov, your organization must have a DUNS number. Dun and Bradstreet (D&B), a company that provides business information credit, marketing and purchasing decisions for more than 70 million businesses worldwide, issues DUNS numbers. Its data universal numbering system issues unique 9-digit numbers that are used by businesses and the federal government to track funding and business related information and relationships. The information provided in the D&B registration will be used by the Central Contactor Registration system in the registration process, so applicants should carefully review their Dun and Bradstreet information for accuracy. 2. Registration in the Central Contractor Registration (CCR). The CCR is the primary vendor database for the federal government. The CCR was established to assist federal government agency acquisitions and procurements. The CCR collects, validates, stores and disseminates data in support of agency acquisitions. Registration in CCR has been extended from the procurement and acquisition area to grants. For grants, CCR stores an applicant's information, allowing Grants.gov to verify an applicant's identity and identify key business contacts for the organization. The CCR registration process consists of completing a Trading Partner Profile (TPP), which contains general, corporate, and financial information about your organization. While completing the TPP, you will need to identify a CCR Point of Contact
(POC)who will be responsible for maintaining the information in the TPP and giving authorization to individuals to serve as Authorized Organization Representatives
(AOR)and an E-Business Point of Contact (E-Business POC). The AOR will submit applications through Grants.gov for your organization. The person that completes the TPP can be the CCR POC, E-Business POC, and the AOR or they can be different people. 3. CCR Use of Dun and Bradstreet Information. As part of CCR's ongoing effort to ensure that all registration information is standardized, easily shared across many government systems, and to reduce data entry by registrants, CCR pre-populates the following data fields from D&B: Legal Business Name, Doing Business Name (DBA), Physical Address, and Postal Code/Zip+4. Registrants will not be able to enter/modify these fields in CCR; they will be pre-populated using D&B Data Universal Numbering System record data. During new registration or when updating a record, the registrant has a choice to accept or reject the information provided from D&B. Under the revised system, if the CCR registrant agrees with the D&B supplied information, the D&B data will be accepted into the CCR registrant record. If the registrant disagrees with the D&B supplied information the registrant will need to go to the D&B Web site *http://fedgov.dnb.com/webform* to modify the information currently contained in D&B's records before proceeding with its CCR registration. Once D&B confirms the modification, the registrant must revisit the CCR Web site and “accept” D&B's changes. Only at this point will the D&B data be accepted into the CCR record. D&B can take two business days to send modified data to CCR and that timeframe may be longer in some countries. Large organizations and organizations that set-up separate bank accounts for different grants can set up what is known as DUNS+4 within the CCR record, to track the flow of funding and disbursements within the parent organizations and any number of sub-agencies or departments within the organization. States and universities frequently identify their sub-organizations through the use of DUNS+4 numbering. 4. CCR Employer Identification Number/Taxpayer Identification Number (EIN/TIN) Validation. Please note that as of October 30, 2005, the Central Contractor Registration
(CCR)began validating the TIN and Taxpayer Name of each new and updating CCR registrant with the Internal Revenue Service (IRS). The EIN/TIN matching process is a joint effort between the General Services Administration (GSA), Department of Defense (DoD), and the IRS to improve the quality of data in government acquisition systems. If there are discrepancies in the taxpayer information at IRS and the registration information provided through D&B, the discrepancies must be cleared before the registration can be completed or updated. A notice has gone out to CCR registrants informing them of the IRS validation in CCR registration. In order to complete your CCR registration and qualify as a vendor eligible to bid for federal government contracts or apply for federal grants, the EIN/TIN and Employer/Taxpayer Name combination you provide in the IRS Consent Form at CCR must match exactly to the EIN/TIN and Employer/Taxpayer Name in the IRS database. It will take at least one to two business days to validate new and updated records prior to becoming active in CCR. Therefore, please be sure that the data items provided to D&B match information that you have provided to the IRS. Otherwise, when the validation check with IRS is done, the registration in D&B, and the CCR will not match the IRS information and will result in an error message being generated. This will prevent you from completing your registration until the discrepancies have been resolved. Applicants should allow sufficient time to review their D&B and CCR information. HUD recommends that applicants carefully review their D&B and CCR registration information for accuracy immediately upon publication of this Notice and make any necessary corrections. Beginning the registration process now will help an applicant avoid possible delays with the timely submission of applications. 5. Registration with a Credential Provider. In order to safeguard information, Grants.gov uses E-Authentication, the federal program that ensures secure transactions. E-Authentication defines the level of trust or trustworthiness of the parties involved in a transaction through the use of credential providers. Credential Providers are organizations that validate the electronic identity of an individual through electronic credentials, personal identification numbers, passwords or other identifying information, for Grants.gov. This is the process of determining, with a degree of assurance, that someone is really who he or she claims to be. An Authorized Organization Representative (AOR), the person(s) named by an agency who has legal authority to submit an application for funding on behalf of the agency, must register with a Credential Provider to obtain a USER ID and Password that will be used to register with Grants.gov. Beginning August 30, 2007, organizations will have a choice of three federally approved credential providers to obtain their authentication services—(1) The Agriculture Department;
(2)the Office of Personnel Management's Employee Express; and
(3)the current provider—Operational Research Consultants, Inc. (ORC). HUD applicants who already hold a Grants.gov user name and password through ORC and submit applications prior to August 20, 2007, do not have to make any changes to their ORC registration. After August 20, 2007, users will have an option to retain their registration with ORC or choose from the other credential providers on the list. 6. Registration with Grants.gov. After creating a username and password identity at a Credential Provider, an AOR, the person(s) named by an agency to submit an application for funding on behalf of the agency, must register at Grants.gov. The AOR must have legal authority to submit the application on behalf of the organization. Designated AORs register the USER ID and Password created with the Credential Provider at Grants.gov. After the AOR registers with Grants.gov, the organization's E-Business POC will be sent an e-mail from Grants.gov, indicating that someone from the organization has registered as an AOR. 7. Approval of the AOR. The E-Business POC must enter Grants.gov and give the AOR approval to submit an application to Grants.gov. By authorizing a person to submit on behalf of the organization, the organization is stating that the person has the legal authority to submit the application and make a legally binding commitment for the organization. The registration is complete when an AOR has been approved to submit an application on behalf of the organization. If the E-Business POC does not provide authorization, Grants.gov will not accept the grant application. C. Renewing Your CCR Registration. Applicants are required to renew/update their information in CCR on an annual basis. Applicants can renew their organizations' registration at *http://www.ccr.gov.* If you do not renew your registration it will expire, resulting in the rejection of your Grants.gov application. Applicants can renew their organizations' registration at *http://www.ccr.gov.* D. Time Allotted for Registration Registration with Grants.gov, which must be completed *prior* to any grant application submission, takes approximately two to four weeks. The length of time depends on when the steps in the registration process are completed; the volume of traffic on the various sites involved in the registration process; and the ability of the applicant to determine who will be the person responsible for submitting the grant application, and having that person authorized through the registration process as the AOR. Registration can take longer if the information provided to D&B and captured in the CCR does not match IRS Taxpayer information data previously provided by the applicant organization. Registering early should allow the applicant sufficient time to complete the registration process and respond to any questions that might arise during the process. Appendix A of this Notice provides step-by-step registration instructions to follow. Section 2—Corrective Actions for Application Submission Problems That Affected HUD Applications in FY2006 A. Application Submission In FY2006, HUD successfully received over 5000 electronic applications and only 30 paper applications. Less than 1 percent of the applicants submitting electronically had a problem that resulted in an application not being successfully submitted. Applicants are advised to submit their applications 24-72 hours prior to the application deadline date so that if any problem arises, the applicant will have sufficient time to correct it and successfully submit the application prior to the deadline date. Please remember that to have a successful submission, applications must be received and validated by Grants.gov prior to 11:59:59 p.m. on the application deadline date. For example, if an application is due on November 10, 2006, you should submit your application no later than November 7, 2006 to allow sufficient time for your application to be validated by Grants.gov. B. Applications Rejected by Grants.gov and Corrective Actions The following describes the most common HUD grant application submission problems and recommended corrective actions for them. 1. Incorrect DUNS number. The DUNS number in the application does not match the applicant DUNS number registered at Grants.gov. An improper DUNS number will result in the submitter receiving a rejection notice that states “INVALID_DUNS_ERROR” and “UNAUTHORIZED_SUBMITTER_ERROR” . *Corrective Action:* Upon receiving the “INVALID_DUNS_ERROR,” the applicant should immediately check the application DUNS number, correct the error (if any) and resubmit the application. If the DUNS number is correct, the applicant should immediately contact Grants.gov to notify them of the problem and ask why it received the “INVALID_DUNS_ERROR” and take any corrective measures required. 2. You receive a rejection message with the following error message: “UNAUTHORIZED_SUBMITTER_ERROR.” This error occurs if a submitter has not registered with a Credential Provider and with Grants.gov, or when the E-Business Point of Contact has not approved the submitter as an Authorized Organization Representative
(AOR)on Grants.gov. *Corrective Action:* The AOR should verify that he or she has registered with a Credential Provider and has registered the credential at Grants.gov. If the answer to both these questions is yes, the E-Business Point of Contact should immediately go to the Grants.gov Web site and approve the submitter as an AOR. 3. Unsuccessful Submission Attempt. The applicant has tried to submit the application but was unsuccessful. When trying to submit the application, the following occurs: • Nothing happens. • The screen goes blank. • The wheel keeps spinning. *Corrective Action:* In these cases, your files are not connecting to Grants.gov and the transmission problems are occurring locally. There are several reasons that may be the cause of the problem. Applicants should be aware that every computer is configured differently and many organizations have firewalls that limit the size of files going out or into an organization. These instructions are designed to address the most common reasons faced by applicants. a. Check to see if you have downloaded the newest version of the application software from Grants.gov. The application will not operate properly if the most recent software update has not been downloaded and completely installed. The Grants.gov software requires applicants to download the software, run an install procedure, and then reboot the computer for the installation to work properly. b. Grants.gov also recommends uploading the application from your desktop. Call the Grants.gov help desk at
(800)518-4726; operators can walk you through techniques that allow you to upload through your Internet browser. c. Check to see if your computer has sufficient memory. Check your system, including Random Access Memory and the hard drive, to ensure that your computer has enough available memory to process the application. If your hard drive is nearly full and you have multiple grant applications on your computer that you have successfully submitted or submitted in a previous year, remove those applications from your computer and save them on a CD, DVD, or jump drive so that you can free up needed space on your computer. If the upload still remains a problem, reduce the size of your application by using the facsimile solution for some or all of your attachment files. HUD will not accept an application that is sent entirely by facsimile. At a minimum, the downloaded application package with the xml-based files, including a completed SF-424, must be submitted to Grants.gov. If these suggestions do not solve the problem, immediately contact the Grants.gov help desk. d. Check if your organization or your Internet Service Provider limits the size of the files sent over the Internet. HUD has found that many organizations have firewalls that set limits on file sizes or access to particular sites. HUD has also found that some dial-up Internet Service Providers limit the size of files uploaded to the Internet. In these circumstances HUD recommends reducing the size of the application package by zipping files using WinZip10. In addition, several other techniques are described below to reduce the file size of a document if you are using Microsoft Word 2000.
(1)Turn off fast saves. Using fast saves to save a document requires more disk space while your document is open than using a full save. You may be able to save disk space by turning off fast saves. On the Tools menu, click “Options”, and then click the “Save” tab. Clear the Allow fast saves check box.
(2)Delete one or more versions of a document. Creating multiple versions of a document using the Versioning feature may increase file size. To check whether a document contains other versions, click Versions on the File menu. If other versions exist, you may be able to reduce the file size by deleting the oldest versions. Delete one or more versions of a document. On the “File” menu, click “Versions”. Click the version of the document you want to delete. To select more than one version, hold down CTRL as you click each version. Click “Delete”. 4. Disk Full or Out of Memory. This is related to the size of the files that you are trying to upload and the capacity of your computer to handle the load. See item 3 above. *Corrective Action:* Create more room on your computer by taking off old files that are not needed, reducing the size of the files being uploaded, or submitting part of your application using the facsimile solution. There are other ways to address this issue, but because each computer is configured differently and there are numerous variables to take into account as to why an application can not upload to make the connection to Grants.gov, HUD stresses the need to apply early and to submit your application when the Grants.gov help desk is open so that if problems arise, you can contact Grants.gov when the service representatives are there to help you. 5. Computer keeps freezing. Often a computer will “freeze” because there is not enough memory or hard storage space to handle the files. *Corrective Action:* If your computer freezes, one possible cause may be that you do not have enough memory or hard storage to handle the file. Follow these steps to check your computer's resources. The information will also be useful to the help desk staff in analyzing your problem. a. Use the Task Manager capability on your computer to close down the task that is not running properly. If needed, shut down the computer and reboot. Be aware that if you have not saved your work in progress when you reboot, you may lose the unsaved portion of your submission. Always periodically save your work. b. If you have a My Computer Icon on your desktop, right click on it. If you do not have a My Computer Icon on your desktop, go to step d. c. In the Properties dialog box, on the General tab, look in the lower right corner and record the Processor speed and amount of RAM, then click OK to close the dialog box.
(1)Double click on the same My Computer icon to open Windows Explorer.
(2)Right click on the hard drive or server to where you are saving the file or from which you are uploading the file and select Properties.
(3)Record the size and amounts of free space on the drive.
(4)If the RAM or hard drive free space on your computer is no bigger or only slightly bigger than the file you are working with, that may be the problem.
(5)Be sure to give this information to the help desk when you call. d. If you do not have a My Computer Icon on your desktop, click on the Start button in the lower left corner of your screen, then select My Computer from the pop-up menu. Select view system information to record processor speed and RAM as in 5c above, then click OK. The Windows Explorer window showing My Computer should remain on your screen. Follow step c above. 6. MEC Error. This is a general Microsoft error that is preventing communication between your computer and Grants.gov. This error is NOT a grants.gov-generated error; it is on the user's end. Grants.gov cannot troubleshoot this type of error code. There could be any number of reasons for this error, but the most common is that the size of the submission is causing a communication interruption. *Corrective Action:* You should try to reduce the size of your application package by removing optional attachments or submitting required attachments manually (requires Agency approval). A firewall issue, either within your domain or with your Internet Service Provider, may also cause this. 7. Page not found/Error 404. This is an error message when a URL page that you requested is not available. You may not be able to find the page because of the following: The page does not exist; a mistyped address; an out-of-date bookmark/favorite; or a search engine has an out-of-date listing. *Corrective Action:* Check the address to be sure that it is correct. If it is, wait a few moments and try again. 8. Web site found waiting for reply. Message is related to the user's desktop machine/browser. *Corrective Action:* Most literature point to spyware/adware infestation that practically hijack the user's browser and cause tremendous slow down or no access at all. This is not related to any of the Grants.gov servers. This may be due to the user's desktop running two firewall software systems. Other industry literature talks about some corporate firewall that can cause this message to appear. There is also evidence that this message is related to users who are using a router connected to residential DSL/Cable services. In this case, it is a bandwidth issue. 9. Submission has been archived for later submission. *Corrective Action:* Open Pure Edge viewer, click on the “ gear” symbol, which is user preferences, and ensure the setting is to “work online”. 10. Cannot launch viewer. This message occurs when trying to open up a saved application file. It indicates that the previous save resulted in a corrupt file, i.e. unusable. *Corrective Action:* Applicant should try to revert to a previously saved version of the file or start over. 11. A virus was detected during the submission of your grant application package. *Corrective Action:* Verify if any of your file attachments have a virus. When you have confirmed that you do not have a virus, resubmit your application. 12. Form was illegal XFD format—Processing Exception. You may receive this message after submitting an application. The grant opportunity for which you have applied is no longer accepting applications or may have been removed by the offering agency, or if the agency posted a new application package, you may be submitting an old application. *Corrective Action:* Confirm the close date of your application. Confirm that the Funding Opportunity Number and the Competition ID on the package you are trying to submit matches the current package on Grants.gov. If you require additional information, contact the grantor agency directly. Appendix B provides information on Do's and Don'ts to follow regarding electronic application submission. For Additional Assistance If you have questions about registration or submission issues, call the Grants.gov Contact Center at
(800)518-GRANTS
(4726)or e-mail *support@grants.gov* . The Contact Center hours of operation are Monday-Friday 7 a.m. to 9 p.m. Eastern Standard Time. If you need further information about this Notice, contact the NOFA Information Center at
(800)HUD-8929 ((800) 483-8929). If you are a hearing or speech-impaired person, you may reach any of the telephone numbers in this notice by calling the toll-free Federal Information Relay Service at
(800)877-8339. In addition, HUD has a detailed Desktop Users Guide for Submitting Grant Applications that walks applicants through the electronic process, beginning with finding a funding opportunity, completing the registration process, and downloading and submitting the electronic application. The Desktop Users Guide includes helpful step-by-step instructions, screen shots, and error proof tips to assist applicants in becoming familiar with submitting applications electronically. The Desktop Users Guide is available on line at *http://www.hud.gov/grants/index.cfm* . Dated: October 23, 2006. Keith A. Nelson, Assistant Secretary for Administration. Appendix A—Registering for Electronic Application Submission The following five steps must be completed to register with Grants.gov. Step One: Obtain a Data Universal Number System
(DUNS)Number In order to submit an electronic application via Grants.gov, your organization will need a DUNS number. A DUNS number is a unique nine-character identification number provided by Dun & Bradstreet (D&B). You will use the *same DUNS number throughout the registration and application process* . Prior to requesting a DUNS number, find out if your organization already has a DUNS number by contacting your chief financial officer or grant administrator. If your organization does not have a DUNS number you can immediately receive one by calling D&B at
(866)705-5711. It takes approximately ten minutes to get a DUNS number and there is no charge. Note: Your registration is not finished until Steps Two through Five are completed. Step Two: Register With The Central Contractor Registration
(CCR)Registering with CCR. Your organization must register or annually renew their registration with CCR to establish roles and IDs for representatives that will use Grants.gov to submit electronic applications. If you need assistance with the registration process, you can contact the CCR Assistance Center 24 hours, 7 days a week at
(888)227-2423 or
(269)961-5757 or online at *www.ccr.gov* . In addition, a CCR Handbook is available by clicking on the “CCR Handbook” tab at the top of the page at *www.ccr.gov* . IRS Employer/Taxpayer Name Validation. When you register or renew your registration at CCR, during the registration process, you will complete an IRS Consent Form to allow the validation of your legal business name and Employer Identification Number
(EIN)or Tax Identification Number (TIN). The information that you enter in CCR must match the IRS records for the most current tax year reported. Prior to becoming active in CCR, it will take at least one to two business days to validate new and updated records, longer if there are discrepancies. If you have questions about your EIN or TIN, call
(800)829-4933. CCR Use of DUNS Information. During the CCR registration, your Legal Business Name, Doing Business Name (DBA), Physical Address, and Postal/Zip+4 will be pre-populated from the Dun and Bradstreet (D&B) database. If the information is correct, you can proceed with your registration. If not, you can make corrections at *http://fedgov.dnb.com/webform* . When D&B confirms that a modification has been made, you must re-visit CCR and “accept” D&B's changes. This process may take two to five business days. Trading Partner Profile (TPP). The CCR registration process consists of completing a TPP. Note: While completing the TPP, you will need to identify a CCR Point of Contact (CCR POC), who will be responsible for updating and renewing the CCR registration, an *E-Business Point of Contact (E-Business POC)* and an alternate, who will be responsible for identifying and naming individual *as an Authorized Organization Representative (AOR)* . The AOR will submit applications through Grants.gov for your organization *and must be someone that has the right to enter into a legally binding commitment for the organization* . The person that completes the TPP can be the CCR POC, E-Business POC, and the AOR or they can be different people. To Start the CCR Registration Process: • Go to *www.ccr.gov* . On the left side of the screen, click on “Start New Registration”. • Enter your DUNS number at the next screen, “New Registration”. • At the next screen, the CCR will assign a temporary confirmation number that allows you to save your registration as a work in progress. Your temporary confirmation number, along with your DUNS number, will let you access CCR to complete your application at a later date. • To access your application at a later date, at *www.ccr.gov* , select “Finish Saved Registration Using Confirmation Number”. • At the next screen, enter your DUNS number and temporary confirmation number. • Follow the instructions on the next screens until you complete the TPP. Create a MPIN. The final step of the TPP requires you to create a *Marketing Partner ID Number (MPIN)* . The MPIN is a self-defined nine character password that the E-Business POC will need to access Grants.gov to authorize the AOR to submit a grant application. CCR Registration Confirmation. After you complete the TPP, you will receive two notices if your registration was submitted successfully. The first notice welcomes you to CCR and will include a copy of your registration. The second notice provides you with a Web link/address where you can enter your DUNS number and temporary confirmation number to obtain your confidential TPIN. Note: A *Trading Partner Identification Number (TPIN)* , which is assigned by CCR, will replace the temporary confirmation number when your registration is approved and becomes active. The TPIN is also your confidential password that confirms that you successfully registered in CCR and allows you to change your CCR information. Current Registrants without a MPIN. If you currently have an active registration in CCR and you *do not have a MPIN* you will need to: • Access your CCR registration by clicking on “Update or Renew Registration using TPIN”. • Enter your DUNS number and TPIN. Click on the tab named “Points of Contact”, complete all fields for the E-Business POC and the alternate E-Business POC. • Scroll down to the bottom of the “Points of Contact” page and create your own MPIN. • Click on the “Validate/Save” button. Renewing your CCR Registration. Applicants are required to renew/update their information in CCR on an annual basis. If you do not renew your registration it will expire and result in your Grants.gov application being rejected. • To renew your registration, go to *www.ccr.gov* , and click on “Update or Renew Registrations Using TPIN”. • Enter your DUNS number and TPIN, and click “Submit”. • If there are no changes to the registration, click the “Validate/Save” button for the information to register in the system, then click “Submit”. • If there are changes, enter the changes, and then click “Submit”. Note: You must click on the “Validate/Save” or the “Renew Profile” button in “Registration Tools”. Don't Know Your TPIN? • If you are registered in CCR, but do not know your TPIN, go to *www.ccr.gov* . Click on “Update or Renew Registrations Using TPIN”. • At the next screen click on “Don't Know Your TPIN? Click Here for a TPIN Letter request”. • On the next screen enter your DUNS number and click on “Send TPIN Letter”. A confidential TPIN letter will be mailed to the CCR Point of Contact
(POC)identified in the TPP. If you do not know your organization's CCR POC, call
(888)227-2423 for assistance. Verify Status of Your CCR Registration. You can verify the status of your registration online at *www.ccr.gov* by clicking on “Search CCR”. When prompted, enter your DUNS number and click “Search”. The registration status is located at the top of the page. You can also call the CCR Assistance Center for the status of your registration. You should also check the ccr.gov Web site for any registration updates or changes. Note: Your registration is not finished until Steps Three through Five are completed. Step Three: Register With the Credential Provider In order to safeguard the security of your electronic information, Grants.gov utilizes a Credential Provider to determine with certainty that someone is really who they claim to be. An assigned AOR must register with the Grants.gov Credential Provider to receive a username and password, which are needed to submit an application package through Grants.gov. • To register with the Credential Provider go to: *http://apply.grants.gov/OrcRegister* . • Scroll down the page and enter your DUNS number and click on “Register”. • At the next screen scroll down and select “Get Your Credentials”. • Complete and submit all information on the eAuthentication User Information screen. • On the next screen you will confirm your information, create your own “User Name” and “Password”, and click on “Submit”. If all information has been entered correctly, you will receive a notice of Registration Success. Note: Your registration is not finished until Steps Four and Five are completed. Step Four: Register With Grants.gov The AOR must register with Grants.gov in order to submit an application for an organization. • To register with Grants.gov go to: *https://apply.grants.gov/GrantsgovRegister* . • Enter your Username and Password supplied by the Credential Provider and click on “Register”. Complete all information on the “Authorized Organization Representative User Profile” screen and click “Submit”. Upon following all steps correctly, you will receive an e-mail notice that you successfully registered with Grants.gov. The E-Business POC will receive an e-mail notice stating that someone has registered to submit grant applications on behalf of your organization. Note: Your registration is not finished until Step Five is completed. Step Five: Authorize an AOR To Submit a Grant Application This is a final and very critical step in the registration process. Once a potential AOR registers with a Credential Provider and Grants.gov, the E-Business POC will receive an e-mail stating that someone has signed up to become an AOR for their organization. The E-Business POC will need to authorize the AOR as the Authorized Applicant that is approved to submit applications on behalf of the organization, before that person can submit an application. Note: If an AOR has not been authorized by their E-Business POC, any application that is submitted will be rejected. • To authorize an AOR to submit applications on behalf of the organization go to: *https://apply.grants.gov/agency/AorMgrGetID* . Or go to *http://www.grants.gov* , under Quick Links, click on E-Biz POC Login. • Enter your DUNS and MPIN and click on “Login”. The next screen welcomes you to the “E-Business Points of Contact” section where you will be able to add and revoke AOR privileges. • On the left side of the screen, select “Manage Applicants”. • Click on the box
(es)next to the name of the AOR(s) that you are assigning rights. • Click on “Reassign Roles”. • At the next screen, use the arrows to move the roles from one box to the other. To provide authorization, the “Current Roles” should indicate “Authorized Applicant”. • Click on “Continue”. You will receive a notice that the role has been successfully reassigned. • Click on “Continue”. Repeat the steps if you are assigning rights to multiple AORs. • The AOR will receive an e-mail advising that the E-Business POC has provided them authorization to submit applications on behalf of their organization. Check your AOR Status. • An AOR can check their status at *https://apply.grants.gov/ApplicantLoginGetID* . • Or go to *http://www.grants.gov* , under Quick Links, click on Applicant Login. • At the next screen enter your Username and Password supplied by the Credential Provider, click on “Login”. • On the left side of the screen, select “Manage Applicant Profile”. Your status will be either—“Approved” or “AOR Request Sent”. • If the status is “Approved” you are authorized to submit grant applications on behalf of your organization. • If the status is “AOR Request Sent” you have not been approved and you should contact your E-Business POC and have them authorize you as an AOR with Grants.gov. For Additional Assistance the following resources are available: HUD's Desktop Users Guide for Submitting Electronic Applications at: *http://www.hud.gov/grants/index.cfm* . The Guide includes helpful detailed step-by-step instructions, screen shots, and error proof tips to assist applicants in registering, finding, and applying for grants electronically. Grants.gov registration checklists that guide you through the registration process are available at: *http://www.grants.gov/applicants/register_your_organization.jsp* . If you have questions or need additional information, call the Grants.gov Contact Center at
(800)518-GRANTS
(4726)or e-mail *support@grants.gov* . The Contact Center hours of operation are Monday-Friday 7 a.m. to 9 p.m. eastern standard time. If you are a hearing or speech-impaired person, you may reach any of the telephone numbers in this guide by calling the toll-free Federal Information Relay Service at
(800)877-8339. Appendix B—DO'S and DON'TS Regarding Electronic Application Submission A. What You Should Do 1. DO register early. 2. DO renew your registration with CCR annually. 3. DO provide to Dun and Bradstreet the same Legal Business Name on record at the IRS. The Legal Business Name, Doing Business Name (DBA), Physical Address, and Postal Code/ Zip+4 will be pre-populated in CCR from D&B's records. 4. DO contact the IRS at
(800)829-4933 if you have questions about your Legal Business Name and/or EIN/TIN. 5. DO provide to CCR the same Legal Business Name and Employer Taxpayer Identification Number
(EIN)or Taxpayer Identification Number
(TIN)that you provided to the IRS. This data must match exactly. If these two fields are not identical at CCR, D&B, and the IRS, an error message will result and you will not be able to complete your registration until the discrepancies have been resolved. 6. DO check your AOR status at Grants.gov to make sure your E-Business POC has authorized you to submit an application on behalf of your organization. 7. DO look at HUD's Desktop Users Guide for Submitting Grant Applications, which walks applicants through the electronic process, beginning with finding a funding opportunity, completing the registration process, and downloading and submitting the electronic application. The Desktop Users Guide includes helpful step-by-step instructions, screen shots, and error proof tips to assist applicants in becoming familiar with submitting applications electronically. The Desktop Users Guide is available online at *http://www.hud.gov/grants/index.cfm* . 8. DO create a special folder for each new application and save all files related to the application in that folder. Some applicants create the folder directly on their computer's desktop. Check all attachment files and make sure they have a file extension of .doc, .pdf, .xls, .jpg, .jpeg or .zip. 9. DO make sure that file extensions are not in upper case. File extension must be lower case for the file to be opened. 10. DO keep file names not more than 50 characters without special characters or spaces in the file name. 11. DO review the application package and all the attachments to make sure it contains all the documents you want to submit. If it does, save it to your computer and remove previously saved versions. 12. DO review the application package and all the attachments to make sure it contains all the documents you want to submit. If it does, save it to your computer and remove previously saved versions. 13. DO run the Check Package for Errors feature on the application package and correct any problems identified. 14. DO expect a Confirmation notice from Grants.gov, which advises that your application has been received and is being processed. This Confirmation includes the Grants.gov Tracking Number; record this number for future use. Until you see a confirmation message on your screen, your application has not been submitted to Grants.gov. 15. DO use the Fax Form HUD-96011 as your Fax Cover Page if you fax attachments. In order for HUD to correctly match a fax to a particular application, the applicant must use and require third parties that fax documentation on its behalf to use the form HUD-96011 as the cover page of the facsimile. B. What You Should NOT Do 1. DO NOT fax your entire application to HUD. HUD will disqualify applications submitted entirely by fax. Applicants should only use the fax method to submit required documents when they cannot be attached to the electronic application package as a pdf, .doc, .xls, jpeg, or jpg, or the size of the submission is too large to upload from the applicant's computer. 2. DO NOT use more than one of the following search fields (CFDA Number, Funding Opportunity Number or Funding Opportunity Competition ID) when downloading the grant application package and instructions. If you enter more than one, you will not find the instructions. HUD recommends that you use the CFDA Number. 3. DO NOT wait more than one hour for your application submission to be uploaded to Grants.gov. Stop the transmission and check the available disk and RAM space on your computer. HUD has found that difficulty in uploading a file from the applicant's desktop often occurs because the application package is too large for the applicant's computer to handle, or the applicant's network limits the size of files going in or out, or the Internet service provider has a file size limit. Therefore, in such instances, the application should be reduced in size by removing attachment files and submitting the information via the facsimile method using the form HUD 96011 as the cover page. 4. DO NOT use special characters (example: #, %, /, etc) in a file name. 5. DO NOT include spaces in the file name. [FR Doc. E6-18224 Filed 10-30-06; 8:45 am] BILLING CODE 4210-67-P 71 210 Tuesday, October 31, 2006 Notices Part VI Department of Education National Institute on Disability and Rehabilitation Research—Disability and Rehabilitation Research Projects and Centers Program; Notices DEPARTMENT OF EDUCATION National Institute on Disability and Rehabilitation Research—Disability and Rehabilitation Research Projects and Centers Program—Disability Rehabilitation Research Projects (DRRPs); Funding Priority AGENCY: Office of Special Education and Rehabilitative Services, Department of Education. ACTION: Notice of final priority. SUMMARY: The Assistant Secretary for Special Education and Rehabilitative Services announces a final priority for the Disability and Rehabilitation Research Projects and Centers Program administered by the National Institute on Disability and Rehabilitation Research (NIDRR). Specifically, this notice announces a priority for a DRRP on Vocational Rehabilitation (VR): Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals With Blindness or Other Visual Impairments. The Assistant Secretary may use this priority for competitions in fiscal year
(FY)2007 and later years. We take this action to focus research attention on areas of national need. We intend this priority to improve rehabilitation services and outcomes for individuals with disabilities. *Effective Date:* This priority is effective November 30, 2006. FOR FURTHER INFORMATION CONTACT: Donna Nangle, U.S. Department of Education, 400 Maryland Avenue, SW., room 6030, Potomac Center Plaza, Washington, DC 20202-2700. Telephone:
(202)245-7462 or via Internet: *donna.nangle@ed.gov* . If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service
(FRS)at 1-800-877-8339. Individuals with disabilities may obtain this document in an alternative format ( *e.g.* , Braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT . SUPPLEMENTARY INFORMATION: Disability and Rehabilitation Research Projects
(DRRP)Program The purpose of the DRRP program is to plan and conduct research, demonstration projects, training, and related activities to develop methods, procedures, and rehabilitation technology that maximize the full inclusion and integration into society, employment, independent living, family support, and economic and social self-sufficiency of individuals with disabilities, especially individuals with the most severe disabilities, and to improve the effectiveness of services authorized under the Rehabilitation Act of 1973, as amended. DRRPs carry out one or more of the following types of activities, as specified and defined in 34 CFR 350.13 through 350.19: Research, development, demonstration, training, dissemination, utilization, and technical assistance. An applicant for assistance under this program must demonstrate in its application how it will address, in whole or in part, the needs of individuals with disabilities from minority backgrounds (34 CFR 350.40(a)). The approaches an applicant may take to meet this requirement are found in 34 CFR 350.40(b). In addition, NIDRR intends to require all DRRP applicants to meet the requirements of the *General Disability and Rehabilitation Research Projects
(DRRP)Requirements* priority that it published in a notice of final priorities in the **Federal Register** on April 28, 2006 (71 FR 25472). Additional information on the DRRP program can be found at: *http://www.ed.gov/rschstat/research/pubs/res-program.html#DRRP* . We published a notice of proposed priorities
(NPP)for NIDRR's Disability and Rehabilitation Research Projects and Centers Program, including the DRRP program, in the **Federal Register** on June 7, 2006 (71 FR 32938). The NPP included a background statement that described our rationale for the priority proposed in that notice. There are no differences between the NPP and this notice of final priority (NFP). Analysis of Comments and Changes In response to our invitation in the NPP, five parties submitted comments on the proposed priority addressed in this NFP. An analysis of the comments follows. Generally, we do not address technical and other minor changes, or suggested changes the law does not authorize us to make under the applicable statutory authority. In addition, we do not address general comments that raised concerns not directly related to the proposed priority. *Comment:* Four commenters expressed concern that the duration and the level of funding for the proposed DRRP may not be adequate to address the research activities proposed under the priority. *Discussion:* Although the funding level and the budget period were not addressed in the NPP, and are not subject to public comment, the Department is confident that the proposed funding level and budget period are reasonable. *Changes:* None. *Comment:* One commenter commended the U.S. Department of Education on its succinct synthesis of the problem, as well as its establishment of a priority for a DRRP that would research transition-age individuals with visual impairments. The commenter also suggested that the following additional issues should be considered for research and examination under the final priority:
(1)The vital role of career education in the academic preparation of youths with visual disabilities;
(2)The factors leading to disparities between postsecondary achievement and low employment outcomes of youth and young adults with blindness and other visual impairments;
(3)The barriers to collaboration among service providers serving youth and young adults with blindness and other visual impairments and the impact of this disconnect on successful transition outcomes;
(4)The factors contributing to successful adult outcomes, including orientation and mobility skills, socialization and independent living skills, and training in the use of materials in appropriate alternate media, such as Braille and new accessible information technologies;
(5)The role of parents' attitudes and involvement in the transition process; and
(6)Job-seeking strategies and the development of competitive employment skills. *Discussion:* NIDRR agrees with the commenter that each of the above issues is relevant to the scope of work of the proposed DRRP. Nothing in the proposed priority would preclude an applicant from proposing research that examines any or all of the issues listed by the commenter. However, NIDRR does not believe that it is appropriate to require all applicants to focus their research on one or all of these issues. The peer reviewers will assess the merits of research proposals submitted. *Changes:* None. Note: This notice does *not* solicit applications. In any year in which we choose to use this priority, we invite applications through a notice in the **Federal Register** . When inviting applications we designate the priority as absolute, competitive preference, or invitational. The effect of each type of priority follows: *Absolute priority:* Under an absolute priority, we consider only applications that meet the priority (34 CFR 75.105(c)(3)). *Competitive preference priority:* Under a competitive preference priority, we give competitive preference to an application by either
(1)awarding additional points, depending on how well or the extent to which the application meets the competitive preference priority (34 CFR 75.105(c)(2)(i)); or
(2)selecting an application that meets the competitive preference priority over an application of comparable merit that does not meet the priority (34 CFR 75.105(c)(2)(ii)). *Invitational priority:* Under an invitational priority, we are particularly interested in applications that meet the invitational priority. However, we do not give an application that meets the invitational priority a competitive or absolute preference over other applications (34 CFR 75.105(c)(1)). Note: This NFP is in concert with President George W. Bush's New Freedom Initiative
(NFI)and the Plan. The NFI can be accessed on the Internet at the following site: *http://www.whitehouse.gov/infocus/newfreedom* The Plan, which was published in the **Federal Register** on February 15, 2006 (71 FR 8165), can be accessed on the Internet at the following site: *http://www.ed.gov/about/offices/list/osers/nidrr/policy.htm* . 1. Through the implementation of the NFI and the Plan, NIDRR seeks to—(1) Improve the quality and utility of disability and rehabilitation research;
(2)Foster an exchange of expertise, information, and training to facilitate the advancement of knowledge and understanding of the unique needs of traditionally underserved populations;
(3)Determine best strategies and programs to improve rehabilitation outcomes for underserved populations;
(4)Identify research gaps;
(5)Identify mechanisms of integrating research and practice; and
(6)Disseminate findings. Priority The Assistant Secretary for Special Education and Rehabilitative Services establishes a priority for a DRRP on VR: Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals With Blindness or Other Visual Impairments. Under this priority, the project must be designed to contribute to the following outcomes:
(a)Increased knowledge about factors that influence vocational rehabilitation and/or transition outcomes and contribute to the acquisition of skills that correlate with sustained competitive employment and postsecondary success for transition-age individuals with blindness or other visual impairments. The grantee must:
(1)Conduct a comprehensive literature review of research in the area of VR transition services that lead to successful employment outcomes for transition-age individuals with blindness or other visual impairments;
(2)conduct a preliminary analysis of the Rehabilitation Services Administration
(RSA)911 Case Service Report data and other appropriate data sets to identify all pertinent information related to transition services for individuals with blindness or other visual impairments; and
(3)examine factors that affect employment outcomes including the types of transition services provided by VR; the types of transition services provided by special education, if any; the age of the transitioning student at the time of first contact with VR; the amount of interaction the transitioning student has with VR prior to leaving school; the relationship the transition-age individual has with the VR counselor; the transition-age individual's early employment history; the transition-age individual's dependence on Social Security Administration
(SSA)benefits; and the transition-age individual's socio-economic factors. In implementing item (3), the grantee must review VR case records from State VR agencies for the blind and State VR combined agencies, and interview consumers, rehabilitation professionals, teachers, postsecondary support service providers, SSA representatives, and other individuals involved in providing transition services.
(b)Improved outcomes for individuals who are blind or visually impaired. Through development, demonstration, and evaluation of intervention methods, the grantee must identify practices that support and lead to improved outcomes for transition-age individuals with blindness or other visual impairments, including outcomes in workforce participation, competitive employment, or other areas of postsecondary success. The grantee should include activities that facilitate development of skills that lead to employment (critical thinking and problem-solving skills, and personal qualities). Grantees must utilize a rigorous ( *e.g.* , experimental or quasi-experimental) design.
(c)Dissemination of research findings to State VR agencies, education agencies, consumers, researchers, and other stakeholders.
(d)Coordination with projects sponsored by NIDRR, RSA, and the Office of Special Education Programs to ensure that research conducted under this priority builds on rather than duplicates related research and to ensure effective dissemination strategies. At a minimum, the grantee must coordinate with the NIDRR Rehabilitation Research and Training Center
(RRTC)on Measuring Rehabilitation Outcomes and current RSA-sponsored research on related topics (including the post-VR experiences study and the national study of transition policies and practices in State VR agencies, and other relevant projects). Executive Order 12866 This NFP has been reviewed in accordance with Executive Order 12866. Under the terms of the order, we have assessed the potential costs and benefits of this regulatory action. The potential costs associated with this NFP are those resulting from statutory requirements and those we have determined as necessary for administering this program effectively and efficiently. In assessing the potential costs and benefits—both quantitative and qualitative—of this NFP, we have determined that the benefits of the final priority justify the costs. Summary of Potential Costs and Benefits The potential costs associated with this final priority are minimal while the benefits are significant. Grantees may incur some costs associated with completing the application process in terms of staff time, copying, and mailing or delivery. The use of e-Application technology reduces mailing and copying costs significantly. The benefits of the Disability and Rehabilitation Research Projects and Centers Programs have been well established over the years in that similar projects have been completed successfully. This final priority will generate new knowledge and technologies through research, development, dissemination, utilization, and technical assistance projects. Another benefit of this final priority is that the establishment of a new DRRP will support the President's NFI and will improve the lives of persons with disabilities. The new DRRP will generate, disseminate, and promote the use of new information that will improve the options for individuals with disabilities. *Applicable Program Regulations:* 34 CFR part 350. Electronic Access to This Document You may view this document, as well as all other Department of Education documents published in the **Federal Register** , in text or Adobe Portable Document Format
(PDF)on the Internet at the following site: *www.ed.gov/news/fedregister.* To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-888-293-6498; or in the Washington, DC, area at
(202)512-1530. Note: The official version of this document is the document published in the **Federal Register** . Free Internet access to the official edition of the **Federal Register** and the Code of Federal Regulations is available on GPO Access at: *www.gpoaccess.gov/nara/index.html.* (Catalog of Federal Domestic Assistance Number 84.133A, Disability Rehabilitation Research Projects) Program Authority: 29 U.S.C. 762(g) and 764(a). Dated: October 24, 2006. John H. Hager, Assistant Secretary for Special Education and Rehabilitative Services. [FR Doc. E6-18192 Filed 10-30-06; 8:45 am] BILLING CODE 4000-01-P DEPARTMENT OF EDUCATION Office of Special Education and Rehabilitative Services; Overview Information; National Institute on Disability and Rehabilitation Research (NIDRR)—Disability Rehabilitation Research Projects (DRRPs)—Vocational Rehabilitation (VR): Transition Services That Lead to Competitive Employment Outcomes for Transition-Age Individuals With Blindness or Other Visual Impairments Notice inviting applications for new awards for fiscal year
(FY)2007. Catalog of Federal Domestic Assistance
(CFDA)*Number:* 84.133A-4. *Dates:* Applications Available: October 31, 2006. Deadline for Transmittal of Applications: January 18, 2007. Date of Pre-Application Meeting: November 30, 2006. *Eligible Applicants:* States; public or private agencies, including for-profit agencies; public or private organizations, including for-profit organizations; institutions of higher education (IHEs); and Indian tribes and tribal organizations. *Estimated Available Funds:* $450,000. The Administration has requested $106,705,000 for the National Institute on Disability and Rehabilitation Research program, of which we intend to use an estimated $450,000 for the Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals With Blindness or Other Visual Impairments competition. The actual level of funding, if any, depends on final congressional action. However, we are inviting applications to allow enough time to complete the grant process if Congress appropriates funds for this program. *Estimated Average Size of Awards:* $450,000. *Maximum Award:* We will reject any application that proposes a budget exceeding $450,000 for a single budget period of 12 months. The Assistant Secretary for Special Education and Rehabilitative Services may change the maximum amount through a notice published in the **Federal Register** . Note: The maximum amount includes direct and indirect costs. *Estimated Number of Awards:* 1. Note: The Department is not bound by any estimates in this notice. *Project Period:* Up to 36 months. Full Text of Announcement I. Funding Opportunity Description *Purpose of Program:* The purpose of the DRRP program is to plan and conduct research, demonstration projects, training, and related activities to develop methods, procedures, and rehabilitation technology that maximize the full inclusion and integration into society, employment, independent living, family support, and economic and social self-sufficiency of individuals with disabilities, especially individuals with the most severe disabilities, and to improve the effectiveness of services authorized under the Rehabilitation Act of 1973, as amended. DRRPs carry out one or more of the following types of activities, as specified and defined in 34 CFR 350.13 through 350.19: research, development, demonstration, training, dissemination, utilization, and technical assistance. An applicant for assistance under this program must demonstrate in its application how it will address, in whole or in part, the needs of individuals with disabilities from minority backgrounds (34 CFR 350.40(a)). The approaches an applicant may take to meet this requirement are found in 34 CFR 350.40(b). Additional information on the DRRP program can be found at: *http://www.ed.gov/rschstat/research/pubs/res-program.html#DRRP.* *Priorities:* NIDRR has established two priorities for this competition. The General DRRP Requirements priority is from the notice of final priorities for the Disability and Rehabilitation Research Projects and Centers program, published in the **Federal Register** on April 28, 2006 (71 FR 25472). The Vocational Rehabilitation (VR): Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals with Blindness or Other Visual Impairments priority is from the notice of final priority for the Disability and Rehabilitation Research Projects and Centers program, published elsewhere in this issue of the **Federal Register** . *Absolute Priorities:* For FY 2007, these priorities are absolute priorities. Under 34 CFR 75.105(c)(3) we consider only applications that meet these priorities. These priorities are: *General Disability and Rehabilitation Research Projects
(DRRP)Requirements* and *Vocational Rehabilitation (VR): Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals with Blindness or Other Visual Impairments.* Program Authority: 29 U.S.C. 762(g) and 764(a). *Applicable Regulations:*
(a)The Education Department General Administrative Regulations (EDGAR) in 34 CFR parts 74, 75, 77, 80, 81, 82, 84, 85, 86, and 97.
(b)The regulations for this program in 34 CFR part 350.
(c)The notice of final priorities for the Disability and Rehabilitation Research Projects and Centers program, published in the **Federal Register** on April 28, 2006 (71 FR 25472).
(d)The notice of final priorities for the Disability and Rehabilitation Research Projects and Centers program, published elsewhere in this issue of the **Federal Register** . Note: The regulations in 34 CFR part 86 apply to IHEs only. II. Award Information *Type of Award:* Discretionary grants. *Estimated Available Funds:* $450,000. The Administration has requested $106,705,000 for the National Institute on Disability and Rehabilitation Research program, of which we intend to use an estimated $450,000 for the Transition Services that Lead to Competitive Employment Outcomes for Transition-Age Individuals With Blindness or Other Visual Impairments competition. The actual level of funding, if any, depends on final congressional action. However, we are inviting applications to allow enough time to complete the grant process if Congress appropriates funds for this program. *Estimated Average Size of Awards:* $450,000. *Maximum Award:* We will reject any application that proposes a budget exceeding $450,000 for a single budget period of 12 months. The Assistant Secretary for Special Education and Rehabilitative Services may change the maximum amount through a notice published in the **Federal Register** . Note: The maximum amount includes direct and indirect costs. *Estimated Number of Awards:* 1. Note: The Department is not bound by any estimates in this notice. *Project Period:* Up to 36 months. III. Eligibility Information 1. *Eligible Applicants:* States; public or private agencies, including for-profit agencies; public or private organizations, including for-profit organizations; IHEs; and Indian tribes and tribal organizations. 2. *Cost Sharing or Matching:* Cost sharing is required and will be negotiated at the time of the grant award. IV. Application and Submission Information 1. *Address to Request Application Package:* You may obtain an application package via Internet or from the Education Publications Center (ED Pubs). To obtain a copy via Internet use the following address: *http://www.ed.gov/fund/grant/apply/grantapps/index.html.* To obtain a copy from ED Pubs, write or call the following: Education Publications Center, P.O. Box 1398, Jessup, MD 20794-1398. Telephone (toll free): 1-877-433-7827. FAX:
(301)470-1244. If you use a telecommunications device for the deaf (TDD), you may call (toll free): 1-877-576-7734. You may also contact ED Pubs at its Web site: *www.ed.gov/pubs/edpubs.html* or you may contact ED Pubs at its e-mail address: *edpubs@inet.ed.gov.* If you request an application from ED Pubs, be sure to identify this competition as follows: CFDA Number 84.133A-4. Individuals with disabilities may obtain a copy of the application package in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) by contacting the program contact person listed under FOR FURTHER INFORMATION CONTACT in section VII of this notice. 2. *Content and Form of Application Submission:* Requirements concerning the content of an application, together with the forms you must submit, are in the application package for this competition. *Page Limit:* The application narrative (Part III of the application) is where you, the applicant, address the selection criteria that reviewers use to evaluate your application. We recommend that you limit Part III to the equivalent of no more than 125 pages, using the following standards: • A “page” is 8.5″ × 11″, on one side only, with 1″ margins at the top, bottom, and both side s. • Double space (no more than three lines per vertical inch) all text in the application narrative. Single spacing may be used for titles, headings, footnotes, quotations, references, and captions, as well as all text in charts, tables, figures, and graphs. • Use a font that is either 12 point or larger or no smaller than 10 pitch (characters per inch). The suggested page limit does not apply to Part I, the cover sheet; Part II, the budget section; Part IV, the assurances and certifications; or the one-page abstract, the resumes, the bibliography, or the letters of support. However, you must include all of the application narrative in Part III. The application package will provide instructions for completing all components to be included in the application. Each application must include a cover sheet (Standard Form 424; budget requirements (ED Form 524) and a budget narrative justification; other required forms; an abstract, Human Subjects narrative, Part III narrative; resumes of staff; and other related materials, if applicable. 3. *Submission Dates and Times:* *Applications Available:* October 31, 2006. *Deadline for Transmittal of Applications:* January 18, 2007. *Pre-Application Meeting:* Interested parties are invited to participate in a pre-application meeting to discuss the priorities and to receive information and technical assistance through individual consultation. The pre-application meeting will be held on November 30, 2006. Interested parties may participate in this meeting by conference call with NIDRR staff from the Office of Special Education and Rehabilitative Services between 11 a.m. and 1 p.m., Washington, DC time. On the same day, NIDRR staff also will be available from 2 p.m. to 4 p.m., by telephone, to provide information and technical assistance through individual consultation. For further information or to make arrangements to participate on the conference call or for an individual consultation, contact Donna Nangle, U.S. Department of Education, Potomac Center Plaza, room 6030, 550 12th Street, SW., Washington, DC 20202. Telephone:
(202)245-7462 or by e-mail: *Lynn.medley@ed.gov.* Applications for grants under this competition may be submitted electronically using the Grants.gov Apply site ( *Grants.gov* ), or in paper format by mail or hand delivery. For information (including dates and times) about how to submit your application electronically, or by mail or hand delivery, please refer to section IV. 6. *Other Submission Requirements* in this notice. We do not consider an application that does not comply with the deadline requirements. 4. *Intergovernmental Review:* This program is not subject to Executive Order 12372 and the regulations in 34 CFR part 79. 5. *Funding Restrictions:* We reference regulations outlining funding restrictions in the *Applicable Regulations* section of this notice. 6. *Other Submission Requirements:* Applications for grants under this competition may be submitted electronically or in paper format by mail or hand delivery. a. *Electronic Submission of Applications.* We have been accepting applications electronically through the Department's e-Application system since FY 2000. In order to expand on those efforts and comply with the President's Management Agenda, we are continuing to participate as a partner in the new government-wide Grants.gov Apply site in FY 2007. Disability Rehabilitation Research Projects-CFDA Number 84.133A-4 is one of the programs included in this project. We request your participation in *Grants.gov.* If you choose to submit your application electronically, you must use the Grants.gov Apply site at: *http://www.Grants.gov.* Through this site, you will be able to download a copy of the application package, complete it offline, and then upload and submit your application. You may not e-mail an electronic copy of a grant application to us. You may access the electronic grant application for Disability Rehabilitation Research Projects at: *http://www.grants.gov.* You must search for the downloadable application package for this program by the CFDA number. Do not include the CFDA number's alpha suffix in your search. Please note the following: • Your participation in *Grants.gov* is voluntary. • When you enter the *Grants.gov* site, you will find information about submitting an application electronically through the site, as well as the hours of operation. • Applications received by Grants.gov are time and date stamped. Your application must be fully uploaded and submitted, and must be date/time stamped by the Grants.gov system no later than 4:30 p.m., Washington, DC time, on the application deadline date. Except as otherwise noted in this section, we will not consider your application if it is date/time stamped by the Grants.gov system later than 4:30 p.m., Washington, DC time, on the application deadline date. When we retrieve your application from Grants.gov, we will notify you if we are rejecting your application because it was date/time stamped by the Grants.gov system after 4:30 p.m., Washington, DC time, on the application deadline date. • The amount of time it can take to upload an application will vary depending on a variety of factors including the size of the application and the speed of your Internet connection. Therefore, we strongly recommend that you do not wait until the application deadline date to begin the application process through Grants.gov. • You should review and follow the Education Submission Procedures for submitting an application through Grants.gov that are included in the application package for this competition to ensure that you submit your application in a timely manner to the *Grants.gov* system. You can also find the Education Submission Procedures pertaining to Grants.gov at *http://e-Grants.ed.gov/help/GrantsgovSubmissionProcedures.pdf.* • To submit your application via Grants.gov, you must complete all of the steps in the Grants.gov registration process (see *http://www.grants.gov/applicants/get_registered.jsp* ). These steps include
(1)registering your organization,
(2)registering yourself as an Authorized Organization Representative (AOR), and
(3)getting authorized as an AOR by your organization. Details on these steps are outlined in the Grants.gov 3-Step Registration Guide (see *http://www.grants.gov/section910/Grants.govRegistrationBrochure.pdf* ). You also must provide on your application the same D-U-N-S Number used with this registration. Please note that the registration process may take five or more business days to complete, and you must have completed all registration steps to allow you to successfully submit an application via *Grants.gov.* • You will not receive additional point value because you submit your application in electronic format, nor will we penalize you if you submit your application in paper format. • If you submit your application electronically you must submit all documents electronically, including the following forms: Application for Federal Assistance (SF 424), the Department of Education Supplemental Information for SF 424, Budget Information—Non-Construction Programs (ED 524), and all necessary assurances and certifications. Please note that two of these forms—the SF 424 and the Department of Education Supplemental Information for SF 424—have replaced the ED 424 (Application for Federal Education Assistance). You must attach any narrative sections of your application as files in a .DOC (document), .RTF (rich text), or .PDF (Portable Document) format. If you upload a file type other than the three file types specified above or submit a password protected file, we will not review that material. • Your electronic application must comply with any page limit requirements described in this notice. • After you electronically submit your application, you will receive an automatic acknowledgment from Grants.gov that contains a Grants.gov tracking number. The Department will retrieve your application from Grants.gov and send you a second confirmation by e-mail that will include a PR/Award number (an ED-specified identifying number unique to your application). • We may request that you provide us original signatures on forms at a later date. Application Deadline Date Extension in Case of System Unavailability If you are prevented from electronically submitting your application on the application deadline date because of technical problems with the *Grants.gov* system, we will grant you an extension until 4:30 p.m., Washington, DC time, the following business day to enable you to transmit your application electronically, or by hand delivery. You also may mail your application by following the mailing instructions as described elsewhere in this notice. If you submit an application after 4:30 p.m., Washington, DC time, on the deadline date, please contact the person listed elsewhere in this notice under FOR FURTHER INFORMATION CONTACT , and provide an explanation of the technical problem you experienced with *Grants.gov,* along with the *Grants.gov* Support Desk Case Number (if available). We will accept your application if we can confirm that a technical problem occurred with the Grants.gov system and that that problem affected your ability to submit your application by 4:30 p.m., Washington, DC time, on the application deadline date. The Department will contact you after a determination is made on whether your application will be accepted. Note: Extensions referred to in this section apply only to the unavailability of or technical problems with the Grants.gov system. We will not grant you an extension if you failed to fully register to submit your application to Grants.gov before the deadline date and time or if the technical problem you experienced is unrelated to the Grants.gov system. b. *Submission of Paper Applications by Mail.* If you submit your application in paper format by mail (through the U.S. Postal Service or a commercial carrier), you must mail the original and two copies of your application, on or before the application deadline date, to the Department at the applicable following address: *By mail through the U.S. Postal Service:* U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.133A-4), 400 Maryland Avenue, SW., Washington, DC 20202-4260. or *By mail through a commercial carrier:* U.S. Department of Education, Application Control Center—Stop 4260, Attention: (CFDA Number 84.133A-4), 7100 Old Landover Road, Landover, MD 20785-1506. Regardless of which address you use, you must show proof of mailing consisting of one of the following:
(1)A legibly dated U.S. Postal Service postmark,
(2)A legible mail receipt with the date of mailing stamped by the U.S. Postal Service,
(3)A dated shipping label, invoice, or receipt from a commercial carrier, or
(4)Any other proof of mailing acceptable to the Secretary of the U.S. Department of Education. If you mail your application through the U.S. Postal Service, we do not accept either of the following as proof of mailing:
(1)A private metered postmark, or
(2)A mail receipt that is not dated by the U.S. Postal Service. If your application is postmarked after the application deadline date, we will not consider your application. Note: The U.S. Postal Service does not uniformly provide a dated postmark. Before relying on this method, you should check with your local post office. c. *Submission of Paper Applications by Hand Delivery. * If you submit your application in paper format by hand delivery, you (or a courier service) must deliver the original and two copies of your application by hand, on or before the application deadline date, to the Department at the following address: U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.133A-4), 550 12th Street, SW., Room 7041, Potomac Center Plaza, Washington, DC 20202-4260. The Application Control Center accepts hand deliveries daily between 8 a.m. and 4:30 p.m., Washington, DC time, except Saturdays, Sundays, and Federal holidays. Note for Mail or Hand Delivery of Paper Applications: If you mail or hand deliver your application to the Department:
(1)You must indicate on the envelope and—if not provided by the Department—in Item 11 of the SF 424 the CFDA number—and suffix letter, if any—of the competition under which you are submitting your application.
(2)The Application Control Center will mail a grant application receipt acknowledgment to you. If you do not receive the grant application receipt acknowledgment within 15 business days from the application deadline date, you should call the U.S. Department of Education Application Control Center at
(202)245-6288. V. Application Review Information *Selection Criteria:* The selection criteria for this competition are from 34 CFR 75.210 of EDGAR and 34 CFR 350.54 and are listed in the application package. The Secretary is interested in hypothesis-driven research and development projects. To address this interest it is expected that applicants will articulate goals, objectives, and expected outcomes for the proposed research and development activities. It is critical that proposals describe expected public benefits, especially benefits for individuals with disabilities, and propose projects that are optimally designed to demonstrate outcomes that are consistent with the proposed goals. Applicants are encouraged to include information describing how they will measure outcomes, including the indicators that will represent the end-result, the mechanisms that will be used to evaluate outcomes associated with specific problems or issues, and how the proposed activities will support new intervention approaches and strategies, including a discussion of measures of effectiveness. Submission of this information is voluntary except where required by the selection criteria listed in the application package. VI. Award Administration Information 1. *Award Notices:* If your application is successful, we notify your U.S. Representative and U.S. Senators and send you a Grant Award Notification (GAN). We may also notify you informally. If your application is not evaluated or not selected for funding, we notify you. 2. *Administrative and National Policy Requirements:* We identify administrative and national policy requirements in the application package and reference these and other requirements in the *Applicable Regulations* section of this notice. We reference the regulations outlining the terms and conditions of an award in the *Applicable Regulations* section of this notice and include these and other specific conditions in the GAN. The GAN also incorporates your approved application as part of your binding commitments under the grant. 3. *Reporting:* At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multi-year award, you must submit an annual performance report that provides the most current performance and financial expenditure information as specified by the Secretary in 34 CFR 75.118. Note: NIDRR will provide information by letter to grantees on how and when to submit the report. 4. *Performance Measures:* To evaluate the overall success of its research program, NIDRR assesses the quality of its funded projects through review of grantee performance and products. Each year, NIDRR examines, through expert review, a portion of its grantees to determine: • The percentage of newly awarded NIDRR projects that are multi-site, collaborative, controlled studies of interventions and programs. • The number of accomplishments (e.g., new or improved tools, methods, discoveries, standards, interventions, programs, or devices) developed or tested with NIDRR funding that have been judged by expert panels to be of high quality and to advance the field. • The percentage of grantee research and development that has appropriate study design, meets rigorous standards of scientific and/or engineering methods, and builds on and contributes to knowledge in the field. • The average number of publications per award based on NIDRR-funded research and development activities in refereed journals. • The percentage of new grants that include studies funded by NIDRR that assess the effectiveness of interventions, programs, and devices using rigorous and appropriate methods. NIDRR uses information submitted by grantees as part of their Annual Performance Reports
(APRs)for these reviews. NIDRR also determines, using information submitted as part of the APR, the number of publications in refereed journals that are based on NIDRR-funded research and development activities. Department of Education program performance reports, which include information on NIDRR programs, are available on the Department's Web site: *http://www.ed.gov/about/offices/list/opepd/sas/index.html.* Updates on the Government Performance and Results Act of 1993
(GPRA)indicators, revisions and methods appear on the NIDRR Program Review Web site: *http://www.neweditions.net/pr/commonfiles/pmconcepts.htm.* Grantees should consult these sites, on a regular basis, to obtain details and explanations on how NIDRR programs contribute to the advancement of the Department's long-term and annual performance goals. VII. Agency Contact *For Further Information Contact:* Donna Nangle, U.S. Department of Education, 400 Maryland Avenue, SW., room 6030, Potomac Center Plaza, Washington, DC 20202. Telephone:
(202)245-7462 or by e-mail: *donna.nangle@ed.gov.* If you use a telecommunications device for the deaf (TDD), you may call the TDD number at
(202)245-7317 or the Federal Relay Service
(FRS)at 1-800-877-8339. Individuals with disabilities may obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request to the program contact person listed in this section. VIII. Other Information *Electronic Access to This Document:* You may view this document, as well as all other documents of this Department published in the **Federal Register,** in text or Adobe Portable Document Format
(PDF)on the Internet at the following site: www.ed.gov/news/fedregister. To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-888-293-6498; or in the Washington, DC, area at
(202)512-1530. Note: The official version of this document is the document published in the **Federal Register.** Free Internet access to the official edition of the **Federal Register** and the Code of Federal Regulations is available on GPO Access at: *www.gpoaccess.gov/nara/index.html.* Dated: October 24, 2006. John H. Hager, Assistant Secretary for Special Education and Rehabilitative Services. [FR Doc. E6-18185 Filed 10-30-06; 8:45 am] BILLING CODE 4000-01-P 71 210 Tuesday, October 31, 2006 Rules and Regulations Part VII Securities and Exchange Commission 17 CFR Part 270 Definition of Eligible Portfolio Company Under the Investment Company Act of 1940; Final Rule and Proposed Rule SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 270 [Release No. IC-27538; 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. SUMMARY: The Commission is adopting two new rules under the Investment Company Act of 1940 (“Investment Company Act” or “Act”). The new rules 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 rules expand the definition of eligible portfolio company in a manner that promotes the flow of capital to certain small, developing and financially troubled companies. DATES: *Effective Date:* November 30, 2006. FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior Counsel, or Elizabeth G. Osterman, Assistant Chief Counsel, Office of Chief Counsel,
(202)551-6825, Division of Investment Management, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-5030. SUPPLEMENTARY INFORMATION: The Commission today is adopting new Rule 2a-46 [17 CFR 270.2a-46] and new Rule 55a-1 [17 CFR 270.55a-1], both under the Investment Company Act [15 U.S.C. 80a *et seq.* ]. 1 1 Rules 2a-46 and 55a-1 were proposed in 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”). The Commission today also issued a release reproposing Rule 2a-46(b). Definition of Eligible Portfolio Company under the Investment Company Act of 1940, Investment Company Act Release No. 27539 (Oct. 25, 2006). Table of Contents I. Background II. Discussion A. Rule 2a-46 B. Rule 55a-1 III. Cost-Benefit Analysis A. Benefits B. Costs IV. Consideration of Promotion of Efficiency, Competition and Capital Formation V. Paperwork Reduction Act VI. Final Regulatory Flexibility Analysis A. Reasons and Objectives of the New Rules B. Significant Issues Raised by Public Comment C. Small Entities Subject to the Rule D. Reporting, Recordkeeping, and Other Compliance Requirements E. Commission Action To Minimize Adverse Impact on Small Entities VII. Statutory Authority I. Background In 1980, Congress enacted the Small Business Investment Incentive Act (“SBIIA”), which, among other things, established BDCs as a means of making capital more readily available to small, developing and financially troubled companies that do not have ready access to the public capital markets or other forms of conventional financing. 2 Consistent with this purpose, Section 55(a) of the Investment Company Act generally prohibits a BDC from acquiring any assets unless, at the time of acquisition, at least 70 percent of its total assets are invested in securities of certain specified types of companies (“70 percent basket”). 3 Among other things, the 70 percent basket may include securities of eligible portfolio companies purchased in transactions not involving any public offering, 4 securities of eligible portfolio companies already controlled by the BDC without regard to the nature of the offering, 5 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. 6 2 Pub. L. 96-477, 94th Stat. 2274
(1980)(codified at scattered sections of the United States Code). *See generally* H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21
(1980)(“House Report”). 3 Section 55(a) of the Investment Company Act [15 U.S.C. 80a-54(a)]. *See* House Report at 23 (“The restrictions are designed to assure that companies electing special treatment as [BDCs] are in fact those that [SBIIA] is intended to aid—companies providing capital and assistance to small, developing or financially troubled businesses that are seeking to expand, not passive investors in large, well-established businesses.”). Congress did not specifically regulate how a BDC should invest the remainder of its assets (“30% basket”). *See id.* at 31, 38-40. Congress clarified, however, that a BDC would be required to invest its 30% basket in a manner consistent with the overall purpose of SBIIA. *Id.* at 39-40 (“One such purpose would be to allow an investment * * * in a publicly-held company whose success may be stimulated or revived by the infusion of new capital or managerial assistance. A second purpose might be to recognize the need for [BDCs] * * * to have a source of cash flow to fund current operations or to meet contingencies which may arise.”). 4 *See* Section 55(a)(1) of the Investment Company Act. *See also* Section 2(a)(46) of the Investment Company Act [15 U.S.C. 80a-2(a)(46)] (statutory definition of eligible portfolio company). 5 *See* Section 55(a)(2) of the Investment Company Act, referring to companies with respect to which the BDC satisfies the requirements of Section 2(a)(46)(C)(ii) of the Act. Section 2(a)(46)(C)(ii) provides that a company that meets the initial requirements set forth in Sections 2(a)(46)(A) and
(B)is an eligible portfolio company if “it is controlled by a [BDC], either alone, or as part of a group acting together, and such [BDC] in fact exercises a controlling influence over the management or policies of such eligible portfolio company and, as a result of such control, has an affiliated person who is a director of such eligible portfolio company.” 6 *See* Section 55(a)(3) of the Investment Company Act (includes, among others, companies that have filed for bankruptcy). In addition, a BDC generally may purchase the securities of an eligible portfolio company from any person in a non-public offering if there is no ready market for the securities and, immediately before the purchase, the BDC owns at least 60% of the issuer's outstanding equity securities. Section 55(a)(4) of the Investment Company Act. BDCs may also invest in securities received in exchange for, or distributed on or with respect to, the securities described in paragraphs
(1)through
(4)of Section 55(a) or pursuant to the exercise of options, warrants or other rights relating to these securities and in cash and certain short-term securities. Sections 55(a)(5) and
(6)of the Investment Company Act. The definition of eligible portfolio company is central to the restrictions of section 55(a) and the purpose of SBIIA. Section 2(a)(46) first generally defines eligible portfolio company to include only domestic companies that are not investment companies under the Investment Company Act (“domestic operating companies”). 7 Section 2(a)(46)(C) further defines eligible portfolio company under three categories. Many BDCs invest in companies that historically met the criteria of section 2(a)(46)(C)(i). 8 Under section 2(a)(46)(C)(i), an eligible portfolio company includes any company that does not have any class of securities with respect to which a member of a national securities exchange, broker or dealer may extend or maintain margin credit pursuant to the rules or regulations adopted by the Federal Reserve Board under section 7 of the Securities Exchange Act of 1934 (“Exchange Act”). 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” that could be used to determine whether a company has ready access to the public capital markets or other sources of financing. 9 Nevertheless, Congress recognized that the definition's reliance on the Federal Reserve Board's margin rules might need to be adjusted in the future. 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. 10 7 *See* House Report at 29. Sections 2(a)(46)(A) of the Investment Company Act defines eligible portfolio company to include (among other things) companies organized under the laws of, and with their principal 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 In addition to section 2(a)(46)(C)(i), discussed *infra* , section 2(a)(46)(C)(ii) includes in the definition of eligible portfolio company any issuer in which the BDC or certain affiliates own a controlling interest, *see supra* note 5, and section 2(a)(46)(C)(iii), enacted in 1996, includes in the definition any issuer that has total assets of not more than $4 million, and capital and surplus (shareholder equity minus retained earnings) of not less than $2 million. 9 *See* House Report at 30-31. 10 House Report at 31. 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 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.” While stating that BDCs “already have substantial freedom of action to purchase securities of companies which are not eligible portfolio companies,” referring to the 30% basket, 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. Among the objective factors which the Commission may consider in such proceedings are the size of such companies, the extent of their public ownership, and their operating history as going concerns and public companies.”). *See* House Report at 31. 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 adopted amendments to those rules that had the unintended consequence of reducing the number of companies that meet the definition of eligible portfolio company by expanding the definition of margin security to include all publicly traded equity securities and most debt securities. 11 11 *See* 2004 Proposing Release, *supra* note 1 at nn. 19-23 and accompanying text. On November 1, 2004, we proposed for comment Rules 2a-46 and 55a-1 under the Investment Company Act. 12 The proposed rules were designed to address the impact of the Federal Reserve Board's 1998 amendments on the definition of eligible portfolio company by realigning that definition, and the investment activities of BDCs, with the purpose of SBIIA. 12 *Id.* Generally, proposed Rule 2a-46 would have defined eligible portfolio company in one of two ways. Proposed Rule 2a-46(a) would have defined eligible portfolio company to include any domestic operating company 13 that does not have any class of securities listed on a national securities exchange (“Exchange”). 14 Proposed Rule 2a-46(b) would have defined eligible portfolio company to include any domestic operating company that has a class of securities listed on an Exchange but
(1)has received notice that its securities will be delisted and
(2)is not eligible to list its securities on any Exchange. Proposed Rule 55a-1 would have conditionally permitted a BDC to include in its 70 percent basket follow-on investments in any company that was an eligible portfolio company as defined by proposed Rule 2a-46 at the time of the BDC's initial investment(s) in it, but no longer met that definition. 13 The proposed rule incorporated the provisions of section 2(a)(46)(A) and (B). *See supra* note 7. 14 The rule as proposed also would have defined eligible portfolio company to include any domestic operating company that does not have any class of securities listed on an automated interdealer quotation system of a national securities association ( *i.e.* , The NASDAQ Stock Market LLC (“Nasdaq”)). On August 1, 2006, Nasdaq began operating as a national securities exchange registered under section 6(a) of the Exchange Act. II. Discussion We received thirty-six comment letters that addressed the proposed rules. 15 Commenters generally agreed that Commission rulemaking is appropriate at this time. Virtually all commenters supported proposed Rule 55a-1, and most commenters agreed with the definition of eligible portfolio company set forth in proposed Rule 2a-46(a). Some commenters, however, were concerned that proposed Rule 2a-46(b) would not include many of the small public companies whose securities are listed on an Exchange that historically would have met the definition of eligible portfolio company before the margin rule amendments. In addition, some commenters argued that some small companies that list their securities on an Exchange may not fall within the definition set forth in proposed Rule 2a-46(b), but nevertheless may have difficulties accessing conventional sources of capital and raising capital on the public capital markets. These commenters argued that these companies should qualify as eligible portfolio companies under the rule. 16 Commenters also generally stated that proposed Rule 2a-46(b) was unworkable. 17 15 Commenters included members of Congress, BDCs, law firms, trade associations and small businesses that had received financing from a BDC. The comment 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). They also may be viewed at *http://www.sec.gov/rules/proposed/ic-26647.htm.* 16 *See* , *e.g.* , comments of UTEK (Jan. 7, 2005); comments of Gladstone Capital (Jan. 6, 2005); comments of Thompson & Knight (Jan. 4, 2005). *But see* comments of the Committee on Federal Regulation of Securities of the Business Law Section of the American Bar Association (Jan. 5, 2005) (supporting proposal in full); comments of the Investment Company Institute (Jan. 6, 2005) (supporting proposal in full). A few commenters also argued that the proposed rule may harm BDC shareholders because it would increase the risk profile of a BDC. *See* , *e.g.* , comments of Allied Capital (Jan. 7, 2005). We discuss this comment below. *See infra* notes 24-25 and accompanying text. 17 *See* , *e.g.* , comments of Sherman & Sterling LLP (Jan. 7, 2005). After considering the comments received, the Commission today is adopting Rule 2a-46, initially proposed as Rule 2a-46(a), to define “eligible portfolio company” to include all private companies and all public companies whose securities are not listed on an Exchange. We estimate that, based on June 2006 data, 61.4 percent (6,041/9,845) of all public domestic operating companies qualify as eligible portfolio companies under Rule 2a-46. We are not, however, adopting proposed paragraph (b). We are sensitive to some commenters' concerns that the proposed rule was too narrow. Accordingly, we are seeking comment on reproposed Rule 2a-46(b) in a separate release. 18 18 *See supra* note 1. We also are adopting Rule 55a-1 today. 19 That rule conditionally allows BDCs to make follow-on investments in companies that met the definition of eligible portfolio company under Rule 2a-46 at the time of a BDC's initial investment(s) in them, but that do not meet that definition at the time of the BDC's follow-on investment. 19 Rule 55a-1 as adopted has been modified from the proposed rule merely to refer to Rule 2a-46 as adopted, rather than reciting the definition of eligible portfolio company set forth in Rule 2a-46. We discuss the rules that we are adopting today in greater detail below. A. Rule 2a-46 Rule 2a-46 defines eligible portfolio company to include all private domestic operating companies 20 and those public domestic operating companies whose securities are not listed on an Exchange. 21 Public domestic operating companies whose securities are quoted on the over-the-counter bulletin board (“OTCBB”) and through Pink Sheets LLC (“Pink Sheets”) are not listed on an Exchange, and therefore are eligible portfolio companies under this provision. 20 Like Section 2(a)(46) and the proposed rule, Rule 2a-46 defines eligible portfolio company to include only domestic operating companies. *See supra* notes 7 and 13 and accompanying text. 21 Under this provision, an issuer would be an eligible portfolio company if it does not have a class of securities listed on a national securities exchange registered under Section 6(a) of the Exchange Act, [15 U.S.C. 78f(a)] such as the New York Stock Exchange (“NYSE”), the American Stock Exchange (“Amex”), and Nasdaq. *See supra* note 14. Rule 2a-46 in our view provides a workable and appropriate test for determining whether a company is an eligible portfolio company. The rule more closely aligns the definition of eligible portfolio company with the purpose of SBIIA by including many of the types of companies that Congress originally intended to benefit from BDC financing that may have lost their eligible portfolio company status because of the change in the margin rules. Rule 2a-46 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. 22 22 *See supra* note 10. Most commenters supported proposed Rule 2a-46(a), and agreed that this approach would establish a clear, workable standard that correlates to whether a company has access to publicly raised capital. 23 A few commenters, however, raised a concern that this provision, when coupled with the definition set forth in proposed paragraph (b), would cause BDCs to focus their investment activities on companies that are in financial distress because of their view that most public companies that are quoted on the OTCBB or through Pink Sheets are financially troubled. 24 23 *See* , *e.g.* , comments of American Capital Strategies Ltd. (Jan. 7, 2004); comments of Sherman & Sterling LLP (Jan. 7, 2005). We note that the House of Representatives has passed legislation that in part defines eligible portfolio company in a manner similar to the definition that we are adopting today. *See* H.R. 436, 109th Cong., 1st Sess.
(2005)(an eligible portfolio company includes any company that “does not have any class of equity securities listed for trading on a national securities exchange or traded through the facilities of a national securities association as described in Section 15A of the Securities Exchange Act of 1934”). S. 1396, which is identical to H.R. 436, was introduced in the Senate on July 14, 2005. S. 1396, 109th Cong., 1st Sess. (2005). Both H.R. 436 and S. 1396 are currently pending before the Senate Committee on Banking, Housing and Urban Affairs. 24 Comments of UTEK (Jan. 7, 2005); comments of Allied Capital (Jan. 7, 2005). Some commenters also raised the concern that the proposed rule would harm BDC shareholders by raising BDCs' risk profiles. Rule 2a-46, however, is intended to address the inadvertent reduction in the number of companies that qualify under Section 2(a)(46) by the amendment to the margin rules. The rule does not alter the statutory mandate or requires a BDC to invest in any particular company. Further, Congress addressed investor protection concerns with respect to BDC shareholders in 1980. *See* House Report at 22 (explaining that SBIIA “is intended to preserve to the fullest possible extent * * * [investor] protections, while at the same time reducing unnecessary regulatory burdens.”). In this regard, the federal securities laws require, among other things, BDCs to disclose to their shareholders the risks associated with investment and to manage their business consistent with their fiduciary obligations. Rule 2a-46 does not require BDCs to focus their investment activities in financially troubled companies whose securities are traded on the OTCBB or through Pink Sheets. Although some companies have their shares traded on the OTCBB or though Pink Sheets because of financial circumstances, this is not true for all companies whose securities are traded on these quotation mediums. Rather, OTCBB and Pink Sheets companies also include small public companies that do not meet the minimum listing standards of one of the Exchanges, and companies that wish to become more developed before applying to list their securities on an Exchange even though they may already be eligible to do so. 25 In other words, although companies whose securities are traded on the OTCBB and through Pink Sheets include financially troubled companies, they also include small, developing, financially stable public companies. Thus, we believe that including companies that are traded on the OTCBB or through Pink Sheets as eligible portfolio companies under Rule 2a-46 will not require BDCs to change their investment strategies to focus on financially troubled companies. Instead, the rule is designed to more closely align the definition with the purpose of SBIIA. 25 *See* “A Little About The Pink Sheets” at *www.PennyMarkets.com. See also* Testimony of James A. Connolly III representing the CEO Council before the Subcommittee of Oversight and Investigations of the House Committee on Financial Services (Sept. 23, 2004) (the OTCBB and Pink Sheet companies are “ ‘engines of economic growth, job creation and innovation.' Our market space of 7000 companies includes hundreds of millions of dollars in market capitalization, tens of thousands of employees, and likely hundreds of thousands of stockholders.”). We note that OTCBB and Pink Sheets companies also include a few large companies that do not list their securities on an Exchange even though they may meet applicable listing requirements. With this in mind, we had asked in the Proposing Release whether we should exclude from the definition of eligible portfolio company any company that would meet the lowest initial quantitative listing standard of any Exchange, regardless of whether the company enters into a listing agreement with the Exchange. Commenters, however, argued that a company that may meet the lowest initial quantitative listing of any Exchange may nevertheless not have access to the public capital markets. 26 These comments have persuaded us not to adopt this approach. 26 *See* comments of Thompson & Knight (Jan. 4, 2005); comments of American Capital Strategies (Jan. 7, 2006). B. Rule 55a-1 Proposed Rule 55a-1, which virtually all commenters supported, is adopted. 27 As adopted, Rule 55a-1 permits a BDC to include in its 70 percent basket follow-on investments in a company that met the definition of eligible portfolio company under Rule 2a-46 at the time of the BDC's initial investment(s) in the company, but subsequently would not meet the definition of eligible portfolio company because the company no longer meets the requirements of that rule ( *i.e.* , following the BDC's initial investment(s) in the company, the company listed its securities on an Exchange), subject to certain conditions. These conditions permit a BDC to make a follow-on investment only if the BDC, at the time of the follow-on investment:
(1)Owns at least 50 percent of
(a)the greatest number of equity securities of such company, including securities convertible into or exchangeable for such securities, and
(b)the greatest amount of certain debt securities of such company held by the BDC at any time during the period when such company was an eligible portfolio company; and
(2)is one of the twenty largest holders of record of the company's outstanding voting securities. 28 Rule 55a-1 is appropriate in the public interest and consistent with the protection of investors and the purposes and policies fairly intended by the policy and provisions of the Act. 27 *See supra* note 19. 28 The rule incorporates the conditions set forth in Section 55(a)(1)(B), the section that permits a BDC to make follow-on investments in a company that was an eligible portfolio company at the time of the BDC's initial investment(s), but that subsequently lost its status as an eligible portfolio company because it issued margin securities. III. Cost-Benefit Analysis We are sensitive to the costs and benefits that result from our rules. In the Proposing Release we requested public comment and specific data regarding the costs and benefits of the proposed rules. Several commenters suggested that proposed Rule 2a-46(a) would benefit BDCs by addressing the impact caused by changes in the margin rules. 29 Another commenter argued that the Commission calculated incorrectly the number of companies that the proposed rule would benefit and wrote that the proposal would benefit even fewer companies than the Commission estimated. 30 We received no comments on the costs and benefits of proposed Rule 55a-1. 29 *See* , *e.g.* , comment of American Capital Strategies (Jan. 7, 2005); comments of the Committee on Federal Regulation of Securities of the Business Law Section of the American Bar Association (Jan. 5, 2005). 30 Comments of Williams & Jensen (Jan. 7, 2005). In addition, most commenters urged the Commission to modify the proposed rule to capture more small companies whose securities are listed on an Exchange. The Commission is reproposing Rule 2a-46(b) to address this concern. *See supra* note 1. A. Benefits Rules 2a-46 and 55a-1 would more closely align the definition of eligible portfolio company with the purpose that Congress intended when it established BDCs as a source of financing for certain types of companies. These companies often need capital for continued development and growth, but may be unable to borrow money through conventional sources or may not have ready access to the public capital markets. Rules 2a-46 and 55a-1 would also benefit BDCs by recapturing companies that Congress originally intended to make eligible for BDC investment as part of a BDC's 70 percent basket. A number of companies may have lost their eligible portfolio company status as a result of amendments to the Federal Reserve Board's margin rules. BDCs may be currently required to include in their 30 percent basket—rather than in their 70 percent basket—any investment in these companies, notwithstanding the fact that they may be the type of companies that Congress intended to benefit from BDC financing. Rule 2a-46 defines an eligible portfolio company to include all private companies and those public companies whose securities are not listed on an Exchange. The Commission's Office of Economic Analysis (“OEA”) estimates that, as of June 2006, there were a total number of 6,041 domestic operating companies with securities that were traded on the OTCBB and through Pink Sheets, and therefore would qualify as eligible portfolio companies under the rule. OEA reached this conclusion by first calculating the number of companies whose securities are trading on the OTCBB (3,295 companies) and through Pink Sheets (4,794 companies), and then removing from these figures estimates of 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 ( *e.g.* , REITS, banks, insurance companies) 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 (a deduction of 776 companies from OTCBB and 1,273 companies from Pink Sheets). OEA thus concluded that, as of June 2006, there were a total of 6,041 domestic operating companies (2,519 OTCBB companies and 3,522 Pink Sheets companies) that would qualify as eligible portfolio companies. OEA estimates that these 6,041 companies represent approximately 61.4 percent (6,041/9,845) 31 of all public domestic operating companies that could qualify as eligible portfolio companies under Rule 2a-46. 31 OEA concluded that, as of June 2006, there were 9,845 public domestic operating companies by calculating the number of companies whose securities are listed on Nasdaq, NYSE and Amex, in addition to those companies whose securities are trading on the OTCBB and through Pink Sheets, corrected for cases where individual companies had multiple classes of securities listed (60 companies), and then removing from this number foreign companies, investment companies, and companies that are excluded from the definition of investment company by Section 3(c). *See* Sections 2(a)(46)(A) and (B), *supra* note 7. In the Proposing Release, we explained that OEA estimated that 60 percent of public domestic operating companies do not have securities that trade on an Exchange, and thus would meet the definition of eligible portfolio company under proposed Rule 2a-46(a). We further explained that even more public companies should qualify as eligible portfolio companies by virtue of meeting the requirements of proposed paragraph
(b)of that rule (which, as noted previously, is being reproposed). 32 32 *See* 2004 Proposing Release, *supra* note 1 at n.49 and accompanying text. We note that one commenter argued that the Commission calculated incorrectly the number of companies that the proposed rule would benefit and wrote that the proposal would benefit even fewer companies than the Commission estimated. The commenter argued that proposed Rule 2a-46(a) (which we are adopting today as Rule 2a-46) would capture only 52.4 percent of public companies. 33 33 Comments of Williams & Jensen (Jan. 7, 2005). The commenter's figure is lower than the figure calculated by OEA. It appears that the commenter did not remove from its data foreign companies, investment companies and companies that are excluded from the definition of investment company by Section 3(c). As discussed previously, because Section 2(a)(46) excludes these companies from the definition of eligible portfolio company, we believe that they should be excluded from the total number of companies trading on U.S. markets when quantifying the benefits of the rule. Rule 55a-1 provides additional benefits to certain companies that met the definition of eligible portfolio company under Rule 2a-46 at the time of the BDC's initial investment(s) in them but that subsequently lost their eligible portfolio company status under Rule 2a-46, by allowing BDCs to make follow-on investments in such companies under certain conditions. Finally, we note that both Rule 2a-46 and Rule 55a-1 would benefit BDCs by expanding the universe of investments that may be included in their 70 percent baskets. It also benefits BDCs by addressing the uncertainty caused by changes in the margin rules in the operation of BDCs. As one commenter noted, a “technical flaw” in the definition of eligible portfolio company arose as a result of changes to the margin rules which imposed substantial constraints on BDC investments. The commenter expressed its view that proposed Rule 2a-46(a) had corrected this flaw. 34 34 *See* , *e.g.* , comment of American Capital Strategies (Jan. 7, 2005). *See also* comments of Capital Southwest Corp. (Dec. 28, 2004). B. Costs While Rules 2a-46 and 55a-1 might impose certain administrative compliance costs on BDCs, we expect such costs to be minimal and commenters provided no data as requested in the 2004 Proposing Release. Under Rule 2a-46, a BDC would need to determine, prior to investing in a company, whether the company has a class of securities listed on an Exchange. Such information is easily obtainable through reliable third-party sources. Furthermore, Section 55 of the Investment Company Act generally requires a BDC to invest in eligible portfolio companies through privately negotiated transactions. Thus, this information would also be readily available to a BDC from the company during the course of these negotiations. We also expect that a BDC's costs relating to the requirements of Rule 55a-1 will be minimal. Rule 55a-1 permits a BDC to include in its 70 percent basket follow-on investments in a company that met the definition of eligible portfolio company under Rule 2a-46 when the BDC made its initial investment(s), but that does not meet that definition at the time of the follow-on investment. A BDC generally may make follow-on investments under the rule only if, at the time of the follow-on investment, the BDC owns at least 50 percent of
(1)the greatest number of equity securities of such company, including securities convertible into or exchangeable for such securities and
(2)the greatest amount of certain debt securities of such company held by the BDC at any time during the period when such company was an eligible portfolio company. In addition, the rule requires a BDC that makes such a follow-on investment to be one of the twenty largest holders of record of the company's outstanding voting securities at the time of that investment. These requirements mirror the requirements set forth in Section 55(a)(1)(B) of the Investment Company Act, the provision that permits a BDC to include in its 70 percent basket certain follow-on investments in companies that were eligible portfolio companies at the time of the BDC's initial investment(s), but that subsequently lost that status because they issued marginable securities. Accordingly, BDCs already make similar types of determinations when considering whether to make follow-on investments in a company that had lost their eligible portfolio company status because they had issued marginable securities. We anticipate that the rule will impose only minimal, if any, costs on companies. IV. 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. 35 In the Proposing Release, we requested comment on our analysis of the impact of the proposed rules on efficiency, competition and capital formation. Although we did not receive any comments that specifically addressed proposed Rule 2a-46(a), which is the provision that we are adopting today, we did receive comments about the entire rule. 35 15 U.S.C. 80a-2(c). Specifically, some commenters argued that proposed Rule 2a-46 was too narrow and did not capture all of the very small public companies that could benefit from BDC financing. 36 We interpreted this comment to suggest that capital formation may have been limited under the proposed rule. We are sensitive to this concern and therefore are seeking comment on reproposed Rule 2a-46(b) in a separate release. 37 36 *See supra* note 16 and accompanying text. 37 *See supra* note 1. Some commenters also expressed a concern that proposed Rule 2a-46(a), when coupled with the definition set forth in proposed paragraph (b), would cause BDCs to focus their investment activities on companies that are in financial distress because of their view that most public companies that are quoted on the OTCBB or through Pink Sheets are financially troubled. 38 We interpret this comment to suggest that the rule does not promote efficiency and would impede capital formation. Rule 2a-46 as adopted, however, does not require BDCs to focus their investment activities in financially troubled companies. Rather, Rule 2a-46 allows BDCs to invest in all companies whose securities are traded on the OTCBB and through Pink Sheets, including small, developing, financially stable public companies, which are among the types of companies that Congress intended to benefit from BDC financing. 39 38 *See supra* note 24 and accompanying text. 39 *See supra* note 25 and accompanying text. As discussed, the new rules more closely align the definition of eligible portfolio company, and the investment activities of BDCs, with the purpose that Congress intended. Rule 2a-46 defines eligible portfolio company to include all private companies and approximately 61.4 percent of public domestic operating companies. Rule 55a-1 permits a BDC to include in its 70 percent basket follow-on investments in a company that met the definition of eligible portfolio company under Rule 2a-46 when the BDC made its initial investment(s), but that does not meet that definition at the time of the follow-on investment. Both rules will promote efficiency, competition and capital formation. Specifically, both rules promote efficiency by more closely aligning the definition of eligible portfolio company with the purpose of SBIIA. To the extent that BDC investments represent additional capital to certain small companies, these rules enhance efficiency. Efficiency will be enhanced because the rules address the unintended adverse impact that the amendments to the margin rules have had on the ability of BDCs to provide financing to these companies. Rule 2a-46 in our view also promotes efficiency by providing a workable and appropriate test for determining whether a company is an eligible portfolio company. Rule 55a-1 will further enhance efficiency by making it easier for BDCs to make follow-on investments in companies that no longer meet the definition of eligible portfolio company under Rule 2a-46. We also anticipate that these rules will promote competition. 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, hedge funds, investment banks and other BDCs, to provide financing to certain small businesses. We expect that the rules will encourage competition by addressing the impact and uncertainty caused by changes in the margin rules on BDC investment. Under the rules, BDCs will be able to compete with other entities that provide capital to small, developing and financially troubled companies in a manner that is consistent with the statutory requirement that at least 70 percent of a BDC's assets must be invested in those businesses at the time of any new investment. We further note that shareholders of companies that had lost their status as eligible portfolio companies will benefit under the rules because such companies may now more readily consider BDCs as a source of financing. Finally, we anticipate that the new rules will promote capital formation. As mentioned above, eligible portfolio company is broadly defined to include all private companies and a significant portion of public domestic operating companies. The definition, however, is designed to ensure that the investment activities of BDCs remain focused primarily on the types of companies that Congress intended BDCs to assist. V. Paperwork Reduction Act The Commission has determined that these rules do not involve a collection of information pursuant to the provisions of the Paperwork Reduction Act [44 U.S.C. 3501 *et seq.* ]. VI. Final Regulatory Flexibility Analysis This Final Regulatory Flexibility Analysis has been prepared in accordance with 5 U.S.C. 604, which relates to new Rules 2a-46 and 55a-1 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 Proposing Release. 40 40 2004 Proposing Release, *supra* note 1 at Section VII. A. Reasons and Objectives of the New Rules As described more fully in Sections I. and II. of this Release, the objectives of the new rules are to more closely align the definition of eligible portfolio company set forth under the Investment Company Act, and the investment activities of BDCs, with the purpose intended by Congress when it established BDCs in 1980. The rules are designed to recapture in the definition of eligible portfolio company companies that Congress originally intended to include within the definition, but that may have lost their eligible portfolio company status as a result of the 1998 amendment to the Federal Reserve Board's margin rules. B. Significant Issues Raised by Public Comment When the Commission proposed the rules that are being adopted today, comment was requested on the proposal and the accompanying IRFA. We received thirty-six comment letters that addressed the proposed rules. As discussed, some commenters believed that proposed Rule 2a-46 was too narrow and did not include some small public companies that can benefit from BDC financing. In a separate release, we are seeking comment on reproposed Rule 2a-46(b), which would address this concern. None of the comment letters, however, specifically addressed the IRFA. C. Small Entities Subject to the Rule Rules 2a-46 and 55a-1 affect both 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 most recent fiscal year. 41 As of December 2005, there were 87 BDCs, of which 66 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. 42 We estimate that there are approximately 2,500 companies, other than investment companies, that may be considered small entities under the Regulatory Flexibility Act. 41 17 CFR 270.0-10. 42 17 CFR 230.157; 17 CFR 240.0-10. As discussed in this Release, the rules are intended to more closely align the definition of eligible portfolio company with the purpose that Congress intended when it established BDCs as a source of financing for certain small companies. These companies often need capital for continued development and growth, but may be unable to borrow money through conventional sources or may not have ready access to the public capital markets. The rules would also benefit BDCs, including those that are small entities, by recapturing the types of companies that Congress originally intended to make eligible for BDC investment as part of a BDC's 70 percent basket. We have no reason to expect that those BDCs and companies that are small entities for purposes of the Regulatory Flexibility Act will be disproportionately affected by the rules. D. Reporting, Recordkeeping and Other Compliance Requirements The rules do not impose any new reporting or recordkeeping requirements on BDCs or on companies. The rules also do not impose any compliance requirements on companies. They do, however, impose minimal compliance requirements on all BDCs, including small entities. Under Rule 2a-46, a BDC, prior to investing in a company, would need to determine whether the company has a class of securities listed on an Exchange. This information is readily available, and we believe that all BDCs, including those that are small entities, already evaluate similar types of information when considering whether to invest in a company. Rule 55a-1 permits a BDC to include in its 70 percent basket follow-on investments in a company that met the definition of eligible portfolio company under Rule 2a-46 when the BDC made its initial investment(s), but that does not meet that definition at the time of the follow-on investment. A BDC generally may make follow-on investments under the rule only if, at the time of the follow-on investment, the BDC owns at least 50 percent of
(1)the greatest number of equity securities of such company, including securities convertible into or exchangeable for such securities and
(2)the greatest amount of certain debt securities of such company held by the BDC at any time during the period when such company was an eligible portfolio company. In addition, the rule requires a BDC that makes such a follow-on investment to be one of the twenty largest holders of record of the company's outstanding voting securities at the time of investment. These requirements are the same requirements set forth in Section 55(a)(1)(B) of the Investment Company Act, the provision that permits a BDC to include in its 70 percent basket certain follow-on investments in companies that were eligible portfolio companies at the time of the BDC's initial investment(s), but that subsequently lost that status because they issued marginable securities. Accordingly, BDCs, including those that are small entities, already make similar types of determinations when considering whether to make follow-on investments in companies that had lost their eligible portfolio company status because they had issued marginable securities. 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 under the proposed rules for small entities;
(3)the use of performance rather than design standards; and
(4)an exemption from coverage of the rules, or any part thereof, for small entities. Establishing different compliance or reporting requirements for small entities would not be appropriate. As discussed above, the rules do not impose any reporting requirements on BDCs or on companies. In addition, the rules do not impose any compliance requirements on companies. Both Rules 2a-46 and 55a-1, however, do impose some compliance requirements on BDCs that are intended to ensure that BDCs invest primarily in those companies that Congress intended them to invest in when it established BDCs in 1980. These requirements should, however, impose minimum burdens on BDCs. We note that Rule 2a-46 as adopted does not include proposed paragraph
(b)in part because of commenters' concerns that the conditions of that provision are unworkable and burdensome. We also believe that clarifying, consolidating, or simplifying the compliance requirements under the rules for small entities is inappropriate. As discussed above, neither rule imposes any compliance requirements on companies. Although the rules do impose some compliance requirements on BDCs, as discussed above, these requirements, which we believe will impose minimal burdens on BDCs, are designed to insure that BDCs invest primarily in those companies that Congress intended them to invest in when it established BDCs in 1980. We believe that the use of performance rather than design standards would add unnecessary complexity. The rules are intended to address the impact and the uncertainty as a result of the 1998 amendment to the Federal Reserve Board's margin rules by providing 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, including those that are small entities, in determining whether they meet the definition of eligible portfolio company. Finally, we believe that it would be inappropriate to exempt small entities from the coverage of the rules. The rules are intended to benefit BDCs and certain companies that qualify as eligible portfolio companies, including those BDCs and other companies that are small entities. These eligible portfolio companies often need capital for continued development and growth. Exempting small entities from all or part of the rules would be contradictory to the purpose of the rules. VII. Statutory Authority We are adopting Rules 2a-46 and 55a-1 pursuant to our rulemaking authority under Sections 2(a)(46)(C)(iv), 6(c) 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 Rules 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 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. 2. Section 270.2a-46 is added to read as follows: § 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 does not have any class of securities listed on a national securities exchange. 3. Section 270.55a-1 is added to read as follows: § 270.55a-1 Investment activities of business development companies. Notwithstanding section 55(a) of the Act (15 U.S.C. 80a-54(a)), a business development company may acquire securities purchased in transactions not involving any public offering from an issuer, or from any person who is an officer or employee of the issuer, if the issuer meets the requirements of sections 2(a)(46)(A) and
(B)of the Act (15 U.S.C. 80a-2(a)(46)(A) and (B)), but the issuer is not an eligible portfolio company because it does not meet the requirements of § 270.2a-46, and the business development company meets the requirements of paragraphs
(i)and
(ii)of section 55(a)(1)(B) of the Act (15 U.S.C. 80a-54(a)(1)(B)(i) and (ii)). Dated: October 25, 2006. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E6-18255 Filed 10-30-06; 8:45 am] BILLING CODE 8011-01-P 71 210 Tuesday, October 31, 2006 Proposed Rules SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 270 [Release No. IC-27539; 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: Reproposed rule. SUMMARY: The Commission is reproposing for comment an additional definition of the term “eligible portfolio company” under the Investment Company Act of 1940 (“Investment Company Act” or “Act”). The reproposed rule is intended to 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 reproposed rule would expand the definition of eligible portfolio company to include certain companies that list their securities on a national securities exchange (“Exchange”). DATES: Comments should be received on or before January 2, 2007. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/proposed* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number S7-37-04 on the subject line; or • Use the Federal eRulemaking Portal ( *http://www.regulations.gov* ). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-37-04. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/proposed* ). Comments are also available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior Counsel, or Elizabeth G. Osterman, Assistant Chief Counsel, Office of Chief Counsel,
(202)551-6825, Division of Investment Management, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-5030. SUPPLEMENTARY INFORMATION: The Commission today is reproposing Rule 2a-46(b) [17 CFR 270.2a-46] under the Investment Company Act [15 U.S.C. 80a *et seq.* ]. 1 1 The Commission today issued a release adopting Rule 2a-46, which defines eligible portfolio company as a company whose securities are not listed on an Exchange, and Rule 55a-1, which conditionally permits BDCs to make additional (follow-on) investments in certain companies. Definition of Eligible Portfolio Company under the Investment Company Act of 1940, Investment Company Act Release No. 27538 (Oct. 25, 2006) (“Adopting Release”). Table of Contents I. Background II. Discussion A. Comments Received on 2004 Proposing Release B. Reproposed Rule 2a-46(b) 1. Size-Based Standard 2. Alternative Proposals
(a)$75 Million Public Float (Alternative One)
(b)$150/$250 Million Market Capitalization (Alternative Two) 3. Solicitation of Comments III. General Request for Comment IV. Cost-Benefit Analysis A. Benefits B. Costs C. Request for Comments V. Consideration of Promotion of Efficiency, Competition and Capital Formation VI. Paperwork Reduction Act VII. Initial Regulatory Flexibility Analysis A. Reasons for the Proposed Action B. Objectives of the Proposed Action C. Small Entities Subject to the Rule D. Reporting, Recordkeeping and Other Compliance Requirements E. Duplicative, Overlapping or Conflicting Federal Rules F. Significant Alternatives G. Solicitation of Comments VIII. Statutory Authority I. Background BDCs are closed-end investment companies that Congress established for the purpose of making capital more readily available to certain types of companies. 2 To accomplish this purpose, the Investment Company Act 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.” 3 2 Small Business Investment Incentive Act of 1980, Pub. L. No. 96-477, 94th Stat. 2274
(1980)(codified at scattered sections of the United States Code) (“SBIIA”). *See also generally* H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21
(1980)(“House Report”). 3 *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)]. The Investment Company Act defines eligible portfolio company to include domestic operating companies that, among other things, do not have any class of securities that are marginable under rules promulgated by the Federal Reserve Board. 4 In 1998, for reasons unrelated to small business capital formation, the Federal Reserve Board amended its definition of margin security to increase the types of securities that would fall within that definition under its rules. This amendment had the result of reducing the number of companies that qualify as eligible portfolio companies. 4 Section 2(a)(46)(C)(i) of the Investment Company Act. *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). In November 2004, the Commission proposed Rule 2a-46 5 and Rule 55a-1 to address the impact of the Federal Reserve Board's 1998 amendments on the definition of eligible portfolio company. 6 As proposed, Rule 2a-46(a) would have defined eligible portfolio company to include any domestic operating company 7 that does not have a class of securities listed on an Exchange; 8 and Rule 2a-46(b) would have defined eligible portfolio company to include any domestic operating company that has a class of securities listed on an Exchange, but is in danger of having its securities delisted because of financial difficulties. As proposed, Rule 55a-1 would have conditionally permitted a BDC to continue to invest in a company that had met the proposed definition of eligible portfolio company at the time of the BDC's initial investment(s) in it, but did not subsequently meet that definition. 5 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.” While stating that BDCs “already have substantial freedom of action to purchase securities of companies which are not eligible portfolio companies,” referring to the investments permitted to be made outside of the 70% basket, 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. 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.”). *See* House Report at 31. 6 The rules were proposed in 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”). 7 The proposed rule would have incorporated the provisions of Section 2(a)(46)(A) and (B). Section 2(a)(46)(A) of the Investment Company Act defines eligible portfolio company to include (among other things) companies organized under the laws of, and with their principal 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 that Act, but includes as an eligible portfolio company a small BDC that is licensed by the Small Business Administration and that is a wholly-owned subsidiary of a BDC. 8 The rule as proposed also would have defined eligible portfolio company to include any domestic operating company that does not have any class of securities listed on an automated interdealer quotation system of a national securities association ( *i.e.* , The NASDAQ Stock Market LLC) (“Nasdaq”). On August 1, 2006, Nasdaq began operating as a national securities exchange registered under Section 6(a) of the Exchange Act. *See www.nasdaq.com/newsroom/news/pr2006/ne_section06_097.stm.* Today, the Commission adopted Rule 2a-46, initially proposed as Rule 2a-46(a), and Rule 55a-1. 9 The Commission did not adopt proposed Rule 2a-46(b) based on commenters' concerns that the proposed rule would be unworkable and too narrow. 9 *See supra* note 1. II. Discussion A. Comments Received on 2004 Proposing Release We received thirty-six comment letters that addressed the proposed rules. 10 Most commenters argued that proposed Rule 2a-46(b), which would have defined eligible portfolio company to include domestic operating companies whose securities were listed on an Exchange but were in danger of being delisted because of financial difficulties, would be unworkable. 11 Some commenters also argued that the proposed rule would be too narrow because it 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 capital markets. They argued that these companies should qualify as eligible portfolio companies under the rule. 12 Many commenters urged us to adopt a size-based standard and suggested a specific numeric threshold. 13 10 Commenters included members of Congress, BDCs, law firms, trade associations and small businesses that had received financing from a BDC. The comment 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). They also may be viewed at *http://www.sec.gov/rules/proposed/ic-26647.htm. * 11 *See, e.g.* , comments of Shearman & Sterling LLP (Jan. 7, 2005) (“* * * we believe that the requirement for a delisting notice would frustrate one of the purposes of proposed Rule 2a-46(b), which as expressed in the proposing release, seeks to address the need of, and provide access to capital readily to, financially troubled issuers that have not reached the dire financial straits contemplated by Section 55(a)(3) of the 1940 Act. In our experience, the delisting process often lags the ‘facts on the ground,' and properly so, as Exchanges are reluctant to impose a premature death sentence on listed companies. Thus, we submit that a company that receives a delisting notice would likely be in severe financial distress.”); comments of American Capital Strategies Ltd. (Jan. 7, 2005) (generally arguing that the minimum initial listing standards of an Exchange would exclude many of the companies Congress intended to benefit from BDC financing, and noting that the requirement for a delisting notice “could result in substantially the same situation as was caused by the Federal Reserve Board changes to the margin securities regulations”). 12 *See, e.g.* , comments of Allied Capital (Jan. 7, 2005); comments of UTEK (Jan. 7, 2005). But see comments of the Committee on Federal Regulation of Securities of the Business Law Section of the American Bar Association (Jan. 5, 2005) (supporting proposal in full); comments of the Investment Company Institute (Jan. 6, 2005) (supporting proposal in full). 13 *See, e.g.* , comments of Capital Southwest Corporation (Dec. 28, 2004); comments of Representative Sue Kelly and Representative Nydia Velázquez (Jan. 5, 2005); comments of Shearman & Sterling LLP (Jan. 7, 2005); comments of UTEK (Jan. 7, 2005); comments of Allied Capital (Jan. 7, 2005); comments of Williams & Jensen (Feb. 17, 2006). B. Reproposed Rule 2a-46(b) After considering the comments received, the Commission believes that it is appropriate to seek further input on including additional companies in the definition of eligible portfolio company. Accordingly, the Commission is revising and reproposing Rule 2a-46(b) to provide an additional definition of eligible portfolio company. 14 We have included two alternatives of reproposed Rule 2a-46(b) for comment. Each alternative would include certain domestic, operating companies that list their securities on an Exchange. 15 The first alternative would include companies whose public float is less than $75 million (“Alternative One”). 16 The second alternative (two versions) would include companies whose market capitalization is less than either $150 million or $250 million (“Alternative Two”). 14 We are also proposing to renumber Rule 2a-46 as Rule 2a-46(a). We are not proposing any other changes to that rule. 15 Like Section 2(a)(46) and proposed Rule 2a-46, reproposed Rule 2a-46(b) would define eligible portfolio company to include only domestic operating companies. *See supra* note 7. 16 Public float is the aggregate market value of a company's outstanding voting and non-voting common equity ( *i.e.* , a company's market capitalization) minus the aggregate market value of common equity held by the company's affiliates. *See, e.g.* , Simplification of Registration Procedures for Primary Securities Offerings, Securities Act Release No. 6964 (Oct. 22, 1992) [57 Fed. Reg. 48970 (Oct. 29, 1992)]. Rule 2a-46(b)(2) would define the term “affiliate” for purposes of Alternative One by reference to the definition of the same term in Rule 405 under the Securities Act of 1933 (“Securities Act”) [17 CFR 230.405]. Under both alternatives, a company's size would be calculated using the price at which the company's common equity was 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. 17 This provision is similar to the methodology used in current Commission rules that differentiate among companies based on their size, 18 and is intended to reduce regulatory complexity. 17 Reproposed Rule 2a-46(b)(1). Reproposed Rule 2a-46(b)(2) would define the term “common equity” for purposes of Rule 2a-46(b) by reference to the definition of the same term in Rule 405 under the Securities Act. 18 *See* Form S-3 [17 CFR 239.13]; Securities Offering Reform, Securities Act Release No. 8591 (July 19, 2005) [67 FR 44722 (Aug. 3, 2005)] (“Securities Offering Reform”). We discuss the use of a size-based standard and each of the alternatives below. 1. Size-Based Standard In the 2004 Proposing Release, we questioned whether a size-based standard could:
(1)Result in a company's eligible portfolio company status fluctuating frequently as a result of market and economic conditions;
(2)allow a company to manipulate its capital structure to fall below a specified level; and
(3)introduce regulatory arbitrage by encouraging registered closed-end funds to elect BDC status so that they could have the benefit of the lighter regulatory burdens applicable to BDCs under the Investment Company Act. We also noted that it was unclear what level of market capitalization would be appropriate to define an eligible portfolio company. 19 19 *See* 2004 Proposing Release, *supra* note 6 at nn. 34-36 and accompanying text. After careful review, we have reconsidered our initial concerns about using a size-based standard and believe that these concerns may be addressed. First, we have addressed our concern that a company's eligible portfolio company status may fluctuate based on market conditions by proposing, in both Alternative One and Alternative Two of Rule 2a-46(b), that the size would be computed using the price at which the company's common equity was 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, determined as of a single date within 60 days immediately prior to a BDC's acquisition of the company's securities. Second, permitting a company to meet the size-based standard on a single date within the 60-day period immediately prior to a BDC's acquisition of the company's securities also lessens our concern that a company might manipulate its capital structure to meet that standard. Third, with respect to our regulatory arbitrage concern, based upon further evaluation of the differences between registered closed-end funds and BDCs, we believe that most closed-end funds probably would not elect BDC status merely because of the different regulatory framework. Unlike BDCs, most closed-end funds are not structured so as to be able to offer managerial assistance to their portfolio companies. In addition, we believe that most closed-end funds probably would not choose a regulatory framework that would cause them to forego some investment flexibility by requiring them to invest a large percentage of their assets in privately negotiated transactions. One commenter also noted that a closed-end fund would be unlikely to elect BDC status “unless it was committed to the BDC mission to finance small and developing companies” because of certain regulatory requirements to which BDCs, but not closed-end funds, currently are subject. 20 Finally, based on our review of the comments, we believe that a size-based standard would provide a bright-line test that is easy to administer. 20 Comments of Allied Capital (Jan. 7, 2005). *See also* comments of UTEK (Jan. 7, 2005). These commenters noted compliance costs related to the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002), and reporting obligations under the Exchange Act, as some of the regulatory burdens that might act to deter a closed-end fund that has no reason to elect BDC status, other than an interest in a different regulatory framework, from seeking to elect that status. 2. Alternative Proposals As one commenter pointed out, there is no single standard that precisely defines the types of companies that could benefit from BDC financing. 21 After carefully considering the comments on the original proposal and with this in mind, we are proposing the following two alternatives of Rule 2a-46(b) that we believe are consistent with the purpose Congress intended. In addition, as noted above, we have addressed the concerns we originally had regarding the use of a size-based standard. 21 Comments of Allied Capital (Jan. 7, 2005).
(a)$75 Million Public Float (Alternative One) Alternative One would define eligible portfolio company to include companies whose securities are listed on an Exchange and have a public float of less than $75 million. 22 Alternative One incorporates the size-based standard used in Form S-3 and Rule 12b-2 under the Exchange Act. 23 We have used this standard to delineate between small, unseasoned companies, and larger, seasoned companies whose securities are listed on an Exchange. 24 For example, to register a primary securities offering for cash on Form S-3, a company must have public float of at least $75 million. 25 Companies that meet the eligibility requirements of Form S-3 are mature enough to be able to take advantage of short-form registration, including the resultant benefits of incorporation by reference and quick access to the capital markets through “shelf registration.” Similarly, under Rule 12b-2 under the Exchange Act, a company with $75 million public float or more would be an “accelerated filer,” and thus be required to meet accelerated deadlines in filing certain Exchange Act reports. 26 22 Reproposed Rule 2a-46(b). 23 Alternative One, while based on the requirements of Form S-3 and Rule 12b-2, does not incorporate any of the reporting requirements found in those rules out of concern that doing so could capture some companies that may not qualify to use Form S-3 or be considered an accelerated filer only because they were not in compliance with the reporting requirements. We are soliciting comments on this concern. 24 Under recently adopted rules, an “unseasoned issuer” is defined as a company that is required to file reports under Section 13 or Section 15(d) of the Exchange Act [15 U.S.C. 78m or 78 *o* (d)], but does not satisfy the requirements of Form S-3 for a primary offering of its securities; a “seasoned issuer” is defined as a company that is eligible to use Form S-3 for a primary offering of securities; and a “well-known seasoned issuer” is defined to include a company that, among other things, has at least $700 million public float. Securities Offering Reform, *supra* note 18. 25 In addition to having public float of at least $75 million, a company is eligible to use Form S-3 to register a primary offering of its securities for cash if it:
(1)is organized under the laws of the United States or any state and has its principal business operations in the United States;
(2)has a class of securities registered under Section 12(b) or a class of equity securities registered under Section 12(g) of the Exchange Act [15 U.S.C. 78 *l*
(b)or (g)], or is required to file periodic reports under Section 15(d) of the Exchange Act [15 U.S.C. 78 *o* (d)];
(3)has been subject to the requirements of Section 12 or Section 15(d) of the Exchange Act and has filed in a timely manner all of the material required to be filed under Sections 13, 14 or 15(d) of the Exchange Act for at least one year [15 U.S.C. 78m, 78n or 78 *o* (d)]; and
(4)has not failed to pay a dividend or sinking fund installment on preferred stock or defaulted on certain specified obligations since the end of the last fiscal year. 26 Accelerated filers, in addition to having a public float of $75 million or more, are companies that meet the following conditions as of the end of their fiscal year:
(1)they have been subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 calendar months;
(2)they previously have filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act; and
(3)they are not eligible to use Forms 10-KSB and 10-QSB [17 CFR 249.310(b) and 17 CFR 249.308(b)]. *See* Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web site Access to Reports, Securities Act Release No. 8128 (Sept. 5, 2002) [67 FR 58480 (Sept. 16, 2002)]. We believe that Alternative One would capture companies that Congress intended to benefit from BDC financing. In this regard, the Commission's Office of Economic Analysis (“OEA”) estimates that, based on June 2006 data, Alternative One would increase the percentage of public domestic operating companies that would meet the definition of eligible portfolio company by 9.1 percent (a total of 896 companies). OEA's calculations relating to public float are based, for the most part, on a public float definition that is similar to the definition of public float used for purposes of Form S-3 and is included in Alternative One. 27 New Rule 2a-46, based on June 2006 data, includes approximately 61.4 percent of public domestic operating companies (a total of 6,041 companies). 28 Thus, approximately 70.5 percent (6,937/9,845) of existing domestic public operating companies could qualify as eligible portfolio companies under new Rule 2a-46 and Alternative One of reproposed Rule 2a-46(b). 29 27 OEA relied on the estimate of public float provided by Bloomberg LLP in calculating the estimates used in this Release. Bloomberg defines public float as the number of shares outstanding less shares held by insiders and those deemed to be “stagnant shareholders.” “Stagnant shareholders” include ESOPs, ESOTs, QUESTs, employee benefit trusts, corporations not actively engaged in managing money, venture capital companies and shares held by governments. Bloomberg provides estimates of public float for 3,471 out of 3,804 (91%) of the domestic operating companies identified. For the 333 companies for which OEA was unable to obtain an estimate of public float, OEA used each company's market capitalization. Since small public companies often have a high percentage of insider investors, using market capitalization most likely results in a number that underestimates the number of companies that have a public float of less than $75 million. 28 *See* Adopting Release, *supra* note 1 at text following n.17. 29 We note that our estimates reflect only those companies with less than $75 million public float whose securities are listed on Nasdaq, the New York Stock Exchange (“NYSE”) and the American Stock Exchange (“Amex”). The estimates do not reflect those companies whose securities are exclusively listed on a regional exchange ( *i.e.* , those companies whose securities are not dually listed on the NYSE, the Amex or Nasdaq) because such information is not available on our primary data source. While there are only a limited number of these companies, we believe that most of them have a public float of less than $75 million and thus would also be eligible portfolio companies under either of the proposed alternatives of Rule 2a-46(b). We note that Alternative One is similar to a suggestion made by one commenter, a BDC. 30 This commenter suggested that we define eligible portfolio company to include public companies that have market capitalization of less than $100 million to ensure that BDCs continue to invest most of their assets in smaller companies. 31 30 Comments of Capital Southwest Corporation (Dec. 28, 2004). 31 We estimate that there is little difference between the number of companies that would be included under the standard proposed under Alternative One and a standard using $100 million market capitalization. OEA estimates that approximately 918 public domestic operating companies would be included under a $100 million market capitalization standard, compared to 896 public domestic operating companies that would be included under a $75 million public float standard (a difference of 22 companies). Finally, we note that Congress intended that we consider a number of factors in engaging in any rulemaking to define eligible portfolio company, including the extent of companies' public ownership. 32 We have considered this factor in proposing Alternative One, which, by using public float, excludes insider ownership of a company. 33 Nevertheless, as discussed below, we are also soliciting comment on using a market capitalization test.
(b)$150/$250 Million Market Capitalization (Alternative Two) Alternative Two would define eligible portfolio company to include companies that have securities listed on an Exchange based on their market capitalizations. As discussed below, we propose two ceilings under this alternative—$150 million market capitalization and $250 million market capitalization. 34 32 *See supra* note 5. 33 *See supra* note 16. 34 Reproposed Rule 2a-46(b). We solicited comment on the possibility of using a market capitalization standard in the 2004 Proposing Release. Many commenters urged us to adopt a numeric threshold based on market capitalization. 35 Some commenters noted that companies with market capitalization up to $300 million generally are followed by fewer analysts, have lower institutional ownership and have lower trading volume than companies at higher levels of market capitalization. 36 These commenters concluded that such companies have difficulty accessing the public capital markets. We recognize that, at some level of market capitalization, there may be a difference in public awareness of a company as measured by analyst coverage, institutional ownership and other factors that may be related to the company's ability to attract capital. 37 35 *Supra* note 13. 36 Comments of Representatives Sue Kelly and Nydia Vela zquez at n.12 (Jan. 5, 2005); comments of Williams & Jensen (Feb. 17, 2006). These commenters referred to analysis prepared by OEA in connection with Securities Offering Reform. *See* memorandum dated December 3, 2004 (“OEA Memorandum”) 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”). We note that OEA prepared this memorandum to support differentiating among public companies for purposes of defining well-known seasoned issuers. *See supra* note 24. Also, the OEA Memorandum does not exclude foreign companies and certain domestic, financial companies. *See* Sections 2(a)(46)(A) and (B), *supra,* note 5. The set of companies discussed in that memorandum therefore is not directly comparable to the set of companies that might be defined as eligible portfolio companies under Rule 2a-46 and proposed Rule 2a-46(b). *See also* comments of Allied Capital (Jan. 7, 2005) (data compiled by Banc of America Securities LLC at Appendix A used to make similar point); comments of UTEK (Jan. 7, 2005) (general statement of similar point). 37 *See* Background Statistics: Market Capitalization & Revenue of Public Companies, August 1, 2005 revision, prepared by OEA and included at Appendix I of Exposure Draft of Final Report of Advisory Committee on Smaller Public Companies, Securities Act Release No. 8666 (modified Mar. 15, 2006), available at *www.sec.gov/rules/other/33-8666.pdf.* This data does not exclude foreign companies and certain domestic, financial companies. Like the set of companies discussed in the OEA Memorandum, it therefore is not directly comparable to the set of companies that might be defined as eligible portfolio companies under Rule 2a-46 and proposed Rule 2a-46(b). *See* Sections 2(a)(46)(A) and (B), *supra,* note 5. In addition, we note that many investment companies classify themselves with reference to the size of the companies in which they invest. 38 Similar size-based classifications also are often used by market participants. These classifications generally assist investors in making their investment choices. In particular, we note the general use of the term “microcap” to identify some small, public companies. This classification typically refers to companies with market capitalization of less than $150 million to less than $300 million. 39 Microcap issuers often include, among others, small start-up companies. 40 38 *See, e.g., http://biz.yahoo.com/funds/sm_mf2.html.* 39 There is no one generally accepted definition of microcap issuer. Morgan Stanley and the Motley Fool define a microcap issuer to be issuers with market capitalizations of less than $150 million. *See e.g., http://www.fool.com/school/glossary/glossaryc.htm; http://www.morganstanleyindividual.com/customerservice/dictionary.* Yahoo generally refers to microcap funds as funds that invest in companies with less than $250 million. *Supra* note 38. *See also http://www.investorwords.com/3050/micro_cap.html* (microcap companies include those companies with market capitalization of under $250 million). Lipper Inc. defines microcap funds as those funds that invest primarily in companies with market capitalization less than $300 million at the time of purchase. Lipper, U.S. Open-End, Closed-End, Variable Annuity, and Overseas Fund Classifications Descriptions (Version 1.2, updated: April 11, 2006), available at *www.Lipperweb.com.* 40 Some larger, more established public companies, in addition to small, start-up public companies, would qualify as eligible portfolio companies under Alternative Two. We note that certain larger companies were historically included under the definition of eligible portfolio company before 1998. *See* 2004 Proposing Release, *supra* note 6. We believe that market-based classifications are useful to consider in designing a standard to define the type of company that could benefit from BDC financing. Nevertheless, we note that market participants use different bases to determine these classifications. Accordingly, we are proposing for comment two different market capitalization ceilings. The first ceiling would define an eligible portfolio company to include companies that have securities listed on an Exchange that have less than $150 million market capitalization. This is similar to the classification that some market participants use to identify some small, public companies. 41 The second ceiling would define an eligible portfolio company to include companies that have securities listed on an Exchange that have less than $250 million market capitalization. This ceiling mirrors legislation proposed last year 42 and is also similar to the classification that other market participants use to identify some small, public companies. 43 41 *See supra* note 39. 42 The “Increased Capital Access for Growing Business Act” was passed by the House of Representatives on April 6, 2005. H.R. 436, 109th Cong., 1st Sess.
(2005)(previously H.R. 3170); S. 1396, 109th Cong., 1st Sess.
(2005)(mirrors H.R. 436). Both H.R. 436 and S. 1396 currently are pending before the Senate Committee on Banking, Housing and Urban Affairs. This ceiling is also consistent with some commenters' suggestions. *See* comments of Williams & Jensen (Feb. 17, 2006) (“The $250 million market capitalization level included in the legislation is consistent with the original Congressional intent.”). *See also* comments of Representatives Sue Kelly and Nydia Vela zquez (Jan. 5, 2005); comments of UTEK (Jan. 7, 2005); comments of Allied Capital (Jan. 7, 2005); comments of American Capital (Jan. 7, 2005); comments of Representative Michael Oxley, Representative Richard Baker and Representative Sue Kelly (Nov. 15, 2005); comments of Chamber of Commerce of the United States of America (Dec. 13, 2005); comments of Senator Charles Schumer and Senator Robert Menendez (Apr. 24, 2006). 43 *See supra* note 39. OEA estimates that based on June 2006 data, Alternative Two would increase the percentage of public domestic operating companies that would meet the definition of eligible portfolio company. A ceiling of $150 million market capitalization would increase the percentage of eligible portfolio companies by 11.8 percent (a total of 1,168 companies). Since new Rule 2a-46, based on June 2006 data, includes approximately 61.4 percent of public domestic operating companies (a total of 6,041 companies), approximately 73.2 percent (7,209/9,845) of existing domestic public operating companies could qualify as eligible portfolio companies under the combination of the two provisions. A ceiling of $250 million market capitalization would increase the percentage of eligible portfolio companies by 16 percent (a total of 1,562 companies), for a total of approximately 77.2 percent (7,603/9,845) of existing domestic public operating companies under the combination of new Rule 2a-46 and this version of Alternative Two. 3. Solicitation of Comments We are requesting comment on whether Alternative One, one of the two versions of Alternative Two, or another alternative not discussed in this Release, would accomplish the objective of more closely aligning the definition of eligible portfolio company with the purpose that Congress intended. We are particularly interested in comments from small businesses with respect to the impact that the alternatives (Alternative One and both versions of Alternative Two) may have on them. We are also interested in receiving information about small businesses' experiences relating to their ability to raise capital through securities offerings or to borrow money through conventional sources ( *e.g.* , banks). We specifically request comment on the following points: • Please provide your view as to whether Alternative One or one of the two versions of Alternative Two more closely aligns the definition of eligible portfolio company with the purpose that Congress intended. Do any of the proposals (Alternative One or one of the two versions of Alternative Two) better expand the definition of eligible portfolio company consistent with the purpose of SBIIA? Please provide empirical and analytical evidence that supports your response. If you believe that none of the proposals meets the objective of expanding the definition consistent with the purpose of SBIIA, please provide us with another suggestion that meets this objective, with supporting empirical and analytical evidence. In particular, please comment on whether the ceiling in any suggestion should be lower or higher than those included in the proposals. Please also comment on whether it is more appropriate to use a standard based on public float or market capitalization. For example: ○ Alternative One mirrors the standard used in Form S-3 and Rule 12b-2 of $75 million public float. Would it be more appropriate to use a lower ceiling based on Regulation S-B under the Securities Act of 1933 and the Exchange Act, which defines a “small business issuer” as, among other things, an issuer that has revenues of less than $25 million, but would not include an issuer that has public float of $25 million or more? ○ Would a ceiling other than the one included under Alternative One or one of the two versions of Alternative Two, or another ceiling not discussed in this Release, be a better way of achieving our objective of more closely aligning the definition of eligible portfolio company with Congress's intent? For example, one commenter suggested a ceiling of $300 million market capitalization based on its analysis of companies that have difficulty accessing capital. 44 44 Comments of Williams & Jensen (Feb. 17, 2006). ○ We are particularly mindful of the unique position of BDCs as regulated investment companies under the Investment Company Act. Congress amended the Investment Company Act in recognition of the differences between BDCs and other investment companies, and the “valuable function in the capital formation process” that BDCs provide. 45 In enacting these amendments, Congress was careful to balance investor protections against the benefits of increasing the flow of public capital to certain companies. 46 One commenter expressed its concern that a high size-based standard could result in BDCs focusing their investment activities on larger companies to the detriment of the companies that BDCs were intended to help. 47 We solicit comment on this concern. We also request comment on whether either of the proposed alternatives, or a different alternative, would have a negative impact on BDC investors. 45 House Report at 21. *See* Section I, 2004 Proposing Release, *supra* note 6. 46 House Report at 22 (“the Committee is cognizant of the need to avoid compromising needed protection for investors in the name of reducing regulatory burdens. * * * Consequently, [SBIIA] is intended to preserve to the fullest possible extent [the application of investor protections of the federal securities laws to BDCs and their operators], while at the same time reducing unnecessary regulatory burdens.”). *See* 2004 Proposing Release, *supra* note 6 at n.4 and accompanying text (discussing regulatory flexibility given to BDCs). 47 *See* supra notes 30-31and accompanying text. *See also* comments of Investment Company Institute (Jan. 6, 2005). ○ Congress noted that we may consider a number of factors in adopting rules to define eligible portfolio company, including the extent of companies' public ownership. 48 We have used public float (which excludes insider ownership of a company 49 ) as the basis for Alternative One. We have used market capitalization (which includes all public ownership, including insiders' interests) as the basis for Alternative Two. Please comment on which standard (public float or market capitalization) you believe more closely aligns the definition of eligible portfolio company with Congress's purpose. 48 *See supra* note 5. 49 *See supra* note 16. ○ We understand that it is more difficult to obtain a company's public float from reliable third-party sources than it would be to obtain a company's market capitalization, which is readily available through such sources. 50 Although public float information is not readily available through third-party sources, we expect that the costs involved in a BDC complying with these requirements would be minimal. Section 55 of the Investment Company Act generally requires a BDC to invest in eligible portfolio companies through privately negotiated transactions, and we anticipate that a BDC would be able to obtain this information from the company during the course of those negotiations. 51 Are these assumptions accurate, or would it be burdensome for a BDC to determine a company's eligible portfolio company status if it is based on public float rather than market capitalization? 50 Although companies required to file reports with us under the Exchange Act are required to disclose their public float on the cover page of Form 10-K [17 CFR 249.310], that information may be outdated at the time a BDC seeks to invest in that company. 51 We also understand that the question of whether a company would meet the public float standard would only be at issue if that company has a market capitalization of the dollar amount specified under the standard ( *e.g.* , in the case of Alternative One, $75 million) or greater. • Unlike Form S-3 and Rule 12b-2, Alternative One of reproposed Rule 2a-46(b) does not incorporate any of the qualifying requirements included in Form S-3 or Rule 12b-2 based on the issuer's reporting history under the Exchange Act out of concern that doing so could capture some larger companies that may not qualify to use Form S-3, or be considered accelerated filers, solely because they had not complied with the respective regulation's reporting requirements ( *e.g.* , company missed deadlines because of auditing issues). We solicit comment on this concern. Should such reporting requirements be included in the definition of eligible portfolio company under Alternative One? In other words, to the extent that you believe Alternative One is an appropriate standard, should it exclude a company from the definition of eligible portfolio company because the company cannot meet all of the eligibility requirements for use of Form S-3 or because it does not meet the definition of accelerated filer under Rule 12b-2? • We are proposing that a company must only meet the standard on a single date within the 60-day period immediately prior to the BDC's acquisition of the company's securities for purposes of determining its status as an eligible portfolio company under the reproposed definition. Is this timing appropriate? Should a company be required to meet the standard for more than one day during the 60-day period ( *e.g.* , at least for 5, 10, 20 non-consecutive days within the 60-day period, or an average over a specified period of time)? Should the requirement be that a company must meet the size-based standard using the average of the 60-day period immediately before an acquisition by a BDC? Is the 60-day period appropriate? Would a shorter or longer time period ( *e.g.* , 30 days, 75 days), or an average over a specified period of time, be more appropriate? In your response, please explain why your alternative would be more appropriate than the 60-day period that we are proposing. • The 2004 Proposing Release was intended to address the need of financially troubled companies that are at risk of losing their listing status to access BDC capital, as well as small, developing companies. 52 One commenter indicated that proposed Rule 2a-46(b) would not include all of the financially troubled companies that provision was intended to include—that is, companies that have a class of securities listed on an Exchange, but that are in danger of having their securities delisted because they no longer meet the relevant Exchange's quantitative requirements for continued listing on that Exchange and that do not satisfy an Exchange's initial quantitative requirements for listing any class of their securities. 53 We believe that many of such companies would meet the size-based criteria specified under either alternative of reproposed Rule 2a-46(b), and therefore be included under the reproposed definition. In addition, such companies might be permissible investments for BDCs to make under Section 55(a)(3), which permits a BDC to include in its 70 percent basket securities of a company purchased from the company or certain affiliates of the company in specific situations demonstrating financial distress, including bankruptcy proceedings. Nevertheless, we request comment as to whether there are some financially troubled companies that could benefit from BDC financing but would not meet the definition of eligible portfolio company under Alternative One or Alternative Two of reproposed Rule 2a-46(b). If you believe that there are, we request comment on how such companies could be defined. For example, should the definition be based on a company's failure to meet one or more initial or continuing quantitative listing standards of any Exchange for a certain period of time? If yes, which quantitative listing standard(s) would be appropriate on which to base eligibility? How long must a company be out of compliance with the quantitative listing standard(s) before it would meet the definition? 52 *See* 2004 Proposing Release, *supra* note 6 at nn. 37-41 and accompanying text. 53 Comments of Shearman & Sterling LLP (Jan. 7, 2005). III. General Request for Comment We request comment on reproposed Rule 2a-46(b) and on other matters that might have an effect on our proposal. For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, we also request information regarding the potential impact of reproposed Rule 2a-46(b) on the economy on an annual basis. Commenters are requested to provide empirical data to support their views. IV. Cost-Benefit Analysis We are sensitive to the costs and benefits that result from our rules. In the Proposing Release we requested public comment and specific data regarding the costs and benefits of reproposed Rule 2a-46(b). While commenters agreed that proposed Rule 2a-46 would benefit some companies, most urged the Commission to modify the proposed rule to expand the definition to include more companies. A. Benefits Both Alternative One and Alternative Two of the expanded definition of eligible portfolio company are designed to benefit many of the companies that may have lost their eligible portfolio company status because of the 1998 changes to the Federal Reserve Board's definition of margin stock. Specifically, both alternatives are designed to benefit certain companies by expanding the definition of eligible portfolio company to include any domestic operating company with a class of securities listed on an Exchange that meets the specified size-based standard. Many public companies that would be included under reproposed 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 conventional sources. By including such companies within the definition of eligible portfolio company, those companies and their shareholders would benefit because of the expanded sources of capital from which the companies may seek to obtain financing. Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would also benefit BDCs by expanding the universe of investments that BDCs may include as part of their 70 percent basket. In addition, both would benefit BDCs by addressing the uncertainty caused by changes in the margin rules in the operation of BDCs. 54 Industry participants have informed us that the 1998 amendment to the margin rules has substantially reduced the number of issuers which BDCs may include in their 70 percent basket and accordingly has adversely affected their business operations. 54 *See, e.g.* , comment of American Capital Strategies (Jan. 7, 2005). OEA estimates that as of June 30, 2006, there were a total of 896 domestic operating companies whose securities are listed on Nasdaq, the NYSE and the Amex that have a public float of less than $75 million, and therefore would qualify as eligible portfolio companies under Alternative One. OEA reached this estimate by first calculating the number of companies whose securities were listed on Nasdaq, the NYSE and the Amex (a total of 6,786 companies), corrected for cases where individual companies had multiple classes of securities listed (60 companies), and then removing from the 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 ( *e.g.* , REITS, banks, insurance companies) 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 (a deduction of 2,982 companies) to reach a total of 3,804 companies. 55 OEA determined that of these companies, 896 had a public float of less than $75 million. 56 OEA further estimates that Alternative One, together with new Rule 2a-46 (which would be redesignated as Rule 2a-46(a)), 57 would include within the definition of eligible portfolio company 6,937 companies, representing 70.5 percent (6,937/9,845 58 ) of public domestic operating companies. 55 As we discussed in the Adopting Release, one commenter argued that the Commission incorrectly calculated the number of companies that the proposed rule would benefit and wrote that the proposal would benefit even fewer companies than the Commission estimated. The commenter's figure is lower than the figure calculated by OEA. It appears that the commenter did not deduct from its calculation foreign companies, investment companies and companies that are excluded from the definition of investment company by Section 3(c). *See* Adopting Release, *supra* note 1 at n.33. 56 *See supra* note 27. 57 OEA estimated that, based on June 2006 data, Rule 2a-46 as adopted today includes 6,041 domestic operating companies (61.4% of all domestic operating companies). *See* Adopting Release, *supra* note 1 at Section III.A. 58 OEA estimates that, as of June 2006, there were 9,845 public domestic operating companies by calculating the number of companies whose securities are listed on Nasdaq, the NYSE and the Amex, in addition to those companies whose securities are 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). OEA estimates that there are a total of 1,168 domestic operating companies whose securities are listed on Nasdaq, the NYSE and the Amex that have a market capitalization of less than $150 million, 59 and therefore would qualify as eligible portfolio companies under the $150 million market capitalization standard set forth in Alternative Two. 60 Accordingly, OEA estimates that this standard, together with new Rule 2a-46 (which would be redesignated as Rule 2a-46(a)), would include within the definition of eligible portfolio company 7,209 companies, representing 73.2 percent (7,209/9,845) of public domestic operating companies. 61 59 As with Alternative One, OEA reached this estimate after first calculating the number of companies whose securities are listed on Nasdaq, the NYSE and the Amex, corrected for cases where individual companies had multiple classes of securities listed, and then removing from these figures all foreign companies, investment companies and companies that are excluded from the definition of investment company by Section 3(c) ( *e.g.* , REITS, banks, insurance companies) because both Section 2(a)(46) and Rule 2a-46 exclude these types of companies from the definition of eligible portfolio company. 60 Market capitalization data was obtained from CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago [2006]. Used with permission. All rights reserved. *www.crsp.uchicago.edu.* 61 *See supra* note 57. Finally, OEA estimates that there are a total of 1,562 domestic operating companies whose securities are listed on Nasdaq, the NYSE and the Amex that have a market capitalization of less than $250 million, 62 and therefore would qualify as eligible portfolio companies under the $250 million market capitalization standard set forth in Alternative Two. 63 Accordingly, OEA estimates that this standard, together with new Rule 2a-46, would include within the definition of eligible portfolio company 7,603 companies, representing 77.2 percent (7,603/9,845) of public domestic operating companies. 64 62 *See supra* note 59. 63 *See supra* note 60. 64 *See supra* note 57. OEA's analysis of the number and percentage of companies that could qualify as eligible portfolio companies under Alternative One and the two versions of Alternative Two are based on market capitalization and public float calculated as of a particular day. Because both Alternative One and Alternative Two allow for companies to meet the test on any date within a 60-day period, OEA's figures may underestimate the number of companies that would be eligible under either version. B. Costs Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) might impose certain administrative compliance costs on BDCs. It is our understanding, however, that these costs are similar to the types of compliance costs that a BDC currently undertakes when it invests in an issuer. Under Alternative One, a BDC would need to determine, prior to investing in a company, if the company has a class of securities on an Exchange and whether that company's public float was less than $75 million as of a date within 60 days prior to the date of the BDC's investment. Although public float information is not readily available through third-party sources, 65 we expect that the costs involved in a BDC complying with these requirements would be minimal. Section 55 of the Investment Company Act generally requires a BDC to invest in eligible portfolio companies through privately negotiated transactions, and we anticipate that a BDC would be able to obtain this information from the company during the course of those negotiations. 65 Although companies required to file reports with us under the Exchange Act are required to disclose their public float on the cover page of Form 10-K [17 CFR 249.310], that information may be outdated at the time a BDC seeks to invest in that company. Under the $150 million market capitalization version of Alternative Two, a BDC would need to determine, prior to investing in a company, if the company has a class of securities on an Exchange and whether that company's market capitalization was less than $150 million as of a date within 60 days prior to the date of the BDC's investment. Similarly, under the $250 million market capitalization version of Alternative Two, a BDC would need to determine, prior to investing in a company, if the company has a class of securities 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 expect that the compliance costs on BDCs might be slightly lower under either version of Alternative Two because information about the market capitalization of companies is readily available from third-party sources. Finally, we anticipate that both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would impose only minimal, if any, costs on portfolio companies. C. Request for Comments We request comment on the potential costs and benefits identified above and any other costs and benefits that may result from either Alternative One or Alternative Two of reproposed Rule 2a-46(b). Are there any direct or indirect costs that we have not identified? For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, the Commission also requests information regarding the impact of each alternative on the economy on an annual basis. Commenters are requested to provide data to support their views. 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. 66 In the 2004 Proposing Release, we requested comment on our analysis of the impact of proposed Rule 2a-46 on efficiency, competition and capital formation. As discussed in Section II of this Release, some commenters argued that proposed Rule 2a-46(b) would be too narrow and would not capture all of the companies that could benefit from BDC financing. We interpreted these comments to suggest that capital formation may have been limited under the proposed rule. In addition, one commenter wrote that the proposal failed to identify private investments in public equity (“PIPE”) as one source of competition for BDC financing. 67 The commenter also believed that the proposal failed to consider the impact on the shareholders of companies receiving BDC or PIPE financing. 68 66 15 U.S.C. 80a-2(c). 67 The commenter explained that entities that provide financing through PIPE transactions include hedge funds and private venture capital funds, both of which compete with BDCs in providing capital in the small business market. The commenter also noted its belief that the use of PIPE transactions illustrates the lack of access to traditional forms of capital for certain public companies. Comments of Williams & Jensen (Feb. 17, 2006). 68 *Id* . In light of the comments received, the Commission is reproposing Rule 2a-46(b) to more closely align the definition of eligible portfolio company, and the investment activities of BDCs, with the purpose intended by Congress. Both alternatives of the reproposed definition are designed to promote efficiency, competition and capital formation. Specifically, efficiency would be enhanced because both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would expand the definition of eligible portfolio company so as to allow BDCs to compete with other entities that provide capital to certain companies. To the extent that BDCs provide capital at lower cost to these companies, the rules promote a more efficient flow of capital, potentially allowing those companies to take on additional or different investment projects. Both alternatives of reproposed Rule 2a-46(b) in our view also would promote efficiency by providing a workable test for determining whether a company is an eligible portfolio company. We also believe that both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would promote competition. 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, hedge funds, investment banks and other BDCs, to provide financing to certain companies. We believe that both alternatives of the reproposed rule would encourage such competition. 69 In addition, to the extent that BDCs provide either additional or less expensive capital to these companies, those companies may be more competitive in the marketplace. 69 Williams & Jenson commented that we did not consider PIPE transactions in our discussion in the 2004 Proposing Release of how proposed Rule 2a-46 would promote competition. This argument, however, focuses on one particular type of financing that is used by entities that compete with BDCs in funding small businesses. Neither Rule 2a-46 adopted today, nor reproposed Rule 2a-46(b), however, differentiates among the types of financing that may be offered to eligible portfolio companies. Instead, the rule, as adopted and reproposed, provides a definition of eligible portfolio company that would permit BDCs to invest their 70% baskets without regard to the type of financing offered. Thus, BDCs and eligible portfolio companies would be permitted to negotiate the type of financing (including PIPE transactions) that is most appropriate under the circumstances. In response to the commenter's concern that the proposal did not consider the impact on shareholders of companies receiving BDC or PIPE financing, we note that shareholders of companies that had lost their status as eligible portfolio companies would benefit under either version of the reproposed rule because such companies would be able to more readily consider BDCs as a source of financing. We anticipate that these companies would consider both the type of financing offered and the entity offering the financing when determining the type and source of financing that would be in their best interests and the best interests of their shareholders. Finally, we believe that both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would promote capital formation. BDC investments represent additional capital to companies. Each version would expand the definition of eligible portfolio company. We estimate that a total of 896 public domestic operating companies would qualify as an eligible portfolio company under Alternative One, 1,168 public domestic operating companies would qualify as an eligible portfolio company under the $150 million market capitalization version of Alternative Two, and 1,562 public domestic operating companies would qualify as an eligible portfolio company under the $250 million market capitalization version of Alternative Two. 70 70 *See supra* notes 55-64 and accompanying text. VI. Paperwork Reduction Act The Commission has determined that these rules do not involve a collection of information pursuant to the provisions of the Paperwork Reduction Act [44 U.S.C. 3501 *et seq.* ]. VII. Initial Regulatory Flexibility Analysis This Initial Regulatory Flexibility Analysis (“IRFA”) has been prepared in accordance with 5 U.S.C. 603. It relates to reproposed Rule 2a-46(b) under the Investment Company Act. The Commission is proposing two alternatives of an additional definition of eligible portfolio company. Both alternatives would expand the definition of eligible portfolio company to include certain companies whose securities are listed on an Exchange. Alternative One would define eligible portfolio company to include a company whose securities are listed on an Exchange but that has public float of less than $75 million. Alternative Two would define eligible portfolio company to include a company whose securities are listed on an Exchange but has a market capitalization of less than either $150 million or $250 million. A. Reasons for the Proposed Action As described in Section I of this Release, the reason for reproposed Rule 2a-46(b) is to further address the unintended impact of the Federal Reserve Board's 1998 amendments to the definition of eligible portfolio company. B. Objectives of the Proposed Action As described in Section II of this Release, the Commission today adopted Rule 2a-46 under the Investment Company Act, which defines eligible portfolio company to include all companies whose securities are not listed on an Exchange. Reproposed Rule 2a-46(b) would expand the definition of eligible portfolio company to include certain companies with a class of securities listed on an Exchange. These companies may need BDC financing for continued development and growth, 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. C. Small Entities Subject to the Rule Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would 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 most recent fiscal year. 71 As of December 2005, there were 87 BDCs, of which 66 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. 72 We estimate that there are approximately 2,500 companies, other than investment companies, that may be considered small entities. 71 17 CFR 270.0-10. 72 17 CFR 230.157; 17 CFR 240.0-10. As discussed in this Release, reproposed 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. Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would also benefit BDCs, including those that are small entities, by expanding the universe of investments that BDCs may include as part of their 70 percent basket. We have no reason to expect that those BDCs and companies that are small entities for purposes of the Regulatory Flexibility Act would be disproportionately affected by either alternative. We request comment on the effects and costs of both Alternative One and Alternative Two on small entities. D. Reporting, Recordkeeping and Other Compliance Requirements Neither Alternative One nor Alternative Two of reproposed Rule 2a-46(b) would impose any new reporting or recordkeeping requirements on BDCs or on companies. They also would impose only minimal, if any, compliance requirements on portfolio companies. Both Alternative One and Alternative Two of reproposed Rule 2a-46(b), however, would impose minimal compliance requirements on BDCs, including small entities. 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. Under Alternative One, a BDC, prior to investing in a company, would need to determine whether the company has a class of securities listed on an Exchange and whether that company's public float was less than $75 million as of a date within 60 days prior to the date of the BDC's investment in the company. Public float information is not readily available through third-party sources. Section 55 of the Investment Company Act, however, generally requires a BDC to invest in eligible portfolio companies through privately negotiated transactions, and so we anticipate that a BDC would be able to obtain this information from the company during the course of these negotiations. Similarly, we expect that the compliance burden imposed on BDCs, including those that are small entities, would be minimal under either the $150 million market capitalization version of Alternative Two or the $250 million market capitalization version of Alternative Two. Under the $150 million market capitalization version, a BDC would need to determine, prior to investing in a company, if the company has a class of securities on an Exchange and whether that company's market capitalization was less than $150 million as of a date within 60 days prior to the date of the BDC's investment. Similarly, under the $250 million market capitalization version, a BDC would need to determine, prior to investing in a company, if the company has a class of securities 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 expect that the compliance burden imposed on BDCs, including those that are small entities, would be slightly lower under either version of Alternative Two than it would be under Alternative One because information about the market capitalization of companies is readily available from third-party sources. Finally, we anticipate that both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would impose only minimal, if any, compliance requirements on portfolio companies, including those that are small entities. E. Duplicative, Overlapping or Conflicting Federal Rules There are no rules that duplicate, overlap or conflict with either Alternative One or Alternative Two of reproposed Rule 2a-46(b). F. Significant Alternatives 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 reproposed Rule 2a-46(b). As discussed above, neither Alternative One nor Alternative Two would impose any reporting requirements on BDCs or on companies. In addition, neither of the alternatives would impose any compliance requirements on portfolio companies. Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) would, 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 under either alternative would be inappropriate. As discussed above, neither Alternative One nor Alternative Two would impose any compliance requirements on portfolio companies. Although both alternatives of reproposed Rule 2a-46(b) would impose some compliance requirements on BDCs, as discussed above, these requirements, which we believe would impose minimal burdens on BDCs, are designed to ensure that BDCs would invest in companies in accordance with the proposed rule. We believe that using performance rather than design standards would add unnecessary complexity. Both Alternative One and Alternative Two of reproposed Rule 2a-46(b) provide 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 the reproposed Rule 2a-46(b). Both Alternative One and Alternative Two of reproposed 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 all or part of either proposed alternative would be contradictory to the purpose of this rulemaking. G. Solicitation of Comments We encourage the submission of comments with respect to any aspect of this IRFA. Comment is specifically requested on the number of small entities that would be affected by Alternative One and each version of Alternative Two and the likely impact on Alternative One and Alternative Two (both versions) on small entities. Commenters are asked to describe the nature of any impact and provide empirical data supporting the extent of the impact. These comments will be considered in connection with the adoption of reproposed Rule 2a-46(b) and will be reflected in the Final Regulatory Flexibility Analysis. VIII. Statutory Authority We are proposing to amend Rule 2a-46 and reproposing Rule 2a-46(b) 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 Proposed Rules For reasons set forth in the preamble, Title 17, Chapter II of the Code of Federal Regulations is proposed to be amended as follows: PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 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. 2. Revise § 270.2a-46 to read as follows: § 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 [held by non-affiliates of less than $75 million] [of less than $150 million] [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] [and *affiliate* have] the same meaning[s] as in 17 CFR 230.405. Dated: October 25, 2006. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E6-18257 Filed 10-30-06; 8:45 am] BILLING CODE 8011-01-P 71 210 Tuesday, October 31, 2006 Presidential Documents Part VIII The President Executive Order 13413—Blocking Property of Certain Persons Contributing to the Conflict in the Democratic Republic of the Congo Notice of October 27, 2006—Continuation of National Emergency Regarding the Proliferation of Weapons of Mass Destruction Title 3— The President Executive Order 13413 of October 27, 2006 Blocking Property of Certain Persons Contributing to the Conflict in the Democratic Republic of the Congo By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 *et seq* .) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 *et seq* .) (NEA), section 5 of the United Nations Participation Act, as amended (22 U.S.C. 287c) (UNPA), and section 301 of title 3, United States Code, I, GEORGE W. BUSH, President of the United States of America, determine that the situation in or in relation to the Democratic Republic of the Congo, which has been marked by widespread violence and atrocities that continue to threaten regional stability and was addressed by the United Nations Security Council in Resolution 1596 of April 18, 2005, Resolution 1649 of December 21, 2005, and Resolution 1698 of July 31, 2006, constitutes an unusual and extraordinary threat to the foreign policy of the United States and hereby declare a national emergency to deal with that threat. To address that threat, I hereby order: **Section 1.**
(a)Except to the extent that section 203(b)(1), (3), and
(4)of the IEEPA (50 U.S.C. 1702(b)(1), (3), and (4)) may apply, or to the extent provided in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the effective date of this order, all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of United States persons, including their overseas branches, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:
(i)the persons listed in the Annex to this order; and
(ii)any person determined by the Secretary of the Treasury, after consultation with the Secretary of State:
(A)to be a political or military leader of a foreign armed group operating in the Democratic Republic of the Congo that impedes the disarmament, repatriation, or resettlement of combatants;
(B)to be a political or military leader of a Congolese armed group that impedes the disarmament, demobilization, or reintegration of combatants;
(C)to be a political or military leader recruiting or using children in armed conflict in the Democratic Republic of the Congo in violation of applicable international law;
(D)to have committed serious violations of international law involving the targeting of children in situations of armed conflict in the Democratic Republic of the Congo, including killing and maiming, sexual violence, abduction, and forced displacement;
(E)to have directly or indirectly supplied, sold, or transferred to the Democratic Republic of the Congo, or been the recipient in the territory of the Democratic Republic of the Congo of, arms and related materiel, including military aircraft and equipment, or advice, training, or assistance, including financing and financial assistance, related to military activities;
(F)to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the activities described in subsections (a)(ii)(A) through
(E)of this section or any person listed in or designated pursuant to this order; or
(G)to be owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person listed in or designated pursuant to this order.
(b)I hereby determine that, to the extent section 203(b)(2) of the IEEPA (50 U.S.C. 1702(b)(2)) may apply, the making of donations of the type of articles specified in such section by, to, or for the benefit of any person listed in or designated pursuant to subsection
(a)of this section would seriously impair my ability to deal with the national emergency declared in this order, and I hereby prohibit such donations as provided by subsection
(a)of this section.
(c)The prohibitions in subsection
(a)of this section include but are not limited to
(i)the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person listed in or designated pursuant to subsection
(a)of this section, and
(ii)the receipt of any contribution or provision of funds, goods, or services from any such person. **Sec. 2.**
(a)Any transaction by a United States person or within the United States that evades or avoids, has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in this order is prohibited.
(b)Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited. **Sec. 3.** For the purposes of this order:
(a)the term “person” means an individual or entity;
(b)the term “entity” means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization; and
(c)the term “United States person” means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States. **Sec. 4.** For those persons listed in or designated pursuant to this order who might have a constitutional presence in the United States, I find that, because of the ability to transfer funds or other assets instantaneously, prior notice to such persons of measures to be taken pursuant to this order would render these measures ineffectual. I therefore determine that for these measures to be effective in addressing the national emergency declared in this order, there need be no prior notice of a listing or determination made pursuant to subsection 1(a) of this order. **Sec. 5.** The Secretary of the Treasury, after consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by the IEEPA and the UNPA as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may redelegate any of these functions to other officers and agencies of the United States Government, consistent with applicable law. All executive agencies of the United States Government are hereby directed to take all appropriate measures within their authority to carry out the provisions of this order and, where appropriate, to advise the Secretary of the Treasury in a timely manner of the measures taken. The Secretary of the Treasury shall ensure compliance with those provisions of section 401 of the NEA (50 U.S.C. 1641) applicable to the Department of the Treasury in relation to this order. **Sec. 6.** The Secretary of the Treasury, after consultation with the Secretary of State, is hereby authorized to submit the recurring and final reports to the Congress on the national emergency declared in this order, consistent with section 401(c) of the NEA (50 U.S.C. 1641(c)) and section 204(c) of the IEEPA (50 U.S.C. 1703(c)). **Sec. 7.** The Secretary of the Treasury, after consultation with the Secretary of State, is hereby authorized, subsequent to the issuance of this order, to determine, and to take necessary action to give effect to that determination, that circumstances no longer warrant the blocking of the property and interests in property of, or the prohibiting of transactions with, a person listed in the Annex to this order. **Sec. 8.** This order is not intended to, and does not, create any right, benefit, or privilege, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, instrumentalities, or entities, its officers or employees, or any other person. **Sec. 9.** This order is effective at 12:01 a.m. eastern standard time on October 30, 2006. GWBOLD.EPS THE WHITE HOUSE, October 27, 2006. Billing code 3195-01-P ED31OC06.036 [FR Doc. 06-9020 Filed 10-30-06; 12:12 pm]
Connectionstraces to 29
Traces to 29 documents
CFR
U.S. Code
15 references not yet in our index
  • 34 CFR 350.13
  • 34 CFR 350.40(a)
  • 34 CFR 350.40(b)
  • 34 CFR 350
  • 34 CFR 86
  • 34 CFR 79
  • 34 CFR 350.54
  • 17 CFR 270
  • 17 CFR 270.2
  • 17 CFR 270.55
  • 15 USC 80a
  • Pub. L. 96-477
  • 57 FR 48970
  • Pub. L. 107-204
  • 15 USC 78
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cites case law
Proposed Rules
Notice
C.F.R.§ 75.105
Fed. Reg.Notices
U.S.C.§ 762
Fed. Reg.Notices
C.F.R.§ 75.210
C.F.R.§ 75.118
U.S.C.§ 80a–54
U.S.C.§ 80a–2
U.S.C.§ 78f
Cite34 CFR 350.13
Cite34 CFR 350.40(a)
Cite34 CFR 350.40(b)
Cites 44 · showing 12Cited by 0 across 0 sources
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