Interval Investment Funds

Interval funds are a type of closed-end fund that offers to buy shares in the fund back from investors at stated intervals and in stated amounts. However, shareholders are not obligated to sell their shares back to the fund.

Interval funds are classified as closed-end funds, but they differ from other types of closed-end funds because shares in interval funds normally are not traded on secondary markets such as national stock exchanges or on Nasdaq. Interval funds also differ from other types of closed-end funds due to the ability of interval funds to offer shares of the funds on a continuous basis valued at the fund’s net asset value.

Periodic repurchase offers are made by interval funds to their shareholders at regular intervals of three, six, or twelve months, according to a pre-set schedule disclosed by the fund to the public through the fund’s prospectus and annual reports. Shareholders also may expect advance notice of upcoming repurchases. Normally, the shareholder must agree by a date certain to sell shares back to the fund at a later date certain.

The value received by the shareholder that agrees to the repurchase will equal the percentage of the fund’s net asset value (total assets minus total liabilities) as of a pre-disclosed date represented by the shares. That pre-disclosed date may not be more than 14 days after the date on which the shareholder must agree to the repurchase. The value received by the shareholder may be reduced by redemption fees of up to two percent of proceeds. The redemption fee that is charged must be related to the expenses of the fund in making the repurchase.

Interval funds are regulated under the Investment Company Act of 1940 and Securities and Exchange Commission rules adopted pursuant to that Act. Interval funds also are subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. SEC Rule 23c-3b.4, adopted pursuant to the Investment Company Act, requires that shareholders must be provided with information that includes:

• A statement that the company is offering to repurchase its securities from security holders at net asset value;


• Any fees applicable to such repurchase;


• The repurchase offer amount;


• The dates of the repurchase request deadline, repurchase pricing date, and repurchase payment deadline, the risk of fluctuation in net asset value between the repurchase request deadline and the repurchase pricing date, and the possibility that the company may use an earlier repurchase pricing date;


• The procedures for security holders to tender their shares and the right of the security holders to withdraw or modify their tenders until the repurchase request deadline;


• The procedures under which the company may repurchase such shares on a pro rata basis;


• The circumstances in which the company may suspend or postpone a repurchase offer;


• The net asset value of the common stock computed no more than seven days before the date of the notification and the means by which security holders may ascertain the net asset value thereafter; and


• The market price, if any, of the common stock on the date on which such net asset value was computed, and the means by which security holders may ascertain the market price thereafter.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.