Proposed Rule2026-20360
Interval Fund Modernization; Expansion of Multiple Share Class to Registered Closed-End Management Investment Companies and Business Development Companies
Primary source
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Published
October 5, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission (the "Commission") is proposing to amend the rule under the Investment Company Act of 1940 that allows registered closed-end management investment companies and business development companies (collectively, "regulated closed-end funds") to make repurchase offers to shareholders at net asset value ("NAV") at periodic intervals pursuant to a fundamental policy ("interval funds"). The proposed amendments would increase flexibility in the rule's repurchase offer framework and modify the rule's liquidity management requirements. The proposal is designed to modernize the framework applicable to these funds by allowing them to better match the liquidity profile of the assets in which they invest, while continuing to provide the operational infrastructure and investor protection of the Investment Company Act of 1940. We also propose amending certain rules that would permit regulated closed-end funds to issue multiple share classes, consistent with routine exemptive relief provided to these funds, and to require certain related disclosure in funds' prospectuses. We further propose to require disclosures in all regulated closed-end fund shareholder reports, a legend in their prospectuses, and an increase in the dollar amount used for the prospectus expense example, to provide investors with information about fund expenses similar to that provided by registered open-end funds. As a result of these amendments for interval funds and multiple share class regulated closed-end funds, we propose to rescind existing related exemptive orders.
Full Text
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<title>Federal Register, Volume 91 Issue 191 (Monday, October 5, 2026)</title>
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[Federal Register Volume 91, Number 191 (Monday, October 5, 2026)]
[Proposed Rules]
[Pages 63388-63470]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20360]
[[Page 63387]]
Vol. 91
Monday,
No. 191
October 5, 2026
Part II
Securities and Exchange Commission
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17 CFR Parts 239, 249, et al.
Proposed Rule
Federal Register / Vol. 91, No. 191 / Monday, October 5, 2026 /
Proposed Rules
[[Page 63388]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 239, 249, 270, and 274
[Release No. 33-11444; 34-106534; IC-36351; File No. S7-2026-34]
RIN 3235-AN83
Interval Fund Modernization; Expansion of Multiple Share Class to
Registered Closed-End Management Investment Companies and Business
Development Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is
proposing to amend the rule under the Investment Company Act of 1940
that allows registered closed-end management investment companies and
business development companies (collectively, ``regulated closed-end
funds'') to make repurchase offers to shareholders at net asset value
(``NAV'') at periodic intervals pursuant to a fundamental policy
(``interval funds''). The proposed amendments would increase
flexibility in the rule's repurchase offer framework and modify the
rule's liquidity management requirements. The proposal is designed to
modernize the framework applicable to these funds by allowing them to
better match the liquidity profile of the assets in which they invest,
while continuing to provide the operational infrastructure and investor
protection of the Investment Company Act of 1940. We also propose
amending certain rules that would permit regulated closed-end funds to
issue multiple share classes, consistent with routine exemptive relief
provided to these funds, and to require certain related disclosure in
funds' prospectuses. We further propose to require disclosures in all
regulated closed-end fund shareholder reports, a legend in their
prospectuses, and an increase in the dollar amount used for the
prospectus expense example, to provide investors with information about
fund expenses similar to that provided by registered open-end funds. As
a result of these amendments for interval funds and multiple share
class regulated closed-end funds, we propose to rescind existing
related exemptive orders.
DATES: This r was published in the Federal Register on October 5, 2026.
Comments should be received on or before December 4, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-34/interval-fund-modernization-expansion-multiple-share-class-registered-closed-end-management">https://www.sec.gov/comments/s7-2026-34/interval-fund-modernization-expansion-multiple-share-class-registered-closed-end-management</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f98b8c959cd49a9694949c978d8ab98a9c9ad79e968f"><span class="__cf_email__" data-cfemail="7c0e091019511f1311111912080f3c0f191f521b130a">[email protected]</span></a>. Please include
File Number S7-2026-34 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-34. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-34">https://www.sec.gov/rules-regulations/public-comments/s7-2026-34</a>). Do not include personally
identifiable information in submissions; you should submit only
information that you wish to make available publicly. The Commission
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/09/s7-2026-34">https://www.sec.gov/rules-regulations/2026/09/s7-2026-34</a>).
FOR FURTHER INFORMATION CONTACT: Susan Ali, Claudia Rios, and Greg
Scopino, Senior Counsels; Blair Burnett, Branch Chief; Brian McLaughlin
Johnson, Assistant Director, at (202) 551-6792, Investment Company
Regulation Office, Division of Investment Management, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is proposing for public
comment amendments to 17 CFR 270.23c-3 (``rule 23c-3''), 17 CFR
270.18f-3 (``rule 18f-3''), and 17 CFR 270.17d-3 (``rule 17d-3'') and
Form N-23c-3 [referenced in 17 CFR 274.221], Form N-2 [referenced in 17
CFR 239.14 and 274.11a-1] and Form N-CEN [referenced in 17 CFR 249.330
and 274.101] under the Investment Company Act of 1940 (the ``Investment
Company Act'').\1\
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\1\ 15 U.S.C. 80a et seq.
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Table of Contents
I. Introduction and Background
A. Overview of the Interval Fund Framework
1. History of Rule 23c-3
2. Requirements Under Rule 23c-3
3. Need for Updated Regulatory Framework
B. Multiple Share Class Funds
C. Overview of the Proposal
II. Discussion
A. Enhancing Flexibility in the Interval Fund Repurchase Offer
Requirements
1. Deferral of the First Repurchase Offer
2. Monthly Periodic Intervals
3. More Frequent Discretionary Repurchases
4. Repurchase Pricing Date
5. Amount of Securities Repurchased
6. Deferred Sales Loads
B. Modification to the Interval Fund Liquidity Requirement During
the Repurchase Offer Period
C. Other Proposed Amendments to the Interval Fund Framework
1. Grandparent Clause
2. Form N-23c-3
D. Expansion of Multiple Share Class Offerings to Regulated Closed-
End Funds
1. Rule 18f-3
2. Rule 17d-3
3. Disclosures and Reporting
E. Proposed Rescission of Exemptive Orders
F. Effective and Compliance Dates
III. Economic Analysis
A. Introduction
B. Economic Baseline
1. Regulatory Baseline
2. Affected Parties
3. Market Practices
C. Benefits and Costs
1. Enhancing Flexibility in the Repurchase Requirements
2. Modification to the Interval Fund Liquidity Requirement During
the Repurchase Offer Period
3. Other Proposed Amendments
4. Expansion of Multiple Share Class Offerings to Regulated Closed-
End Funds
5. Aggregate Monetized Benefits and Costs
[[Page 63389]]
D. Effects on Efficiency, Competition, and Capital Formation
E. Reasonable Alternatives
1. Longer Interval-Scaled Deferral of First Repurchase Offer
2. Lower Repurchase Offer Minimums for Monthly Interval Funds
3. Permit Multiple Share Classes for All Regulated Closed-End Funds
4. Targeted Liquidity Management Carve-Outs
F. Request for Comment
IV. Paperwork Reduction Act Analysis
A. Summary of the Collections of Information
B. Summary of the Proposed Amendments' Estimated Effects on the
Collections of Information
C. Incremental and Aggregate Burden and Cost Estimates
D. Request for Comments
V. Initial Regulatory Flexibility Analysis
A. Reasons for and Objectives of the Proposed Actions
B. Legal Basis
C. Small Entities Subject to Proposed Rule Amendments
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
VI. Congressional Review Act
VII. Other Matters
Statutory Authority
I. Introduction and Background
The asset management industry has expanded and diversified as
investors seek opportunities across both public and private markets. As
the variety of investment products and their delivery channels has
grown, both institutional and individual investors have increasingly
sought to access alternative investment assets and to construct more
diversified investment portfolios than in the past. The Commission is
committed to identifying ways to reduce unnecessary regulatory
obstacles to investment product innovation, allowing for the broadening
of investor choice available in today's asset management industry while
appropriately addressing risks associated with increasingly diverse
portfolio compositions and operations.
As part of this initiative, the Commission is proposing amendments
to rule 23c-3, the rule that governs interval funds. These changes aim
to provide interval funds with increased flexibility, including by
permitting extended deferral of initial repurchase offers and providing
less prescriptive portfolio liquidity requirements. As investors
increasingly look for access to private markets, interval funds can
offer a way to deliver that exposure while maintaining a level of
investor liquidity. Their structure enables asset managers to invest in
less-liquid holdings while still offering investors predictable, rules-
based liquidity at set intervals. The proposed changes may allow
broader adoption of this structure by fund managers seeking to offer
retail investors exposure to private markets.
Rule 23c-3 under the Investment Company Act permits regulated
closed-end funds to make periodic repurchase offers to shareholders at
NAV at predetermined intervals, subject to certain conditions. These
regulated closed-end funds are commonly referred to as ``interval
funds.'' Rule 23c-3 also permits both interval funds and other closed-
end funds or business development companies (``BDCs'') that do not make
periodic repurchase offers the option to offer discretionary
repurchases, subject to certain conditions. We generally refer to
``interval funds'' when discussing amendments to rule 23c-3 even though
certain of the amendments may also apply to closed-end funds and BDCs
that are not interval funds (``non-interval funds'') if they elect to
make a discretionary repurchase offer. These discretionary repurchase
offers by non-interval funds are subject to some, but not all, of the
provisions of rule 23c-3.\2\
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\2\ See infra footnote 84 and accompanying text.
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The Commission established the interval fund framework through the
adoption of rule 23c-3 in 1993.\3\ Interval funds occupy a distinct
position in the registered investment company landscape, blending
aspects of registered open-end management investment companies
(``registered open-end funds'') and regulated closed-end funds.
Registered open-end funds are required to redeem their securities on
demand from shareholders at a price approximating their proportionate
share of the fund's NAV, next calculated by the fund after receipt of
such redemption request, which restricts their ability to allocate a
significant portion of their portfolio to illiquid assets.\4\ Regulated
closed-end funds, in contrast, do not offer redeemable securities,
which permits them to offer meaningful exposure to less-liquid assets,
including private market assets offered in transactions exempt from
registration under the Securities Act of 1933 (``Securities Act'').
Further, while regulated closed-end funds can employ strategies that
involve less liquid assets as compared to registered open-end
management companies, they can also offer benefits that private funds
cannot, such as the protections provided by being registered under or
regulated by the Investment Company Act, the potential to being open to
an unlimited number of non-accredited investors, and eligibility for
tax treatment under Subchapter M of the Internal Revenue Code of 1986,
as amended, if the conditions of that regulation are satisfied.\5\
However, investors in regulated closed-end funds that are not interval
funds typically have limited options to sell their shares. Investors
can generally either sell their shares back to the fund through issuer
tender offers that the fund has elected to make, or, if the fund is
listed on a securities exchange, sell to the market, often at a
discount to NAV.\6\
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\3\ Repurchase Offers By Closed-End Management Investment
Companies, Investment Company Act Release No. 19399 (Apr. 7, 1993)
[58 FR 19330 (Apr. 14, 1993)] (``1993 Adopting Release'').
\4\ See 15 U.S.C. 80a-22; 17 CFR 270.22c-1 (describing
requirements related to the pricing of redeemable securities for
distribution, redemption and repurchase). See also 15 U.S.C. 80a-
22(e) (requiring payment of redemption proceeds within seven days)
and 17 CFR 270.22e-4 (prohibiting registered open-end funds from
investing more than 15% of the portfolio in ``illiquid
securities'').
\5\ See, e.g., Concept Release on Harmonization of Securities
Offering Exemptions, Securities Act Release No. 10649 (June 18,
2019) [84 FR 30460 (June 26, 2019)] (``2019 Concept Release'') at
section IV.A.1.
\6\ See, e.g., id.
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Interval funds can address these limitations of both structures.
They can invest in less liquid assets because the interval fund
structure does not require daily redemptions. Rather, investors are
provided with opportunities to sell their shares to the fund on a
predetermined periodic basis. In addition to providing exposure to less
liquid assets, in contrast to other regulated closed-end fund
structures, interval funds offer the predictability of a mandatory,
limited, rules-based liquidity framework by requiring interval funds to
adopt a fundamental policy to make periodic repurchases of their shares
at a price based on NAV. This provides a stable, continuous-offering
alternative to discretionary repurchase programs that afford both
advisers and investors greater certainty regarding the potential for
periodic liquidity at or near NAV.
The interval fund framework has remained largely unchanged since it
was first adopted. As discussed in more detail below,\7\ over time,
certain of rule 23c-3's provisions have become outdated, operationally
burdensome, or less responsive to the evolving realities of modern
interval fund operations. For example, the Commission has granted
exemptive orders from certain provisions of the rule to allow certain
[[Page 63390]]
interval funds to provide liquidity to their investors on a more
frequent basis than currently permitted under the rule, specifically
allowing liquidity to be offered on a monthly basis.\8\ While interval
funds have experienced some growth in recent years,\9\ greater
flexibility in the rule could facilitate larger adoption rates by fund
managers seeking to provide a retail registered fund investment that
provides access to private markets. To further expand retail exposure
to private market assets through products that provide this level of
liquidity in a closed-end fund structure, a comprehensive update to the
interval fund rule is needed to reflect current market realities and
support continued innovation in the sector. Accordingly, we are
proposing amendments to rule 23c-3 that would modernize, enhance, and
simplify the interval fund framework while maintaining appropriate
investor protections and safeguards.
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\7\ See infra section I.A.3.
\8\ See, e.g., In the Matter of Lord Abbett Opportunities Fund,
Investment Company Act Release No. 35663 (July 1, 2025) (Notice) and
Investment Company Act Release No. 35699 (Jul. 29, 2025) (Order); In
the Matter of Optimize Growth Equity Fund, Optimize Premium Yield
Fund and Optimize Wealth Management Inc., Investment Company Act
Release No. 35533 (Apr. 10, 2025) (Notice) and Investment Company
Act Release No. 35576 (May 7, 2025) (Order); In the Matter of Nuveen
Enhanced Floating Rate Income Fund, Nuveen Fund Advisors, LLC,
Nuveen Securities, LLC, and Nuveen Asset Management, LLC, Investment
Company Act Release No. 35081 (Notice) and Investment Company Act
Release No. 35091 (Jan. 17, 2024) (Order).
\9\ Information reported to the Commission on Form N-CEN as of
Dec. 2025 suggests growth from 58 interval funds with $38 billion in
assets in 2020 to 139 interval funds holding $101 billion in assets
in 2025.
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In addition, the proposal would codify what has become routine
exemptive relief for regulated closed-end funds, allowing regulated
closed-end funds to issue multiple share classes subject to certain
conditions, without first obtaining this relief via an exemptive order.
Rule 18f-3 has allowed registered open-end funds to issue multiple
classes of shares since 1995. In 2025, the Commission began granting
exemptive orders to mutual funds to offer ETF share classes within the
same portfolio, with a significant number being issued so far.\10\ The
Commission is proposing to broaden the scope of these rules to permit
regulated closed-end funds to issue multiple share classes as well.
These amendments would streamline the offering process for regulated
closed-end funds and reduce the burdens and costs associated with the
exemptive application process for these funds and the Commission.
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\10\ See, e.g., In the Matter of DFA Investment Dimensions Group
Inc. et al., Investment Company Act Release No. 35770 (Sep. 29,
2025) (Notice) and Investment Company Act Release No. 35786 (Nov.
17, 2025) (Order); In the Matter of SPDR Series Trust et al.,
Investment Company Act Release No. 35834 (Dec. 17, 2025) (Notice)
and Investment Company Act Release No. 35891 (Jan. 13, 2026)
(Order).
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In connection with multiple share class structures, we are
proposing to make amendments to relevant disclosure forms. We are
proposing amendments to Form N-2 to require disclosures detailing
multiple share class structures for investors and to provide enhanced
expense disclosures regarding all regulated closed-end funds. We are
also proposing to extend the existing open-end fund reporting on Form
N-CEN regarding multiple share class information to registered closed-
end management companies.
A. Overview of the Interval Fund Framework
1. History of Rule 23c-3
Closed-end funds became prominent during the 1920s, prior to the
enactment of the Investment Company Act, with new offerings commonly
being sold at large premiums to NAV. Following the stock market crash
of 1929, however, these funds began trading at persistent discounts.
Affiliated persons of such funds (including managers and insiders) with
access to portfolio information frequently repurchased shares at
depressed prices, exploiting the information asymmetry at the expense
of selling shareholders who lacked sufficient visibility into the value
of the funds' holdings.\11\
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\11\ See Investment Company Act of 1940 and Investment Advisers
Act of 1940, S. Rep. No. 1775, 76th Cong., 3d Sess. (1940) (stating
``[t]he DISTRIBUTION and repurchase of the securities issued by
investment companies have on occasion resulted in discrimination in
favor of the management or other `insiders' who have been able to
acquire the securities and to have the companies repurchase them on
a basis more favorable than that accorded public stockholders.'').
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To address these abuses, Congress included section 23 in the
initial text of the Investment Company Act. Section 23 supplements the
disclosure and reporting requirements imposed by the Securities Act and
the Securities Exchange Act of 1934 (the ``Exchange Act''), and
prescribes the conditions under which regulated closed-end funds may
repurchase their own securities. Specifically, section 23(c) generally
prohibits a regulated closed-end fund from purchasing its own
securities except: (1) on a national securities exchange or other
market designated by the Commission (after adequate notice to all
shareholders); (2) pursuant to tenders open to all security holders; or
(3) in such other circumstances as the Commission permits by rule or
order.
The significance of section 23 of the Investment Company Act is
best understood with reference to the classification framework
established in section 5(a) of the Investment Company Act, which
divides management investment companies into two categories:
<bullet> registered open-end companies, defined as management
companies that offer or have outstanding any redeemable security, and
<bullet> closed-end companies, defined as any management company
that is not an open-end company.
A redeemable security is any security, other than short-term paper,
under the terms of which the holder, upon presentation to the issuer,
is entitled to receive a proportionate share of the issuer's current
net assets or the cash equivalent thereof.\12\ This right of redemption
is the defining structural feature of registered open-end funds (e.g.,
mutual funds). Because regulated closed-end fund shares are not
redeemable securities, shareholders of a regulated closed-end fund have
no statutory right to demand redemption. Section 23 of the Investment
Company Act prescribes the exclusive conditions under which regulated
closed-end funds may offer shareholders liquidity through the
repurchase of shares.
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\12\ 15 U.S.C. 80a-2(a)(32).
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Prior to the Commission proposing rule 23c-3 in 1992, the Division
of Investment Management issued a report that identified significant
structural limitations in the existing open-end/closed-end binary
classification framework and recommended that the Commission consider
rulemaking to accommodate funds with overlapping features.\13\ Staff
drew particular attention to a class of funds that emerged in the late
1980s commonly referred to as ``prime rate funds,'' which invested
primarily in bank loans and other less-liquid credit assets. Although
these funds registered as closed-end companies, they operated in many
respects like registered open-end funds, offering shares on a
continuous basis and relying on periodic tender offers conducted
pursuant to section 23(c)(2) as the sole source of liquidity for their
shareholders. Staff observed, however, that the issuer tender offer
framework was governed by the Exchange Act and the rules thereunder,
which rendered
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\13\ See Division of Investment Management, SEC, Protecting
Investors: A Half Century of Investment Company Regulation (May
1992) (``Protecting Investors Report'') at 424-425, available at
<a href="https://www.sec.gov/divisions/investment/guidance/icreg50-92.pdf">https://www.sec.gov/divisions/investment/guidance/icreg50-92.pdf</a>.
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[[Page 63391]]
this approach operationally cumbersome and costly.\14\ For instance,
the tender offer framework pursuant to the Exchange Act requires
regulated closed-end funds to disclose information about the fund, such
as the identity and background of the issuer, the source of proceeds,
comprehensive financial statements, and significant corporate events,
among other disclosures.\15\ Although informative for shareholders,
these Exchange Act disclosure obligations were designed for operating
companies tendering shares on a non-regular basis, not registered
investment companies that are making regular and frequent repurchase
offers.\16\
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\14\ See id. at 440-441 (also noting that the Commission staff
had taken the position that committing in advance to conduct
periodic tender offers could expose registered fund directors to
fiduciary concerns, leaving fund prospectuses in the position of
representing only that the board would consider making tender offers
at certain intervals without providing assurances that such offers
would occur).
\15\ See Schedule TO (17 CFR 240.14d-100), Tender Offer
Statement under Section 14(d)(1) or 13(e)(1) of the Securities
Exchange Act of 1934.
\16\ See Protecting Investors Report at 444-445 (stating that
``the experiences of closed-end companies that have conducted
repurchases in accordance with the [Exchange Act] tender offer rules
suggest that some provisions of those rules were intended to apply
to different transactions and do not achieve their objectives when
applied to closed-end companies conducting repurchases at a price
based on net asset value'').
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Accordingly, staff recommended that the Commission develop a new
regulatory framework to permit regulated closed-end funds to offer
periodic repurchases to shareholders at NAV in a manner that was less
burdensome than the Exchange Act tender offer regime and that provided
investors with more predictable and reliable access to liquidity. The
staff's recommendation and the asset management industry's general
interest in offering more flexible fund vehicles that could invest in
less-liquid assets, while offering periodic liquidity to shareholders,
led the Commission to adopt rule 23c-3 in 1993.\17\ The establishment
of the interval fund framework reflected the Commission's efforts to
balance investor protection with the need for innovative investment
products.
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\17\ See 1993 Adopting Release at 19330-19331 (stating that the
adoption of rule 23c-3 implements part of the recommendations made
in the Protecting Investors Report and that the provisions for
periodic repurchase offers are intended to offer investors a limited
ability to resell their shares in a manner that traditionally had
been available only to open-end company shareholders).
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2. Requirements Under Rule 23c-3
Under rule 23c-3, the shares of an interval fund are subject to
periodic repurchase offers by the fund at NAV in accordance with the
fund's fundamental policy.\18\ An interval fund makes repurchase offers
to its shareholders, every three, six, or twelve months, at a
``periodic interval'' disclosed in the fund's prospectus and annual
report.\19\ A fund must begin making repurchase offers with a
repurchase request deadline no later than two periodic intervals after
the effective date of the fund's registration statement or after a
shareholder vote adopting the fundamental policy that specifies the
fund's periodic interval.\20\ When a fund initiates a repurchase offer
pursuant to its fundamental policy, the repurchase offer amount cannot
be less than five percent or more than 25 percent of the common stock
outstanding on a repurchase request deadline.\21\ The repurchase offer
amount is determined by the interval fund's board of directors and is
communicated in the offer notification to shareholders prior to each
repurchase.\22\
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\18\ See rule 23c-3(b).
\19\ See rule 23c-3(a)(1). The Commission has also issued
exemptive orders to certain interval funds permitting the fund to
conduct repurchase offers on a monthly basis, subject to certain
conditions. See infra footnote 57.
\20\ See rule 23c-3(a)(7).
\21\ See rule 23c-3(a)(3) (definition of repurchase offer
amount) and rule 23c-3(a)(7) (definition of repurchase request
deadline).
\22\ See rule 23c-3(a)(3) (requiring that the directors of the
company determine the repurchase offer amount) and rule 23c-
3(b)(4)(i) (detailing the requirements of shareholder notification).
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Subject to limited exceptions as defined in the rule, the fund must
accept repurchases up to the repurchase offer amount.\23\ A fund
cannot, for example, offer a repurchase amount of 10 percent of NAV,
receive repurchase requests from shareholders of 10 percent of NAV, and
then elect to only offer to repurchase five percent of NAV. However, if
shareholders request more than the repurchase offer amount, the fund
can repurchase an additional amount of stock not to exceed two percent
of the common stock outstanding.\24\
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\23\ See rule 23c-3(b)(3).
\24\ See rule 23c-3(b)(5) (detailing the process for
oversubscribed repurchase offers).
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In addition to the periodic repurchase offers subject to a
fundamental policy, the rule permits any regulated closed-end fund
(including a fund that is not an interval fund) to repurchase its
common stock no more frequently than once every two years pursuant to a
repurchase offer that is not made pursuant to a fundamental policy.\25\
These discretionary repurchase offers must be made to all holders and
are subject to some, but not all, of the provisions of rule 23c-3.\26\
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\25\ See rule 23c-3(c).
\26\ Id. (stating that funds making discretionary repurchases
under this rule must comply with the requirements of paragraph
(b)(1), (3), (4), (5), (6), (7)(ii), (8), (10)(i), and (10)(ii) of
this section).
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Under rule 23c-3, interval funds are required to send a
notification to shareholders detailing the repurchase offer between
twenty-one and forty-two days before the repurchase request deadline,
ensuring that shareholders have a reasonable opportunity to participate
in any repurchase offer.\27\ Subsequently, the fund must determine the
NAV of the shares by the repurchase pricing date, which must be within
fourteen days following the repurchase request deadline.\28\
Shareholders must then receive payment within seven days of the
repurchase pricing date.\29\ The diagram below illustrates this
process:
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\27\ See rule 23c-3(b)(4).
\28\ See rule 23c-3(a)(5).
\29\ See rule 23c-3(a)(4).
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[GRAPHIC] [TIFF OMITTED] TP05OC26.001
The interval fund framework also mandates certain liquidity
requirements. From the point at which an interval fund notifies
shareholders regarding a repurchase offer until the designated
repurchase pricing date, the fund is obligated to maintain no less than
100 percent of the repurchase offer amount in assets that can be sold
or disposed of in the ordinary course of business, at approximately the
price at which the company has valued the investment, within a period
equal to the period between a repurchase request deadline and the
repurchase payment deadline.\30\ An interval fund is also required to
maintain policies and procedures to ensure that the fund's assets are
sufficiently liquid so that the fund can comply with its fundamental
policy on repurchases.\31\
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\30\ See rule 23c-3(b)(10).
\31\ See rule 23c-3(b)(10)(iii).
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3. Need for Updated Regulatory Framework
Recent years have witnessed significant growth in private market
assets, driven by evolving investor demands and the availability of a
broader range of investment opportunities across public and private
markets. Exempt offerings, such as private fund offerings, have become
more popular vehicles for raising new capital relative to registered
offerings.\32\ As a result, the benefits of portfolio diversification
are becoming increasingly limited for investors unable to obtain
meaningful exposure to these private market assets and strategies,
which include real estate, private equity, private credit, hedge, and
various other alternative asset classes and strategies. For most
investors, the ability to obtain exposure to private market assets
through a pooled investment vehicle generally is limited to exposure
through registered investment companies and BDCs. Interval funds
provide asset managers the flexibility to build diversified portfolios,
while preserving investors' ability to tender shares for repurchase at
NAV.
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\32\ The Commission estimated that approximately $3.7 trillion
of new capital was raised through exempt offerings in 2022, which is
270% more than the $1.0 trillion raised in registered offerings over
the same period. See Review of the ``Accredited Investor''
Definition under the Dodd-Frank Act (Dec. 2023), available at
<a href="https://www.sec.gov/files/review-definition-accredited-investor-2023.pdf">https://www.sec.gov/files/review-definition-accredited-investor-2023.pdf</a>.
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We recognize that the interval fund structure offers an inherent
tradeoff: the fund offers investors the ability to obtain exposure to
illiquid or less liquid assets with access to a certain amount of
liquidity, but investors generally can tender their shares only
periodically and in amounts offered by the fund. Recent market events
have drawn attention to this structural characteristic. In early 2026,
multiple non-traded BDCs and registered closed-end funds, including
several interval funds, experienced increased investor demand to
repurchase shares. In several cases, investors sought to tender more
shares than the fund had originally offered to repurchase. Our rules
require funds to disclose these structural features and this tradeoff--
and to manage liquidity to meet periodic promised repurchase offers--so
that investors can determine if these funds are an investment that
meets their portfolio objectives, risk tolerances, and liquidity needs.
If investors are well-informed about the liquidity limitations and
repurchase schedule of interval funds, the interval fund structure can
be an effective way to gain exposure to less liquid assets.
Although the interval fund framework has been available since the
Commission adopted rule 23c-3 in 1993, the structure was not used much
in its early years. That trajectory has changed significantly in recent
years, however. The number of interval funds has grown from 58 in 2020
to 139 in 2025 and the aggregate net assets have increased from $38
billion to $101
[[Page 63393]]
billion during that same period.\33\ The growth of the interval fund
market has been driven in large part by demand for registered vehicles
that provide access to private market assets, including private credit,
private equity, and other alternative asset classes that have
traditionally been available only through private funds. Credit
strategies constitute the largest segment of the interval fund market,
representing approximately 55 percent of aggregate net assets.
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\33\ The figures in this paragraph utilize information reported
to the Commission on Form N-CEN as of Dec. 2025.
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In October 2017, the U.S. Department of Treasury prepared a report
that included, among other items, recommendations that the Commission
review its rules regarding interval funds to determine whether more
flexible provisions might encourage the creation of registered closed-
end funds that invest in offerings of smaller public companies and
private companies whose shares have limited or no liquidity.\34\ In
2019, the Commission issued a concept release that requested public
comment on ways to simplify, harmonize, and improve the exempt offering
framework to expand investment opportunities while maintaining
appropriate investor protections and to promote capital formation.\35\
The Concept Release sought input on whether changes should be made to
improve the consistency, accessibility, and effectiveness of the
Commission's exemptions for both companies and investors, including
identifying potential overlap or gaps within the framework. It
considered, among other things, whether retail investors should be
allowed greater exposure to growth-stage companies through pooled
investment vehicles such as interval funds and other regulated closed-
end funds.
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\34\ See A Financial System That Creates Economic Opportunities
Capital Markets, U.S. Dept. of the Treasury (Oct. 2017) (``2017
Treasury Report''), available at <a href="https://home.treasury.gov/system/files/136/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf">https://home.treasury.gov/system/files/136/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf</a>.
\35\ See 2019 Concept Release. The comment letters regarding the
Concept Release (File No. S7-08-19) are available at <a href="https://www.sec.gov/comments/s7-08-19/s70819.htm">https://www.sec.gov/comments/s7-08-19/s70819.htm</a>. All references to comment
letters in this release are to letters from this comment file.
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Despite the significant growth in interval fund assets and the
evolution of the market over time, rule 23c-3 has remained largely
unchanged since its adoption in 1993. Since that time, industry and
Commission staff have identified a number of challenges regarding the
application of the rule. For instance, market participants have
expressed the view that the interval fund structure is a useful vehicle
for investors seeking exposure to private market investments; however,
they have also expressed concerns that the rule's rigidity related to
certain repurchase mechanics and liquidity requirements hinders broader
adoption of the interval fund framework.\36\
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\36\ See, e.g., Comment Letter of the Investment Company
Institute (Sep. 24, 2019) (``ICI Comment Letter''), Comment Letter
of the American Investment Council (Sep. 24, 2019) (``AIC Comment
Letter'').
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We agree that, although the interval fund structure holds promise,
the current rule's requirements may hinder broader adoption. In
particular, the framework may lack the flexibility needed for certain
investment strategies that could support more frequent repurchase
opportunities. The current interval fund framework restricts funds that
have strategies where the asset base would permit more frequent
repurchases from adopting a monthly interval. Instead, those funds
currently seek exemptive relief to offer repurchases on a monthly
frequency. To address this, as discussed below, we propose to amend the
rule to expressly permit interval funds to establish monthly repurchase
intervals. Conversely, for interval funds that may benefit from
aligning the start of the repurchasing process with the longer-term
nature of their underlying assets, such as those funds following a
private equity or venture capital approach, the current structure does
not provide a way to defer the repurchase process beyond the two
periodic interval timeframe. For these funds, we propose, as discussed
below, more ability to match the repurchase rights to a timeline
approximating anticipated realizations of underlying assets.
Currently, from the time an interval fund notifies investors of a
repurchase offer until the repurchase offer is priced, a percentage of
an interval fund's assets equal to at least 100 percent of the amount
offered to be repurchased must consist of assets that can be sold or
disposed of in the ordinary course of business at approximately the
price at which the interval fund has valued the investment.\37\ We
propose, as discussed in more detail below, to replace this requirement
with a more principles-based approach that would instead require
interval funds to manage their portfolio's liquidity so that the
interval fund can satisfy repurchase requests without requiring a sale
or disposition of investments at a price that deviates significantly
from the value of those investments.
---------------------------------------------------------------------------
\37\ Current rule 23c-3(b)(10)(i).
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The interval fund structure represented a significant advancement
when it was first introduced, and our regulatory framework should adapt
to changing regulatory and market conditions to remain effective.
Accordingly, the proposed amendments are designed to provide increased
flexibility to the interval fund framework, which would enable both
established and emerging interval funds to operate more efficiently
while maintaining the critical safeguards that protect investors. This
in turn may foster increased growth among interval funds, increasing
investor choice and opportunities to obtain exposure to alternative
asset classes while retaining the investor protections of the
Investment Company Act and the liquidity and other investor protective
features required by rule 23c-3. In addition, reducing the rigidity of
the rule would eliminate unnecessary obstacles and allow funds to
design liquidity policies that are specifically tailored to the unique
risks and investment strategies of their funds.
B. Multiple Share Class Funds
Multiple share class structures are an important feature of the
registered investment company landscape, offering meaningful benefits
to both funds and investors. By permitting a single fund to offer
shares through multiple classes with different fee structures, sales
loads, or distribution arrangements, multi-class structures provide
investors with the flexibility to select the purchasing method most
suited to their individual circumstances, allowing investors to
consider factors such as size of their investment, anticipated holding
period, and the distribution channels through which they access the
fund. At the same time, multi-class structures allow sponsors of
registered investment companies to distribute fund shares across a
broader range of investor markets and distribution channels without the
cost and administrative burden of organizing separate funds for each
investor segment. Because fixed costs are spread across a larger asset
base, investors in funds that issue multiple share classes may benefit
from economies of scale that would otherwise be unavailable, including
the potential for lower advisory fees. The alternative of sponsoring
multiple ``clone'' funds with duplicative administrative infrastructure
would impose costs on shareholders and fund sponsors alike that a
multi-class structure is specifically designed to avoid.
[[Page 63394]]
Section 18 of the Investment Company Act limits the ability of
registered investment companies to issue multiple share classes with
different voting rights or expense structures and permits registered
closed-end funds to issue one class of senior security representing
indebtedness and one class of senior security which is a stock.\38\ The
Commission, however, has long recognized the benefits of multiple share
class structures. In 1985, the Commission began granting exemptive
relief under the Investment Company Act to registered open-end funds
seeking to issue multiple share classes representing interests in the
same portfolio. Over the course of the following decade, the Commission
issued approximately 200 such orders, and the practice of offering
shares through multiple distribution share classes became common among
registered open-end funds. In 1995, the Commission adopted rule 18f-3
under the Investment Company Act, which permits registered open-end
funds to issue multiple classes of shares without obtaining individual
exemptive orders, provided that certain conditions designed to protect
investors are satisfied.\39\ Rule 18f-3 thus supplanted the exemptive
order process for registered open-end funds, establishing a
standardized framework that eliminated the cost and delay associated
with individual applications while reserving the investor protection
conditions the Commission had developed through its exemptive practice.
More recently, the Commission has been issuing exemptive orders to
regulated open-end funds that permit such funds to offer one class of
exchange-traded shares that operate as an ETF and one or more classes
of shares that are not exchange-traded.\40\
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\38\ See infra section II.D.1.
\39\ See Exemption for Open-End Management Investment Companies
Issuing Multiple Classes of Shares; Disclosure by Multiple Class and
Master-Feeder Funds; Class Voting on Distribution Plans, Investment
Company Act Release No. 20915 (Feb. 23, 1995) [60 FR 11876 (Mar. 2,
1995)].
\40\ See supra footnote 12.
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Rule 18f-3, as adopted in 1995, was designed to address the
distribution practices of registered open-end funds. The Commission did
not propose to apply the rule or provide similar relief to regulated
closed-end funds, and, at the time, the regulated closed-end fund
market consisted primarily of exchange-listed funds for which multi-
class distribution arrangements were not a concern. In the years since,
however, the market for unlisted regulated closed-end funds, including
interval funds, has grown substantially, and these vehicles have
increasingly sought to offer shares through multiple classes with
differentiated fee and distribution structures.\41\
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\41\ See supra section I.A.3.
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Further, multiple share class regulated closed-end funds may seek
to engage in asset-based distribution and service fees or charge
investors a fee payable to the distributor for leaving their investment
early. While the Investment Company Act and Commission rules do not set
as many restrictions on regulated closed-end fund distribution
arrangements as they do for registered open-end funds, some
restrictions may apply particularly in a multiple share class
structure. Section 17(d) of the Investment Company Act prohibits
affiliated persons, principal underwriters, and any affiliated person
of such person or underwriter, of a registered investment company from
effecting any transaction in which such registered investment company
or a company controlled by such registered investment company is a
joint or a joint and several participant with the affiliated person or
underwriter in contravention of Commission rules (a ``joint
transaction''). This restriction is designed to prevent these
affiliates from managing the fund for their own benefit.\42\ 17 CFR
270.17d-1 (``rule 17d-1'') generally requires an application to, and an
order issued by, the Commission with respect to joint enterprises or
other joint arrangements or profit-sharing plans involving, among
others, regulated closed-end funds.\43\ These provisions can serve to
prevent asset-based distribution or service fees to the extent such
fees involve joint transactions. Further, rule 23c-3 prohibits interval
funds from deducting fees from repurchase proceeds other than a two
percent repurchase fee reasonably intended to compensate the interval
fund for expenses directly related to a repurchase,\44\ likewise
limiting the ability to charge fees payable to the distributor.
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\42\ See, e.g., Transactions of Investment Companies With
Portfolio and Subadviser Affiliates, Investment Company Act Release
No. 25888 (Jan. 14, 2003) [68 FR 3142 (Jan. 22, 2003)].
\43\ BDCs are subject to rule 17d-1 and to similar requirements
as those included in section 17(d). See section 57 of the Investment
Company Act.
\44\ Rule 23c-3(b)(1).
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In response to these limitations, the Commission has issued
approximately 230 exemptive orders permitting unlisted continuously
offered regulated closed-end funds to maintain multi-class structures
since 2007, generally imposing conditions modeled on those set forth in
rule 18f-3 as adapted to the regulated closed-end fund context and
disclosure consistent with that provided by multiple share class
registered open-end funds.\45\ These orders also permit regulated
closed-end funds and their affiliates to participate in asset-based
distribution and service arrangements to the extent necessary to permit
them to impose asset-based distribution and/or service fees. They also
permit regulated closed-end funds to charge fees to compensate
distributors when investors submit repurchase requests in a short
period of time from purchase, all subject to certain conditions. In
light of the Commission's extensive experience with multi-class
structures across both registered open-end funds and regulated closed-
end funds, however, the costs and administrative burdens on regulated
closed-end funds and their advisers associated with the process to
obtain individual exemptive orders seem difficult to justify.
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\45\ See, e.g., American Beacon Sound Point Enhanced Income
Fund, et al., Investment Company Act Release No. 33393 (Oct. 26,
2017) (Notice) and Investment Company Act Release No. 33439 (Nov.
21, 2017) (Order); OFI Carlyle Private Credit Fund, et al., LLC,
Investment Company Act Release No. 33168 (July 24, 2018) (Notice)
and Investment Company Act Release No. 33204 (Aug. 20, 2018)
(Order); Pioneer ILS Interval Fund, et al., Investment Company Act
Release No. 33108 (May 24, 2018) (Notice) and Investment Company Act
Release No. 33127 (June 19, 2018) (Order).
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C. Overview of the Proposal
We are proposing amendments to rule 23c-3 designed to modernize the
interval fund framework by providing enhanced flexibility while
maintaining appropriate investor protections. We are also proposing to
codify the multiple share class exemptive orders so that all regulated
closed-end funds can utilize that structure without obtaining an
exemptive order.\46\
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\46\ For the reasons discussed below, we find that this relief
would be necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Investment Company Act.
See 15 U.S.C. 80a-6(c).
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<bullet> Enhanced Flexibility in Interval Fund Repurchase Offer
Requirements. The proposal would provide greater flexibility to
interval funds, in part to permit both deferred initial and more
frequent recurring liquidity opportunities depending on the needs of an
interval fund's strategy, by permitting deferral of the first
repurchase offer, allowing monthly periodic intervals, allowing more
frequent discretionary repurchases, allowing the deduction of deferred
sales loads from repurchase proceeds, and simplifying and clarifying
the process of determining the repurchase pricing date and treatment of
oversubscribed repurchase offers.
[[Page 63395]]
<bullet> Enhanced Flexibility in Interval Fund Liquidity
Requirements. The proposal would amend the requirements of rule 23c-3
that specify that an interval fund must hold a certain amount of
liquidity and replace it with a principles-based liquidity approach.
<bullet> Codification of Multiple Share Class Exemptive Orders. The
proposal would amend rule 18f-3 to permit regulated closed-end funds to
have multiple share class structures, subject to requirements modified
to account for regulated closed-end funds. The proposal would also
amend rule 17d-3 to permit regulated closed-end funds and their
affiliates to enter into arrangements for the payment of asset-based
distribution and service fees.
<bullet> Form Updates. The proposal would update Form N-2 to
provide for disclosures that account for multiple share class and
master-feeder structures, and update Form N-CEN to enhance multiple
share class reporting by registered closed-end management companies.
The amendments to Form N-2 would also include enhanced shareholder
report disclosure regarding fees and expenses for all filers of that
form.
<bullet> Other Updates. The proposal would also update other
relevant rules and forms, for example, by removing outdated language
from Form N-23c-3. We are also proposing to rescind all but one of the
relevant exemptive orders.
II. Discussion
A. Enhancing Flexibility in the Interval Fund Repurchase Offer
Requirements
We are proposing to amend rule 23c-3 to enhance flexibility for
interval funds by extending the deferral of the first repurchase offer,
permitting monthly repurchase intervals, enabling more frequent
discretionary repurchases, allowing deferred sales loads to be deducted
from repurchase proceeds, providing for a principles-based liquidity
framework, and simplifying other parts of the rule. Specifically, we
propose:
BILLING CODE 8011-01-P
[[Page 63396]]
[GRAPHIC] [TIFF OMITTED] TP05OC26.002
[[Page 63397]]
[GRAPHIC] [TIFF OMITTED] TP05OC26.003
[[Page 63398]]
[GRAPHIC] [TIFF OMITTED] TP05OC26.004
BILLING CODE 8011-01-C
1. Deferral of the First Repurchase Offer
Currently, an interval fund's initial repurchase request deadline
must occur no later than two periodic intervals after the effective
date of the fund's registration statement or the date of the
shareholder vote adopting the fundamental policy prescribing the fund's
intervals, whichever is later.\47\ For example, a new interval fund
with a three-month interval could schedule its initial repurchase
request deadline as far as, but no later than, six months after the
effective date of the registration statement. Investors in such fund
therefore would not be able to tender their shares for repurchase for
six months, unless the fund chose to make a repurchase offer earlier
than required under the rule. We propose to extend the amount of time
an interval fund may defer its initial repurchase offer from two
periodic intervals to two years, regardless of the length of a fund's
periodic interval thereafter.\48\ Funds would retain the option to
initiate repurchase offers before the end of this period.
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\47\ See current rule 23c-3(a)(7).
\48\ Proposed rule 23c-3(a)(7).
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The deferral of the fund's first repurchase offer under the rule is
designed to provide an interval fund with additional time to more
effectively ``ramp up'' and develop the long-term investment portfolio
and align the fund's liquidity terms with the underlying asset classes
targeted by its investment strategy before being required to offer
repurchases to its shareholders. This ``ramp up'' period allows an
interval fund to structure its portfolio to have expected liquidity
characteristics necessary to support periodic repurchase obligations in
a manner consistent with the interests of the fund and its
shareholders. Illiquid strategies typically generate sources of
liquidity over time, such as scheduled loan repayments, principal
amortization, refinancings, and asset sales. These sources of liquidity
are largely absent in a portfolio's early stages but become
increasingly reliable as the portfolio seasons. Moreover, an interval
fund that has deployed capital over an extended period will benefit
from vintage diversification, whereby investments at different stages
of their respective lifecycles should provide a laddering effect,
ensuring that some portion of the portfolio is approaching a liquidity
event at any given time and generally can be used to fund repurchase
requests without resorting to forced asset sales or credit facility
draws. For instance, an interval fund pursuing a private credit
strategy could use the ramp up period to acquire loans across multiple
origination vintages with staggered maturity dates, creating a
repayment ladder that provides recurring principal cash flows to fund
repurchase requests following the end of the ramp up period. Similarly,
an interval fund pursuing a private equity strategy could acquire
primary investments or secondaries in funds across multiple vintage
years, but the liquidity events that generate distributable proceeds,
such as portfolio company exits, IPOs, and fund wind-downs, would
typically require time to materialize.
Certain investment strategies employed by interval funds may
benefit more from a longer ramp up period. For instance, given the
longer-term nature of certain private equity and venture capital
strategies, it may be more difficult for an interval fund investing
directly or indirectly in such strategies to manage liquidity during
the current ramp up period without a corresponding impact to the fund's
longer-term investment strategy and return potential.\49\ We understand
that without sufficient time prior to commencing repurchases, interval
funds, regardless of strategy, but
[[Page 63399]]
impacting certain strategies more than others, may have to exit certain
investments earlier than desired or avoid making certain investments
altogether.
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\49\ Private funds that pursue private equity strategies
typically start returning capital to investors within the first year
and half to three and half years with harvesting of the portfolio
starting after the investment period ends. See Basics of Cash Flow
Management, Private Fund Cash Flow Series, Pitchbook, Sep. 4, 2020,
<a href="https://pitchbook.brightspotcdn.com/24/61/0245c7339b2a0024611029f942fc/pitchbook-basics-of-cash-flow-management.pdf">https://pitchbook.brightspotcdn.com/24/61/0245c7339b2a0024611029f942fc/pitchbook-basics-of-cash-flow-management.pdf</a> (``About half of all funds, for example, will make
their first distribution by the 1.5-year mark; however, about 25% of
funds will go nearly 2.5 years before their first distribution, and
10% will go 3.5 years.'').
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Providing an interval fund with more time before it is first
required to offer to repurchase its shares could benefit funds in their
early stages. The additional time would allow interval funds to better
match the maturation profile of their underlying portfolio with the
structure of the fund's repurchase obligations. In addition, a longer
ramp up period would allow funds to better organize and manage critical
operational tasks such as facilitating the timely and accurate
distribution of shareholder notifications.
Under the proposed amendments, most new interval funds would be
provided with additional time to ramp up operations and season their
portfolio before starting the repurchase process. Under the current
rule, funds with a three-month periodic interval would have up to six
months before starting the repurchase process, but would have up to two
years (an additional year and a half) under the proposed amendment.
Funds with a six-month periodic interval would have up to one year
under the current rule, but up to two years (an additional year) under
the proposed amendment. Funds with a periodic interval of twelve months
would have the same amount of time under the current and proposed rule
of up to two years. Interval funds with a one-month interval, as
discussed below, would also have up to two years before starting the
repurchase process. In other words, an interval fund can currently have
up to two years before providing liquidity to shareholders under the
current two interval deferral period, but only if the fund offers to
repurchase investors' shares just once per year, which may not meet
investor preferences. Conversely, interval funds with shorter intervals
are currently required to begin the repurchase process much sooner. The
proposed amendment, in contrast, would provide greater flexibility for
any interval fund to build its portfolio following the fund's launch
for up to two years without limiting the fund's ability to offer
investors more frequent liquidity after the fund completes its ramp up
period.
It is possible that some newly formed interval funds would hold
their initial repurchase offer before the proposed end of the two-year
ramp up, but we expect that some interval funds would utilize the
proposed amendments to extend the ramp up period to two years following
the fund's registration, as it may provide the ability for certain
funds to structure their portfolios to have expected liquidity
characteristics necessary to match the structural liquidity of the
funds (i.e., the periodic repurchase obligations). This approach could
also apply to existing closed-end funds that adopt a fundamental
policy. The two-year ramp up period would apply after a shareholder
vote first adopting a fundamental policy specifying the fund's periodic
interval. Funds that subsequently update their periodic interval would
not be granted an additional ramp up period to avoid the possibility
that a fund could excessively delay providing investors liquidity.
In response to the 2019 Concept Release, commenters stated that a
two period interval delay does not provide sufficient time for interval
funds to effectively establish operations and can cause funds to incur
unnecessary costs (e.g., costs to liquidate assets to meet the current
liquidity requirement as well as costs of operational resources to
prepare, distribute, and file repurchase offers in a short time from
launching the fund) to offer liquidity that is in little or no demand
by investors that early in the funds' operations.\50\ One commenter
suggested that a two year ``lock up'' period strikes an appropriate
balance that would reduce fund expenses at the start-up phase of an
interval fund's life and would benefit investors in the longer-
term.\51\ Commenters raised particular concerns about the length of the
current ramp up period for funds that may be considering investment
strategies that would benefit from more time such as investments in
private equity.\52\
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\50\ See, e.g., Comment Letter of Dechert LLP (Sep, 24, 2019)
(``Dechert Comment Letter'') (stating that an interval fund should
be permitted to defer its first repurchase request deadline for up
to two years); AIC Comment Letter (stating that certain interval
funds should be provided with more flexibility such as five to seven
years before starting to offer repurchases); Comment Letter of Ropes
& Gray (Sep. 24, 2019) (``Ropes & Gray Comment Letter'') (stating
that the rule should provide for additional flexibility for funds to
commence repurchase offers after the completion of the fund's
initial ramp up period of investment operations).
\51\ See Dechert Comment Letter.
\52\ See, e.g., AIC Comment Letter; Ropes & Gray Comment Letter.
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Investors, in particular those seeking exposure to certain types of
investment strategies and asset classes, may recognize that it may take
time for a portfolio to season or ramp up and, as a result, would
accept limited liquidity in the initial stages of the fund. On the
other hand, investors who have this understanding still may not desire
their capital to be locked up for longer periods such as the three- to
five-year period that is customary in some private funds. The proposed
two-year ramp up period aims to allow newly organized interval funds
adequate time to deploy capital and build a diversified portfolio with
anticipated portfolio liquidity before periodic repurchase obligations
attach, while also providing funds the flexibility to invest in less
liquid assets without the liquidity management constraints that ongoing
repurchase obligations would otherwise impose.
We anticipate that a longer ramp up period would help to protect
shareholders by allowing the fund more time to develop portfolio
liquidity to handle repurchase requests and help to avoid the chance
that a fund may have to sell assets at less than favorable prices to
meet repurchase requests, potentially harming the remaining
shareholders. A longer ramp up period also could benefit shareholders
by allowing interval funds to reduce the ``cash drag'' that would
result if the fund had to hold additional cash and cash equivalents
during the fund's ramp up period in order to satisfy repurchase
requests. Extending the ramp up period may enable an interval fund to
pursue investment strategies that it otherwise may not have pursued
under the current ramp up period and could also encourage the creation
of new interval funds, expanding investor choice and offering a broader
range of opportunities in the market.
When assessing investment opportunities, investors often weigh both
the potential returns and the anticipated timeframe for liquidity. In
contrast to other types of investment opportunities, such as private
funds that can delay offering liquidity for extended periods, interval
funds may be structured to achieve a balance. Interval funds provide
detailed disclosures regarding the expected duration of their ramp up
period on the outside front cover of the prospectus as part of their
identification of the funds' type and their investment objectives and
in disclosing the funds' fundamental policies.\53\ These disclosures
have typically indicated that funds may begin offering repurchases
after two periodic intervals, within a timeframe shorter than two
intervals, or by a specific date. Interval funds relying on the
proposed two-year ramp up period similarly would disclose the duration
of their ramp up period in response to these requirements.
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\53\ See, e.g., Items 1.1.b and 8.2.c of Form N-2.
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Investors seeking potentially higher returns may opt to invest in
interval funds that employ strategies that invest in less liquid assets
to capture an
[[Page 63400]]
illiquidity premium, accepting a longer initial wait for liquidity.
Alternatively, investors prioritizing access to liquidity may choose to
invest in interval funds that employ strategies focused on more liquid
assets, recognizing this may come with a lower return potential. The
flexibility of the interval fund structure empowers investors to select
the strategy that best aligns with their investment goals and liquidity
preferences. While under the current rule, it is possible for an
interval fund to have a two-year ramp up period which may benefit
strategies that invest in less liquid assets, those funds are currently
restricted to offering liquidity only once per year, which may not
appeal to investors who are willing to wait for initial liquidity but
would prefer more frequent access than once a year following the ramp
up period. Under the proposed rule, all newly organized interval funds
would have the option of a two-year ramp up period, but without the
limitation of offering liquidity only once per year. Before investing
in a new interval fund, prospective investors would need to consider
whether they are comfortable with the possibility of waiting up to two
years before being able to submit repurchase requests to access their
liquidity.
We request comment on the proposed changes to the provision for
deferral of the first repurchase offer, including:
1. Should we extend the amount of time an interval fund may defer
its initial repurchase offer to two years as proposed? How would an
extended ramp up period benefit or harm interval funds and
shareholders? What operational or strategic adjustments would funds
make with this additional time? Should existing interval funds be
granted a two-year ramp up period if they modify their periodic
interval?
2. Should the proposal provide interval funds with additional time,
beyond two years, before commencing repurchase offers? If so, what
period of time is best and why? For example, should we consider
allowing interval funds a period of three to five years? Would funds
with an annual periodic interval benefit from a longer ramp up period?
Should the ramp up period be based on a multiple of the fund's selected
periodic interval rather than a set period of time as proposed,
consistent with the construction of the current rule? For instance,
should we provide that interval funds may defer their initial
repurchase offer no later than three or four periodic intervals
following registration or the adoption of a fundamental policy?
3. Are there other mechanisms aside from additional time that could
provide operational benefits to interval funds during the ramp up
period?
4. What reporting and oversight measures are implemented during the
ramp up period to ensure that the fund is adequately prepared to
support the repurchase offer process? If specific milestones are met,
would a fund choose to offer repurchase offers early?
5. Would a longer ramp up period, as proposed, detract investors
from investing in interval funds that take advantage of the
flexibility? If so, why? What other conditions, if any, would investors
consider when thinking about the ramp up period?
6. Delayed access to liquidity can be a significant drawback for
investors who value flexibility, making it essential that investors
understand an interval fund's repurchase process, including the
expected length of the ramp up period. Should we require more specific
disclosure about the timing of the first repurchase offer? If so, what
should this disclosure look like?
7. If we were to further extend or introduce greater flexibility to
the initial ramp up period, what mechanisms could be implemented to
effectively balance investors' need for liquidity? For instance, should
we consider permitting funds the option to make ad hoc repurchase
offers during the initial ramp up period? Should we also consider
specifically allowing funds to provide limited liquidity during this
period, perhaps even below the standard five percent minimum
requirement?
2. Monthly Periodic Intervals
Under rule 23c-3, interval funds are permitted to repurchase shares
of common stock at intervals of three, six, or twelve months. The
selected interval is documented in the fund's fundamental policy,
changeable only by a majority vote of the outstanding voting securities
of the company. The Commission has granted exemptive orders allowing
interval funds to make repurchase offers on a monthly basis.\54\
Exemptive orders permit some funds to repurchase shares on a monthly
basis so long as the fund provides notification to shareholders between
seven and fourteen days prior to the repurchase request deadline and
provides payment for shares repurchased in the prior month's repurchase
offer at least five business days before sending notification of the
next repurchase offer. At least one fund with this relief has also been
permitted to offer repurchase amounts of no less than two percent
provided the fund offers to repurchase no less than five percent of the
aggregate percentage of common shares at the end of every three month
period.\55\ Aside from these conditions, funds are otherwise required
to comply with the provisions of rule 23c-3.
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\54\ See, e.g., In the Matter of Lord Abbett Opportunities Fund,
Investment Company Act Release No. 35663 (July 1, 2025) (Notice) and
Investment Company Act Release No. 35699 (Jul. 29, 2025) (Order); In
the Matter of Optimize Growth Equity Fund, Optimize Premium Yield
Fund and Optimize Wealth Management Inc., Investment Company Act
Release No. 35533 (Apr. 10, 2025) (Notice) and Investment Company
Act Release No. 35576 (May 7, 2025) (Order); In the Matter of Nuveen
Enhanced Floating Rate Income Fund, Nuveen Fund Advisors, LLC,
Nuveen Securities, LLC, and Nuveen Asset Management, LLC, Investment
Company Act Release No. 35081 (Notice) and Investment Company Act
Release No. 35091 (Jan. 17, 2024) (Order).
\55\ See, e.g., In the Matter of Lord Abbett Opportunities Fund,
Investment Company Act Release No. 35663 (July 1, 2025) (Notice) and
Investment Company Act Release No. 35699 (Jul. 29, 2025) (Order).
---------------------------------------------------------------------------
We are proposing rule amendments that would allow all interval
funds the option of making repurchase offers on a monthly basis.
Certain aspects of these proposed amendments differ from the terms and
conditions provided in the exemptive relief. The proposed amendments
are designed to provide interval funds with more repurchase offer
flexibility and shareholders of interval funds the potential for more
frequent liquidity opportunities. The option of a one-month periodic
interval could also make the interval fund structure more appealing to
a broader range of investors, including those who may be accustomed to
the redemption opportunities of registered open-end funds since there
would be more frequent opportunities for investors to access liquidity.
From the interval fund's perspective, monthly intervals could help
smooth repurchase requests, reducing the risk of large, concentrated
outflows that might occur with less frequent repurchase offers since
funds may be better able to anticipate and respond to more frequent
repurchases.
When the Commission originally proposed rule 23c-3 in 1992, the
Commission requested comment on whether the rule should permit other
intervals, including repurchase opportunities at shorter intervals.\56\
Commenters addressing that part of that proposal suggested that the
rule should permit other intervals such as one or two months, or
generally any interval so
[[Page 63401]]
long as it is in monthly increments (i.e., nine or fifteen months). The
Commission declined to implement those suggestions, stating that
shorter intervals (e.g., one or two months) were not compatible with
the notification requirement because a fund would need to send out a
notification for a repurchase offer before it had completed the
previous offer. At the time, interval funds represented a new type of
regulatory structure. Market participants had limited experience
operating this type of fund structure and investors had limited
experience investing in or requesting repurchases from this type of
fund. The industry and investors now have over thirty years of
operational and practical experience with interval funds. Over that
time, the Commission's views on monthly intervals have evolved as
demonstrated by the Commission having approved exemptive relief
permitting interval funds to offer monthly periodic intervals, subject
to certain terms and conditions.
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\56\ See Periodic Repurchases by Closed-End Management
Investment Companies; Redemptions by Open-End Management Investment
Companies and Registered Separate Accounts at Periodic Intervals or
With Extended Payment, Investment Company Act Release No. 18869
(Jul. 28, 1992) [57 FR 34701 (Aug. 6, 1992)].
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As a part of the 2019 Concept Release, the Commission requested
public comment on whether the Commission should modify the periodic
intervals in rule 23c-3.\57\ In response, some commenters stated that,
consistent with exemptive orders already granted to several funds, the
Commission should amend rule 23c-3 to permit interval funds to have the
option to select a monthly periodic interval.\58\ Based on the
Commission's current experience with interval funds offering monthly
repurchases under exemptive orders, and to provide investors the
benefits of additional liquidity opportunities, we are proposing to
permit interval funds to offer repurchases on a monthly basis without
the expense and delay of obtaining an exemptive order from the
Commission under the Investment Company Act. This change would, like
the proposed deferral of the first repurchase offer, enhance the
flexibility of the interval fund structure. Interval funds that pursue
strategies that permit more frequent liquidity could use this proposed
flexibility to attract investors who seek more frequent liquidity
opportunities than rule 23c-3 currently permits. As a result, this
change could make interval funds more attractive to managers utilizing
strategies conducive to monthly repurchases.
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\57\ See 2019 Concept Release, supra note 5 at section IV.D
(request for comment 116).
\58\ See, e.g., ICI Comment Letter; AIC Comment Letter; Comment
Letter of the Institute for Portfolio Alternatives (Sep. 24, 2019)
(``IPA Comment Letter''); Comment Letter of AngelList Advisors, LLC
(Sep. 25, 2019) ``AngelList Comment Letter''); Comment Letter of
Blackrock, Inc. (Sep. 24, 2019) (``Blackrock Comment Letter'').
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We are proposing amendments to multiple parts of rule 23c-3 to
accommodate a monthly periodic interval option. First, we propose to
amend the definition of ``periodic interval'' to include the option of
a one-month interval.\59\ The frequency of the periodic interval,
including a monthly interval under the proposal, would remain subject
to the fundamental policy requirements under the rule. If an existing
interval fund changes its periodic interval from, for example, every
three months to a monthly interval, the fund would be required to
obtain majority shareholder approval because this would be an update to
the fund's fundamental policy. The same process would be required under
the current rule if the fund changed its periodic interval from, for
example, every six months to every three months.
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\59\ See proposed rule 23c-3(a)(1).
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We are also proposing amendments to revise the timing requirements
for notification to security holders to accommodate monthly repurchase
intervals.\60\ Currently under the rule, funds are required to send to
security holders certain information no less than twenty-one and no
more than forty-two days before each repurchase request deadline.\61\
Funds that elect to have monthly repurchase intervals would need the
flexibility to send out notification of a repurchase offer to
shareholders closer to the repurchase request deadline than the rule
currently allows to avoid overlap between payment for a repurchase and
notification of the next month's repurchase offer. If a fund with a
monthly repurchase interval has to wait until twenty-one days before
the repurchase request deadline, at the latest, to send notification to
shareholders, there would be very little time to complete the
repurchase process (i.e., determine NAV and provide payment to
shareholders) before the cycle must begin again for the next month.
Similarly, interval funds that currently have monthly repurchase
intervals under the exemptive orders make notifications no less than
seven but no more than fourteen days before the repurchase request
deadline.\62\ While this timing may be appropriate for shorter
intervals, it may be abrupt for longer intervals where the liquidity
opportunities are less frequent.
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\60\ See proposed rule 23c-3(b)(4)(i). The proposed amendments
to this provision and paragraph (b)(4) generally also would apply to
a non-interval fund making a discretionary offer under rule 23c-
3(c). See infra section II.A.3.
\61\ See rule 23c-3(b)(4)(i).
\62\ See, e.g., In the Matter of Lord Abbett Opportunities Fund,
Investment Company Act Release No. 35663 (July 1, 2025) (Notice) and
Investment Company Act Release No. 35699 (Jul. 29, 2025) (Order).
---------------------------------------------------------------------------
Weighing these considerations, we are proposing to set the range
that an interval fund, regardless of interval length, can send the
notification to no less than fourteen and no more than forty-two days
before the repurchase request deadline. The minimum notification
requirement is designed to ensure that shareholders receive meaningful,
rather than merely formal, notice of a repurchase offer by affording
sufficient time to evaluate the offer and make an informed decision
about the repurchase. Shareholders need sufficient time to assess
whether or not to submit a repurchase request, including but not
limited to considering the current and future performance of the fund's
portfolio, market conditions, and their own personal financial
situation. A minimum of fourteen days should be a sufficient amount of
time for shareholders to evaluate a repurchase offer regardless of the
frequency of those offers. This would also be generally consistent with
a recent exemptive order for tender offers of equity securities that
applies to, among other entities, tender offer funds.\63\ Separately,
we are also proposing to update a cross reference to another part of
the rule in this provision to reflect other proposed amendments.\64\
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\63\ See Exemptive Order for Tender Offers for Equity Securities
(Apr. 16, 2026) (available at <a href="https://www.sec.gov/files/rules/exorders/2026/exemptive-order-tender-offers-equity-securities-041626.pdf">https://www.sec.gov/files/rules/exorders/2026/exemptive-order-tender-offers-equity-securities-041626.pdf</a>) (permitting a tender offer for any class of equity
security to remain open for a minimum offering period of ten
business days subject to certain conditions).
\64\ See proposed rule 23c-3(b)(4)(i)(D). See infra section
II.A.3.
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We also are proposing to amend the definition of ``repurchase
payment deadline'' to require the repurchase payment deadline to occur
at least one business day before notification of the next repurchase
offer that is made pursuant to a fundamental policy is sent to security
holders to ensure that the timing of monthly repurchases does not
overlap.\65\ The purpose of this amendment is to ensure interval funds
follow an orderly repurchase process that does not lead to shareholder
confusion. Under the proposed rule amendments, an interval fund would
need to complete the repurchase process fully (i.e., distribution of
the repurchase notification to the repurchase payment deadline) before
it starts the repurchase process of the next repurchase offer that is
made pursuant to a fundamental policy. For example, a fund with a
[[Page 63402]]
monthly repurchase interval would not be permitted to notify
shareholders of a repurchase offer for February until after the fund
completes the repurchase process for January, including providing
payment to shareholders for January repurchases. This approach helps
ensure that shareholders who submitted a repurchase request for January
have all the necessary information about their investment before
deciding whether to submit requests for February. If a shareholder's
repurchase request for January was fully satisfied, the shareholder may
elect not to submit a request for February. Conversely, if the January
request was only partially fulfilled, the shareholder may wish to
submit an additional request for February.
---------------------------------------------------------------------------
\65\ See proposed rule 23c-3(a)(4).
---------------------------------------------------------------------------
This amendment would only affect funds offering monthly repurchases
as there are typically several days, if not weeks or months, between
repurchase cycles for interval funds that do not offer monthly periodic
intervals. For a fund that offers monthly repurchases, the timing in
between repurchase requests can be close depending on the exact days of
a fund's repurchase process, though we anticipate that after a few
rounds of monthly repurchase requests, both fund managers and
shareholders would have a better understanding of the cadence and of
the notification process. Like interval funds that select any periodic
interval in the current rule, interval funds with a monthly periodic
interval making a repurchase offer pursuant to a fundamental policy
would be required to offer at least five percent and no more than 25
percent of the common stock outstanding on a repurchase request
deadline.\66\
---------------------------------------------------------------------------
\66\ See current rule 23c-3(a)(3).
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We are also proposing to amend the definition of ``repurchase
payment deadline'' to require the repurchase payment deadline to occur
no later than seven days after the repurchase pricing date applicable
to such tender. This amendment would apply to all funds, not only funds
with a monthly interval. Currently, the rule states that the repurchase
payment deadline must occur seven days after the repurchase pricing
date. The Commission has historically interpreted this provision to
mean that the repurchase payment deadline must occur within seven
days.\67\ This amendment would align with that interpretation and
provide interval funds with incrementally more flexibility to the
extent that funds were waiting until the seventh day.
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\67\ See 1993 Adopting Release at text preceding n.39 (stating
that ``[a] fund relying on rule 23c-3 must pay repurchase proceeds
to shareholders within seven days after the repurchase occurs; the
definition of repurchase payment deadline in paragraph (a)(4) of the
final rule requires that payment occur within seven days after the
repurchase pricing date.'').
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We request comment on the proposed changes to include a monthly
periodic interval, including:
8. Should we, as proposed, permit funds to have a monthly periodic
interval?
9. Would the introduction of a monthly interval structure provide
benefits to current and prospective investors?
10. From the perspective of fund management, what strategic or
operational rationale would support the adoption of a monthly
repurchase schedule? What are the potential benefits and/or drawbacks
for funds in establishing a monthly repurchase schedule from an
operational or strategic perspective?
11. The rule currently requires that fund boards determine the
amount of shares being repurchased in any given repurchase offer, and
we are not proposing to change this requirement.\68\ Given that many
fund boards meet on a quarterly basis, how would interval fund boards
make this determination on a monthly basis? How do interval fund boards
that currently offer monthly repurchases pursuant to exemptive orders
make this determination? Are such determinations made by a majority of
directors who are not interested persons of the fund? Should the rule
be amended to require that? Should we consider alternatives such as
obtaining approval by written consent or permitting fund boards to
determine the repurchase offer amounts for multiple intervals at once,
rather than deciding before each repurchase cycle?
---------------------------------------------------------------------------
\68\ Current rule 23c-3(a)(3).
---------------------------------------------------------------------------
12. Should we consider different minimum and/or maximum repurchase
offer amounts for monthly intervals? For example, should we lower the
minimum repurchase offer amount for funds that offer monthly intervals
to two percent, consistent with some exemptive orders? If so,
consistent with those orders, should an adjustment be required such
that the aggregate percentage of common shares subject to repurchase in
any three-month period would not be less than five percent of the
fund's common shares outstanding as of the third month's repurchase
request deadline? Alternatively, should we increase the maximum
repurchase offer for funds that offer monthly intervals to, for
example, 30 or 40 percent?
13. Should we, as proposed, extend the range that a fund can send a
notification of repurchase offer to no less than fourteen and no more
than forty-two days before the repurchase request deadline? Does this
provide sufficient time for funds to perform the necessary operational
tasks? Does this provide sufficient time for investors to determine
whether to request a repurchase of their shares? In particular, would a
fourteen-day notice provide sufficient time for investors to determine
whether to request a repurchase of their shares under an annual
frequency? Are there alternative strategies or methodologies regarding
notification timing and processes that we should consider?
14. If we further extend a range that a fund can send a
notification of repurchase offer to no less than seven and no more than
forty-two days before the repurchase request deadline to more closely
align with the terms and conditions from the exemptive orders, what
concerns (if any) would funds, shareholders, and potential investors
have? Does this provide sufficient time for funds to perform the
necessary operational tasks? Does this provide sufficient time for
investors to receive offers and determine whether to sell their shares
to the fund? In particular, would a seven-day notice provide sufficient
time for investors to receive an offer and determine whether to sell
their shares to the fund under an annual frequency? Should we consider
only allowing funds with a monthly interval to send a notification of
repurchase offer no less than seven days before the repurchase request
deadline?
15. Is requiring at least one day before the repurchase payment
deadline of the prior repurchase offer period and the start of the next
repurchase offer period sufficient time to meet the operational needs
of both funds and investors? What mechanisms should be implemented to
minimize potential confusion for investors during this process?
16. Should we permit an interval fund to make repurchase offers at
any interval chosen and disclosed by the fund, rather than limit a fund
to offer repurchases at only the intervals specified in the rule? If
so, should there be a maximum permitted periodic interval? Are there
alternative structures or guidelines for determining period intervals
that we should consider?
17. What other modifications to the repurchase process should we
consider? What additional modifications to the process should be
considered to further enhance operational efficiency and the overall
investor experience of interval funds? Would evaluating alternative
[[Page 63403]]
interval frameworks, such as variable or event-driven periods, provide
benefit to funds and investors?
18. Should the proposed amendment to the notification requirement
apply to non-interval funds making discretionary repurchase offers
under paragraph (c) as proposed? Are there particular aspects of the
proposed amendment that should be modified to address circumstances
associated with non-interval funds?
3. More Frequent Discretionary Repurchases
Rule 23c-3(c) permits regulated closed-end funds that are interval
funds to make discretionary repurchase offers, that is, offers not made
pursuant to a fundamental policy and made to all holders of common
stock, once every two years measured from the date of the last
discretionary repurchase offer. Regulated closed-end funds that are not
interval funds are also permitted to offer discretionary repurchases
under rule 23c-3(c). If a non-interval fund chooses to make a
discretionary repurchase offer pursuant to this rule, it must comply
with certain other provisions of rule 23c-3 that also apply to interval
funds.\69\ Interval funds making discretionary repurchases are also
required to follow these same provisions, which are largely the same
provisions they must follow when making periodic repurchase offers. We
propose to permit these discretionary repurchases every year rather
than every two years. The proposed rule is designed to provide interval
funds with additional flexibility to offer repurchases more frequently
outside of the periodic repurchase offers described in the fund's
fundamental policy to accommodate, for example, event-driven liquidity
events. Non-interval funds also would be provided with additional
flexibility to offer to repurchase investors' shares more frequently
using the discretionary repurchase provision.
---------------------------------------------------------------------------
\69\ See rule 23c-3(c). This provision states that a regulated
closed-end fund, interval or non-interval, making a discretionary
repurchase must comply with the requirements of paragraphs: (b)(1)
(requiring a fund to repurchase stock at NAV), (b)(3) (providing
that a fund cannot suspend or postpone a repurchase except under
certain conditions), (b)(4) (providing notification requirements),
(b)(5) (providing requirements for handling oversubscribed
repurchases), (b)(6) (allowing for the withdrawing or modification
of tenders at any time until the repurchase request deadline),
(b)(7)(ii) (providing instructions for computation of NAV), (b)(8)
(requiring the fund board to satisfy the fund governance standards),
(b)(10)(i) (requiring funds to hold 100 percent of the repurchase
offer amount in liquid assets), and (b)(10)(ii) (requiring the board
to take appropriate action if the fund's assets fails to comply with
the requirements of (b)(10)(i)).
---------------------------------------------------------------------------
The limitation of no more than one discretionary repurchase offer
every two years in the current rule was intended, in part, to ensure
that interval funds do not make discretionary offers as a means of
circumventing the fund's fundamental policy. The limitation also aimed
to address a concern that non-interval funds could effectively operate
as interval funds without formally adopting fundamental policies. We do
not view allowing interval funds to provide investors additional
liquidity once a year, rather than once every two years, as
circumventing a fund's fundamental policy, in large part, because at
least half of a fund's repurchase offers would continue to be made
pursuant to the fund's fundamental policy. Even in the case of an
interval fund with an annual repurchase interval (most interval funds
typically offer repurchases on a quarterly basis), the potential for
more frequent repurchases would complement, rather than circumvent, the
fund's fundamental policy. An interval fund's fundamental policy is
intended to provide shareholders with a degree of predictability
regarding periodic repurchase offers. The ability to offer
discretionary repurchases, while at the fund's discretion, expands the
toolkit available to the fund to address market events or unique
circumstances. Together, these approaches support shareholders' access
to liquidity.
Furthermore, we are not concerned that permitting non-interval
funds the ability to offer discretionary repurchases once a year could
allow these funds to effectively operate as interval funds without
formally adopting fundamental policies. Non-interval regulated closed-
end funds can currently repurchase via tender offers at intervals that
match those permitted of interval funds without formally adopting
fundamental policies.\70\ The important distinction is whether the fund
repurchase is required or discretionary. Shareholders who value
mandatory periodic liquidity can invest in interval funds that have
adopted fundamental policies to repurchase shares at certain intervals.
This distinction, however, should not prevent all regulated closed-end
funds from offering more frequent liquidity to their shareholders as
providing increased flexibility regarding discretionary repurchases
would benefit both interval funds and non-interval funds as well as
shareholders. The added flexibility could allow fund managers to
respond more effectively to unique market conditions and investor needs
and support a more dynamic approach to liquidity management.
Shareholders could benefit from the fund's ability to make strategic
decisions regarding discretionary repurchases.
---------------------------------------------------------------------------
\70\ Even though non-interval regulated closed-end funds are not
required to repurchase shares on a predetermined schedule, these
funds could still offer to repurchase shares on a similar frequency
as interval funds.
---------------------------------------------------------------------------
While we understand that these discretionary repurchases are
infrequently used by interval funds or other regulated closed-end
funds, in response to the 2019 Concept Release, commenters requested
that the Commission provide additional flexibility for discretionary
repurchases.\71\ One commenter recommended that the Commission shorten
the discretionary repurchase offer period to once every 367 days to
allow managers more flexibility to align repurchase offers and
management of the fund's assets. The commenter stated that limiting the
discretionary repurchase offer to this frequency would accomplish the
Commission's original goal of ensuring that interval funds adhere to
their fundamental policies while also providing for additional
flexibility to conduct discretionary repurchases.\72\
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\71\ See, e.g., AIC Comment Letter; AngelList Comment Letter;
ICI Comment Letter.
\72\ See ICI Comment Letter.
---------------------------------------------------------------------------
Providing interval funds incrementally more flexibility to offer
investors liquidity would benefit investors seeking more liquidity than
is available through the fund's periodic repurchase offers. In
particular, affording interval funds a more timely mechanism for
responding to idiosyncratic liquidity events, such as significant
investor repurchase pressure or unanticipated changes in portfolio
liquidity, on a timeline consistent with the nature of the event rather
than the fund's fixed repurchase schedule would benefit shareholders by
reducing the potential for mismatch between an interval fund's capacity
to conduct repurchases and the potential exigent liquidity needs of
shareholders. As discussed above, the additional flexibility would also
benefit non-interval funds as they would similarly have more
flexibility to offer investors liquidity through the provisions of this
rule.
Shareholder repurchase requests can fluctuate considerably, driven
by evolving market conditions, shifting investor sentiment, and
changing liquidity needs. The enhanced flexibility introduced by the
proposed amendment would allow interval funds and non-interval funds to
offer liquidity more frequently, giving funds more opportunity to
respond to shareholder
[[Page 63404]]
needs without the concern of being limited by the current two-year
waiting period.
We considered whether to limit this proposed amendment to interval
funds, retaining the current requirement that a non-interval fund can
make a discretionary repurchase offer under the rule only once every
two years. If non-interval funds could make annual discretionary
repurchase offers, as proposed, there could be a risk that investors
would confuse such a fund with an interval fund that offers an annual
periodic interval and would not appreciate that such a fund may, but is
not required to, make annual repurchase offers. This risk appears
remote, however, because such a fund would disclose that it will offer
to repurchase investors' shares only at the discretion of the board of
directors. Therefore, on balance, we believe the benefits to investors
of the potential for greater liquidity opportunities justifies any
potential risk that investors might confuse non-interval funds using
the discretionary repurchase provision with interval funds.
In our view, permitting discretionary repurchases once every twelve
months strikes the appropriate balance of offering sufficient
flexibility for funds to manage liquidity and shareholder expectations,
while maintaining safeguards that protect the interests of
shareholders.
In addition, as discussed in the 1993 Adopting Release, the
Commission interprets rule 23c-3 to give interval funds and non-
interval funds the flexibility to offer a repurchase amount for
discretionary repurchases that are not restricted to the same
repurchase limits imposed on periodic repurchases.\73\ In practice,
this allows interval funds and non-interval funds to make a repurchase
offer for more than 25 percent of their common stock in a discretionary
repurchase offer. When making a discretionary repurchase offer,
however, funds are required to comply with the rule's notification
requirements which specify that the notification must include ``the
repurchase offer amount.'' The rule defines that term to mean the
amount of common stock that is the subject of the repurchase offer, but
the definition also provides the repurchase amount shall not be less
than five nor more than 25 percent of the fund's outstanding common
stock.\74\ This creates ambiguity regarding whether discretionary
repurchases are subject to the same repurchase offer amount limitations
as periodic repurchases, despite the Commission's clear interpretation
of the rule to permit discretionary repurchases to offer amounts not
subject to those limitations.
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\73\ 1993 Adopting Release, supra note 3 at text following n. 26
(stating ``[t]o the extent that a fund determines it is appropriate
to make an offer to repurchase a higher amount, it may do so through
a discretionary repurchase offer pursuant to paragraph (c). . . for
up to 100 percent of a fund's common stock. . . .'').
\74\ See current rule 23c-3(a)(3).
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We are providing conforming amendments to the definition of
repurchase offer amount to specify in the rule that discretionary
repurchase offers are not subject to the requirement that offers be
between five percent and 25 percent of the fund's common stock
outstanding.\75\ Similarly, we are proposing amendments to the
definition of repurchase payment deadline to specify that discretionary
repurchase offers are not subject to the requirement that a repurchase
pricing deadline occur at least one business day before notification of
the next repurchase offer is sent to shareholders.\76\ This proposed
amendment is designed to allow interval funds with monthly periodic
intervals to be able to make discretionary repurchase offers to
shareholders without violating the parameters that apply to the timing
of a repurchase payment deadline.
---------------------------------------------------------------------------
\75\ See proposed rule 23c-3(a)(3).
\76\ See proposed rule 23c-3(a)(4).
---------------------------------------------------------------------------
Funds that choose to conduct discretionary repurchases under rule
23c-3, including non-interval funds, are required to comply with
certain conditions of the rule when engaging in such repurchases. Rule
23c-3(c) currently includes a list of interval fund repurchase
provisions that apply to discretionary repurchases, including
discretionary repurchases by non-interval funds.\77\ We are proposing
edits to consolidate the cross references to paragraph (b)(10)(i) and
(b)(10)(ii) into a single cross reference to paragraph (b)(10) to
reflect the amendments being proposed to that paragraph.\78\ As
discussed in other sections of this release, we also are proposing
amendments to certain of these other requirements, and these proposed
amendments would therefore apply to interval funds and also to non-
interval funds making discretionary repurchase offers under rule 23c-
3.\79\
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\77\ See current rule 23c-3(c) (stating that a fund conducting a
discretionary repurchase offer must comply ``with the requirements
of paragraphs (b)(1), (3), (4), (5), (6), (7)(ii), (8), (10)(i), and
(10)(ii) of [rule 23c-3]'').
\78\ See proposed rule 23c-3(c) ((stating that a fund conducting
a discretionary repurchase offer must comply ``with the requirements
of paragraphs (b)(1), (3), (4), (5), (6), (7)(ii), (8), and (10) of
[rule 23c-3]'').
\79\ See infra section II.A.6 (discussing proposed amendments to
paragraph (b)(1) of rule 23c-3 that would provide that a regulated
fund cannot condition a repurchase offer upon the tender of any
minimum amount of shares and to provide that, in addition to a
repurchase fee, a regulated fund may deduct from the repurchase
proceeds a deferred sales load, subject to conditions); supra
section II.A.2 (discussing proposed amendments to paragraph (b)(4)
of rule 23c-3 that would provide that a regulated fund must send a
notice of a repurchase offer no less than fourteen, and no more than
forty-two, days before a repurchase request deadline); infra section
II.A.5 (discussing proposed amendments to clarify the oversubscribed
repurchase requirement); infra section II.B (discussing proposed
amendments to paragraph (b)(10) of rule 23c-3 that would provide a
principles-based approach to the regulated fund's liquidity
management).
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We request comment on the proposed changes to the frequency of
discretionary repurchases, including:
19. Should we, as proposed, allow discretionary repurchase offers
every twelve months? Is there a different frequency that would be more
suitable for funds or shareholders? Should we differentiate between
interval funds and other regulated closed-end funds for purposes of
this amendment? For example, should we permit interval funds to make
this repurchase every twelve months but limit repurchases by non-
interval funds under this provision to the current every two years?
20. We understand that it is rare for interval funds or non-
interval funds to make discretionary repurchases under this provision.
To what extent is this provision being considered by managers of
regulated closed-end funds currently? What benefits does it offer over
a fund making an issuer tender offer? Should we consider removing the
provision that permits discretionary repurchases under rule 23c-3
altogether?
21. Could permitting non-interval funds to offer a discretionary
repurchase once every twelve months lead to confusion, with investors
mistakenly believing these funds are operating as interval funds that
offer annual periodic repurchases? If so, should we consider limiting
the ability to make a discretionary repurchase offer no more often than
once every twelve months to interval funds (which would mean that non-
interval funds would need to make issuer tender offers instead if they
seek to repurchase more often than every two years)?
22. Non-interval funds making discretionary repurchases under rule
23c-3(c) are required to comply with certain requirements that also
apply to interval funds. We are proposing amendments in this release
that would revise certain of those requirements. Should the proposed
amendments to those requirements apply to non-interval funds or are
there specific provisions that may require further
[[Page 63405]]
consideration? Are there particular aspects of the proposed amendments
that should be modified to address circumstances associated with non-
interval funds?
23. Describe the circumstances under which a fund may conduct a
discretionary repurchase offer. What processes are involved in deciding
whether to make a discretionary repurchase offer and how much to offer
to repurchase? Do funds have policies and procedures documenting the
process?
24. Should we include a minimum and/or maximum repurchase offer
amount on discretionary repurchase offers? For example, should we
consider allowing funds to offer only an amount that is in the same
range as the repurchase offer amount for periodic repurchases? Are
there any conditions that we should consider including from a
regulatory standpoint when a fund makes a discretionary repurchase
offer?
25. Are there mechanisms we should consider including to ensure
that shareholders can distinguish between periodic repurchases and
discretionary repurchases? For instance, should we require disclosure
designed to clearly differentiate between a periodic and discretionary
repurchase in the notice sent to shareholders?
4. Repurchase Pricing Date
The ``repurchase pricing date'' is defined as the date on which an
interval fund determines the NAV applicable to a repurchase of
securities. We are proposing amendments designed to simplify the
definition of repurchase pricing date and to remove the requirement in
current rule 23c-3(b)(2)(i)(D) to include the maximum number of days
between the repurchase request deadline and the repurchase pricing date
in the fund's fundamental policy.\80\
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\80\ See proposed rule 23c-3(a)(5).
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The current rule requires that there be no more than fourteen days
(or the next business day if the fourteenth day is not a business day)
between the repurchase request deadline and the repurchase pricing date
and that the maximum number of days between the repurchase request
deadline and the repurchase pricing date be included in the fund's
fundamental policy. The rule separately requires interval funds to
notify shareholders of the repurchase request deadline and repurchase
pricing date in the notification that is sent to all shareholders for
each repurchase offer.\81\ In addition, this notification must include
information about the risk of fluctuation in NAV between the repurchase
request deadline and the repurchase pricing date, and the possibility
that the company may use an earlier repurchase pricing date pursuant to
the rule.\82\ This content notification requirement is sufficient to
provide shareholders with adequate information about the repurchase
pricing date and risks related to timing of the repurchase pricing
date. Accordingly, we do not see the need or benefit to shareholders or
the fund to require the maximum number of days between the repurchase
request deadline and the next repurchase pricing date in the fund's
fundamental policy.\83\ As a result, a new interval fund, or existing
fund that held a shareholder vote to remove this limitation from its
fundamental policy, could change this timing for subsequent repurchase
offers without the expense of a shareholder vote each time.\84\
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\81\ See rule 23c-3(b)(4)(i)(D).
\82\ See id.
\83\ In response to the 2019 Concept Release, commenters
supported making an interval fund's fundamental policy simpler. See
ICI Comment Letter (asserting that the only items that should be
included as a part of the fund's fundamental policy should be the
fact that the fund will make repurchase offers, the minimum amount
of repurchase amounts, and the interval periods).
\84\ See sections 8(b)(3) and 13(a) of the Investment Company
Act.
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The proposed amendment to remove the requirement that the maximum
number of days be included in the interval fund's fundamental policy
would not change the requirement that interval funds have a maximum of
fourteen days between the repurchase request deadline and the
repurchase pricing date. The proposed amendments to the repurchase
pricing date definition would remove the reference to that requirement
and otherwise contain editorial updates to enhance readability of the
definition. We do not anticipate that these amendments would affect
interval fund operations or the substance of information provided to
shareholders in connection with repurchase notifications.
We request comment on the proposed changes to the repurchase
pricing date, including:
26. Should we, as proposed, remove the requirement to include the
maximum number of days between the repurchase request deadline and the
repurchase pricing date in the fund's fundamental policy? Does this
requirement currently provide benefit to funds or investors?
27. Should we make any other modifications as to which elements of
an interval fund's repurchase policy should be included in a
fundamental policy adopted under the rule? For example, are there
elements of an interval fund's fundamental repurchase policy that could
be determined by a majority of the board or a majority of the non-
interested directors without adverse impact on investors in those
funds?
28. The repurchase pricing date must be no later than fourteen days
after the repurchase request deadline. Given that funds are also
required to calculate the NAV of the fund's common stock daily during
the five business days preceding the repurchase request deadline, is
the fourteen day timeframe necessary or appropriate? Would a shorter
period such as three, five, or seven days after the repurchase request
deadline be more efficient, or are there considerations that warrant
maintaining the current period?
29. Given advances in technology since 1993, and consistent with
representations made in some requests for exemptive orders to permit
monthly repurchases, should we instead require pricing of repurchases
on the same day as investors must submit their repurchase requests,
based on the values as of the market close that day? Do interval fund
underlying investments permit this timing in all cases? If the deadline
to determine the repurchase pricing date is shortened or eliminated,
should rule 23c-3 be amended to provide a longer period to pay
repurchase offer proceeds to account for the liquidity characteristics
of underlying investments?
5. Amount of Securities Repurchased
When an interval fund initiates a repurchase offer, the
notification to shareholders must specify the repurchase offer amount,
the percentage of outstanding shares eligible for repurchase as
determined by the board of directors of the fund.\85\ Similarly, a fund
making a discretionary repurchase offer must also include in its
notification to shareholders the repurchase offer amount of the
discretionary repurchase offer. When a fund is initiating an offer
pursuant to its fundamental policy, the repurchase offer amount cannot
be less than five percent or more than 25 percent of the common stock
outstanding on the repurchase request deadline. If shareholders request
to repurchase more shares than the repurchase offer amount
(``oversubscribed repurchase'') for either periodic repurchase offers
or discretionary repurchase offers, funds have the option to repurchase
an additional amount of stock not to exceed two percent of common
stock.\86\ In cases of oversubscribed repurchases where the fund
repurchases less than
[[Page 63406]]
the amount requested by shareholders (i.e., the amount of shares that
shareholders requested is greater than the sum of the repurchase offer
amount and the amount of any additional shares that a fund elects to
repurchase, up to two percent of shares outstanding), the rule requires
funds to repurchase shares on a pro rata basis, subject to limited
exceptions.\87\ The repurchase process for funds is designed to ensure
transparency and fairness for all shareholders and this pro rata
requirement is intended to prevent preferential treatment of any
individual shareholder and to ensure that all shareholders have an
equal opportunity to participate in the repurchase process.
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\85\ See rule 23c-3(b)(4)(i)(C).
\86\ See rule 23c-3(b)(5).
\87\ See rule 23c-3(b)(5)(i) (allowing an interval fund to first
accept all shares tendered by small holders owning fewer than 100
shares in the aggregate before applying any proration to other
tendering shareholders) and rule 23c-3(b)(5)(ii) (allowing an
interval fund to permit shareholders who tender their entire
position to elect, in cases where a repurchase offer is
oversubscribed and pro rata allocation would otherwise apply, that
the fund either repurchase all of their tendered shares or none of
them).
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We are proposing amendments to the oversubscribed repurchase
provision to clarify this requirement.\88\ A plain reading of the
oversubscribed repurchase provision could lead to ambiguity or
interpretive questions in circumstances where a fund is oversubscribed
but shareholder tenders of common stock do not reach two percent over
the repurchase offer amount (e.g., an interval fund provides a
repurchase offer amount of 10 percent of common stock and shareholders
tender 11 percent). Specifically, the current rule states, ``[i]f the
company determines not to repurchase more than the repurchase offer
amount, or if security holders tender stock in an amount exceeding the
repurchase offer amount plus two percent of the common stock
outstanding on the repurchase request deadline, the company shall
repurchase the shares tendered on a pro rata basis . . . .'' For an
oversubscribed repurchase, this provision requires pro rata repurchases
when (1) the fund decides not to repurchase more than the repurchase
offer amount (i.e., when the fund determines not to fulfill any of the
oversubscribed repurchase amount), and (2) shareholder tenders exceed
the repurchase amount plus two percent of common stock. The current
rule does not address when a fund repurchases additional shares in an
amount that is less than two percent of common stock outstanding.\89\
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\88\ See proposed rule 23c-3(b)(5). The proposed amendments to
this provision also would apply to a non-interval fund making a
discretionary offer under rule 23c-3(c). See supra section II.A.3.
\89\ See rule 23c-3(b)(5).
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The proposed amendments would provide that when a fund repurchases
less than 100 percent of the amount tendered by shareholders, the fund
must repurchase the shares tendered on a pro rata basis in an amount
equal to at least the repurchase offer amount, but not exceeding the
repurchase offer amount plus up to two percent of the outstanding
common stock as of the repurchase request deadline. The repurchase
offer amount is the minimum amount that a fund must repurchase and the
maximum amount that a fund can repurchase is the repurchase offer
amount plus two percent of common stock outstanding. If a fund, for
example, offers to repurchase five percent of outstanding common stock
and shareholders request six percent, the fund could repurchase an
additional one percent of common stock. If the fund elects to do so,
the fund would be able to repurchase 100 percent of the amount tendered
by shareholders; all shareholder requests would be satisfied and shares
would not have to be distributed on a pro rata basis. The proposed
amendments do not reflect a change in the Commission's interpretation
of the oversubscribed repurchase process or impose any new substantive
requirements. Rather, the amendments are intended to resolve a textual
ambiguity in the existing rule provision that, while not a source of
practical uncertainty, could, on a plain reading, support an
interpretation inconsistent with the rule's established operation of
the oversubscribed repurchase process.
We request comment on the proposed changes to the provision
governing the amount of securities that may be repurchased, including:
30. What are the considerations and decision-making criteria that
funds evaluate when determining whether to repurchase additional shares
of common stock?
31. What are the perspectives of both funds and investors regarding
the provision permitting funds to repurchase an additional two percent
of common stock? Does this increased repurchase capacity provide
meaningful benefits in terms of liquidity management, operational
flexibility, and responsiveness to repurchase requests from investors?
Should we adjust the amount of common stock that a fund can repurchase
or remove the option altogether? Should we allow for additional
repurchases beyond the two percent excess repurchase amount and
discretionary repurchases provided for currently? For example, should
we allow a fund to repurchase an additional five percent? Should we
specify circumstances under which a fund can repurchase additional
repurchases beyond two percent? For example, should we permit funds to
have the ability to repurchase an excess amount of common stock beyond
two percent so long as the amounts are set forth in the fund's
fundamental policy? How would these types of approaches affect a fund's
liquidity management?
32. Should we amend or eliminate the minimum and/or maximum
repurchase offer amount as it relates to periodic repurchase offers?
Should we lower the minimum repurchase offer to, for example, two
percent? Should we raise the maximum repurchase offer to, for example,
30 percent? What would be the benefits and risks of amending or
removing the minimum and/or maximum repurchase offer amounts? What
additional factors should we consider? Should we consider exemptions or
different approaches to the repurchase offer amount altogether? For
instance, should we grant funds the ability to select any repurchase
offer amount as long as it is set in their fundamental policy?
33. Should we consider amendments that would establish minimum and
maximum repurchase offer amounts based on a fund's designated periodic
interval that would generally be lower for more frequent periodic
intervals (e.g., monthly) and higher for less frequent periodic
intervals (e.g., annual)? If so, what should the minimum and maximum
repurchase offer amount be for each periodic interval? For example, in
the case of a fund with an annual repurchase interval, would it be
prudent to require that such a fund offer to repurchase no less than 10
to 20 percent and no more than 40 to 50 percent of its outstanding
common stock during each interval? In the case of a fund with a six
month repurchase interval, would it be prudent to require that such a
fund offer to repurchase no less than five to 10 percent and no more
than 35 to 40 percent of its outstanding common stock during each
interval? In the case of a fund with a three-month repurchase interval,
would it be prudent to require that such a fund offer to repurchase no
less than five to 10 percent and no more than 25 to 30 percent of its
outstanding common stock during each interval? In the case of a fund
with a one month repurchase interval, would it be prudent to require
that such a fund offer to repurchase no less than two to five percent
and no more than 15 to 20 percent of its outstanding common stock
during each interval? How would this type of approach affect a fund's
liquidity management?
[[Page 63407]]
34. In early 2026, several interval funds saw a significant
increase in investor requests to repurchase shares. In situations where
the fund is fulfilling its stated obligations, but investor demand far
surpasses the repurchase offer amount, what actions, if any, should be
considered to be permissible in these scenarios that may not be under
the proposed rule? For example, should we allow for exemptions to the
maximum repurchase offer if the shareholder request is above a
particular threshold? Should we allow funds to make ad hoc
modifications to the repurchase offer amount during the repurchase
process similar to how funds can make discretionary repurchases? To
what extent would the proposed amendments permitting interval funds to
conduct a discretionary purchase once a year, rather than once every
two years, provide funds sufficient flexibility to address heighted
investor demand for liquidity when the interval fund determines it is
appropriate to do so? From an investor perspective, what are the
advantages and disadvantages in allowing funds flexibility in this
area? What conditions or amendments would be beneficial? Do investors
understand the limits on mandated liquidity provided by interval funds?
Should we require interval funds to provide additional disclosures on
their liquidity features?
35. What additional processes should be explored to further promote
fairness and equity throughout the repurchase process?
36. Rule 23c-3(b)(5)(i) allows a fund to repurchase all stock of a
shareholder who owns an aggregate of less than one hundred shares and
who tenders all of the shareholder's stock before prorating stock
tendered by others. Has this exception been requested by shareholders
or utilized by funds in practice, and if so, under what circumstances
or operational contexts has its application occurred? Is the current
odd-lot threshold still appropriate? Are there alternative approaches
preferable to a fixed odd lot exemption?
37. Rule 23c-3(b)(5)(ii) allows a fund to permit shareholders who
tender their entire position to elect, in cases where a repurchase
offer is oversubscribed and pro rata allocation would otherwise apply,
that the fund either repurchase all of their tendered shares or none of
them. This provision was designed to ensure that electing shareholders
would not be compelled to retain a residual position in a fund contrary
to their repurchase intent. Has this exception been requested by
shareholders or utilized by funds in practice, and if so, under what
circumstances or operational contexts has its application occurred?
Does this provide any meaningful advantages to interval funds or
shareholders? Are there any potential concerns or drawbacks associated
with eliminating this exception?
38. Are there other exceptions we should consider including or
removing that relate to oversubscribed repurchases?
39. Should the proposed amendments to the oversubscribed repurchase
requirements apply to non-interval funds? Are there particular aspects
of the proposed amendments that should be modified to address
circumstances associated with non-interval funds?
6. Deferred Sales Loads
We are proposing to permit interval funds \90\ to deduct deferred
sales loads from repurchase proceeds, provided the deferred sales load
is effected in compliance with the provisions of 17 CFR 270.6c-10
(``rule 6c-10''), 270.11a-3 (``rule 11a-3''), and, to the extent the
deferred sales load is waived, varied, or eliminated, 270.22d-1 (``rule
22d-1''). This change would put interval funds on the same footing as
registered open-end funds, which may impose deferred sales loads
subject to these same conditions, and permit broader distribution
financing approaches for interval funds. This proposal also is
generally consistent with exemptive relief routinely provided to
multiple share class interval funds, except that we are proposing to
allow all interval funds, and not just multiple share class interval
funds, to deduct deferred sales loads.\91\ The proposed conditions to
deduct any deferred sales load--compliance with rules 6c-10, 11a-3, and
22d-1--are designed to promote transparency, fairness, and prevent
excessive or unpredictable fees that may disadvantage shareholders.
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\90\ The proposed amendments to this provision generally also
would apply to a non-interval fund making a discretionary offer
under rule 23c-3(c). See supra section II.A.3.
\91\ See, e.g., ARK Venture Fund, et al., Investment Company Act
Release No. 35744 (Sep. 9, 2025) (Notice) and Investment Company Act
Release No. 35787 (Nov. 17, 2025) (Order). Applicants may refer to
early withdrawal charges, which are charges comparable to contingent
deferred sales loads, rather than deferred sales charges directly.
Early withdrawal charges are a form of a deferred sales load and
thus could be charged under the proposed amendments.
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Interval funds, unlike listed regulated closed-end funds, are
continuously offered, and therefore seek exemptive relief to impose
deferred sales loads to help finance the distribution of their shares.
Interval funds require this relief to impose deferred sales charges
because rule 23c-3 currently provides that the only amounts that may be
deducted from repurchase proceeds are repurchase fees, up to two
percent of the proceeds, that are payable to the interval fund and
reasonably intended to compensate the fund for expenses directly
related to the repurchase.\92\
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\92\ Rule 23c-3(b)(1). The proposed amendments to this provision
also would apply to a non-interval fund making a discretionary offer
under rule 23c-3(c). See supra section II.A.3.
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Consistent with the multiple share class orders, the proposal would
permit the deduction of deferred sales charges from repurchase proceeds
subject to the condition that they meet the requirements registered
open-end funds are subject to when they charge deferred sales loads. To
charge a deferred sales load, an open-end fund must comply with rules
6c-10, 11a-3, and 22d-1. Rule 6c-10 permits registered open-end funds
to impose deferred sales loads provided that (1) the amount of the
deferred sales load does not exceed a specified percentage of the NAV
or offering price at the time of purchase, (2) the terms of the
deferred sales load are covered by FINRA rule 2341,\93\ and (3) the
same deferred sales load is generally imposed on all shareholders.\94\
In some instances, interval funds may wish to make offers to securities
holders to exchange one security for another wherein the interval fund
may cause those securities holders to be charged a sales load on the
acquired security, a repurchase fee,\95\ or some combination of those
fees. For registered open-end funds, rule 11a-3 sets forth conditions
on how those fees may be charged, including a prohibition on the
imposition of deferred sales loads on the exchanged security at the
time of exchange. Rule 22d-1 permits the scheduled variations in or
eliminations of sales loads by registered open-end funds, subject to
certain conditions. The deferred sales load imposed by an interval fund
would, under the proposal, need to meet the conditions of the
particular applicable rule as if it
[[Page 63408]]
were a registered open-end fund.\96\ These open-end fund deferred sales
loads rules are designed to address the conflicts of interest relative
to the imposition of deferred sales loads and how to address the
imposition of those loads when certain activities, such as exchange
offers, occur. Because these conflicts would be present if interval
funds were able to charge deferred sales loads, conditioning deferred
sales loads on compliance with these rules would be appropriate.
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\93\ Rule 6c-10(a)(2) includes an outdated reference to NASD
rule 2830 which was replaced by FINRA rule 2341.
\94\ Rule 6c-10(a)(3) permits scheduled variations or
eliminations of deferred sales loads to particular classes of
shareholders or transactions, subject to the requirements of rule
22d-1. It also permits new variations that would waive or reduce the
amount of a deferred sales load not yet paid.
\95\ Rule 11a-3 governs, among other things, the imposition of
redemption fees in the context of an offer to exchange securities.
However, shares of regulated closed-end funds, including interval
funds, are not redeemable and thus these funds do not charge
redemption fees, though they may charge repurchase fees. The
proposal would require that interval funds treat repurchases and
repurchase fees as redemptions and redemption fees in complying with
rule 11a-3.
\96\ See proposed rule 22c-3(b)(1)(ii). As rules 6c-10, 11a-3,
and 22d-1 provide exemptions from provisions that interval funds are
not generally subject to, we are not proposing to amend those rules
to include interval funds. Rather, we are proposing to establish
these requirements as a condition of relying on rule 23c-3.
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When rule 23c-3 was first adopted, some commenters had suggested
that interval funds should be able to impose deferred sales loads as
some funds at the time that conducted repurchase offers periodically
imposed such charges. Commenters further suggested that, if permitted
to do so, interval funds should be permitted to waive or reduce such
charges consistent with rule 22d-1. However, at that time, the
Commission had proposed, but not yet adopted, rule 6c-10, which
provided an exemption for registered open-end funds to impose deferred
sales loads. The Commission stated that permitting interval funds to
impose deferred sales loads might be appropriate after the Commission
considered whether to adopt that rule.\97\ In the interim, the
Commission has both since adopted rule 6c-10 and provided exemptive
orders to a number of multiple share class interval funds that permit
the charging of deferred sales loads subject to certain conditions. We
have not observed any developments in the way that funds charge these
loads that would suggest that interval funds should not be permitted to
charge these fees.
---------------------------------------------------------------------------
\97\ See 1993 Adopting Release, supra note 3 paragraph
accompanying n.68.
---------------------------------------------------------------------------
We request comment on the proposed amendment to permit interval
funds to deduct deferred sales loads from repurchase proceeds.
40. Are there other requirements we should impose on deferred sales
loads? Are there any considerations unique to interval funds that
should influence our consideration of this issue?
41. Are there other fees that interval funds are not permitted to
charge that would help modernize their structure? If so, what rule
changes would be necessary to permit them?
42. Should we permit non-interval funds to deduct deferred sales
loads from proceeds of discretionary repurchase offers, as proposed?
Are there particular aspects of the proposed amendments that should be
modified to address circumstances associated with such offers by non-
interval funds?
B. Modification to the Interval Fund Liquidity Requirement During the
Repurchase Offer Period
The rule currently requires an interval fund to hold, between the
repurchase notification and the repurchase pricing date, at least 100
percent of the repurchase offer amount in assets that can be sold or
disposed of in the ordinary course of business, at approximately the
price at which the fund has valued the investment, within a period
equal to the period between a repurchase request deadline and the
repurchase payment deadline, or of assets that mature by the next
repurchase payment deadline.\98\ The rule also requires an interval
fund's board to adopt written procedures reasonably designed to ensure
that the fund's portfolio assets are sufficiently liquid so that the
fund can comply with its fundamental policy on repurchases.\99\ If an
interval fund fails to comply with the liquidity requirement, the rule
requires the board of directors to take actions as appropriate to
ensure compliance.\100\ We are proposing to amend the rule's liquidity
provision by removing the requirement that a fund hold at least 100
percent of the repurchase offer amount in sufficiently liquid assets
and replacing it with a more principles-based liquidity management
provision that would require a fund to manage its portfolio's liquidity
so that the fund can satisfy repurchase requests without requiring a
sale or disposition of the fund's portfolio investments at a price that
deviates significantly from the value of those investments.\101\
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\98\ Rule 23c-3(b)(10)(i).
\99\ Rule 23c-3(b)(10)(iii).
\100\ Rule 23c-3(b)(10(ii).
\101\ See Proposed Rule 23c-3(b)(10). The proposed amendments to
this provision also would apply to a non-interval fund making a
discretionary offer under rule 23c-3(c). See supra section II.A.3.
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Requiring interval funds to maintain sufficient liquidity to
satisfy shareholder repurchase requests is essential. Providing
interval funds greater flexibility in managing their liquidity,
however, would allow funds to optimize asset allocation, mitigate cash
drag or a similar decrement in fund performance while still providing
shareholders with reliable access to liquidity. The rule's current
requirement that interval funds maintain liquid assets equal to the
repurchase offer amount between the repurchase notification and the
repurchase pricing date at times can present operational challenges as
it obligates funds to hold a specified amount of liquid assets for a
set period of time. The prescriptive nature of the current requirement
compels funds to prioritize holding a greater portion of liquid assets
than may be necessary. These assets could otherwise be allocated to
potentially higher-yielding investments depending on the fund's
investment strategy. Industry participants have noted that the
requirement to hold this liquidity for the set period of time creates
significant cash drag issues and focuses solely on the nature of the
liquidity of the portfolio assets without taking into account the
ability of a fund to create a multi-layered liquidity approach that
includes not only a liquidity sleeve but the use of portfolio design
that seeks to generate structured liquidity with committed credit
facilities as a back-up. As a result, the current rigid requirements
that do not allow for a multi-layered approach are cited by industry
participants as a reason the interval fund structure is viewed as
unworkable for certain strategies, as maintaining a mandated level of
liquid assets can constrain the efficient deployment of capital in
executing strategies that focus on less liquid assets.\102\
---------------------------------------------------------------------------
\102\ See Dechert Comment Letter; Comment Letter from the
American Bar Association (``ABA Comment Letter'').
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Furthermore, although the current rule specifies that the required
liquidity amount of at least 100 percent of the repurchase offer amount
need only be maintained during the repurchase offering period, interval
funds report that, as a practical matter, they hold such liquidity on a
continuous basis.\103\ This dynamic may prevent interval funds from
fully implementing their intended investment strategies as funds may
over-allocate to and continuously hold more liquid assets than they
would otherwise in executing a fund's intended investment strategy
because of the requirement. This could subsequently have corresponding
adverse effects on portfolio performance and investor returns by
dampening the illiquidity premium investors are seeking by limiting
exposure to higher yielding investments. One commenter noted that the
liquidity requirement has
[[Page 63409]]
been a significant factor in deterring the formation of interval
funds.\104\
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\103\ See ABA Comment Letter (stating that ``as a practical
matter, many closed-end funds that seek to invest all or
substantially all of their assets in illiquid securities cannot rely
on Rule 23c-3 unless a portion of their assets remains invested in
liquid securities, which affects these funds' ability to meet their
investment objectives.'').
\104\ See ABA Comment Letter (noting that tender offer funds are
not subject to the rule's portfolio liquidity requirements, making
the tender offer fund structure the preferred regulated closed-end
fund vehicle for strategies investing in less liquid assets, such as
private equity, notwithstanding that many fund sponsors indicate
they would otherwise prefer the interval fund framework for certain
other investor protection and regulatory benefits).
---------------------------------------------------------------------------
We are proposing to remove the requirement that an interval fund
hold, between the repurchase notification and the repurchase pricing
date, at least 100 percent of the repurchase offer amount in assets
that can be sold or disposed of in the ordinary course of business and
replace it with a principles-based liquidity management provision that
would require a fund to manage its portfolio's liquidity so that the
fund can satisfy repurchase requests without requiring a sale or
disposition of the fund's portfolio investments at a price that
deviates significantly from the value of those investments.\105\ Rule
38a-1 under the Investment Company Act requires a fund to adopt and
implement, and the fund's board of directors to approve, written
policies and procedures reasonably designed to prevent violation of the
Federal securities laws by the fund.\106\ Should we adopt the proposed
amendments, regulated closed-end funds would need to follow the updated
requirements of rule 23c-3 in order to avoid potential violations of
the Federal securities laws when engaging in share repurchases.\107\
Therefore, if this proposed amendment were adopted as proposed, an
interval fund's policies and procedures adopted under rule 38a-1 would
need to include policies and procedures reasonably designed to ensure
that a fund seeking to rely on rule 23c-3 manages its portfolio's
liquidity so that the fund can satisfy repurchase requests without
requiring a sale or disposition of the fund's portfolio investments at
a price that deviates significantly from the value of those investments
in breach of this rule.
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\105\ See proposed rule 23c-3(b)(10).
\106\ See rule 38a-1.
\107\ For example, if it is not relying on rule 23c-3, a fund's
repurchase offers would be issuer tender offers subject to the
tender offer rules under the Exchange Act, such as 17 CFR 240.13e-4
(``Exchange Act rule 13e-4'') and 240.14e-1. See 1993 Adopting
Release, supra note 3, at section I.
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The principles-based framework under the proposed amendments would
provide interval funds with the flexibility to tailor their liquidity
management strategies to their unique circumstances and investment
strategies. For instance, instead of maintaining a static pool of
liquid assets sufficient to cover the entire repurchase offer amount, a
fund could satisfy repurchases through a combination of liquidity
sources, including investor inflows, portfolio cash flows from maturing
loans and scheduled amortization, or targeted asset dispositions,
backed up with a strategically paired bank facility if needed to bridge
any remaining cash flow gaps (e.g., where a fund has a committed bank
line and reasonably anticipates distributions from portfolio securities
or subscriptions can be used to repay the borrowing). As another
example, an interval fund could maintain liquid assets equal to a given
percentage of the repurchase offer amount at the time the fund notifies
shareholders of an upcoming repurchase, and then determine whether to
sell portfolio assets or use other sources of liquidity as needed such
as distributions from portfolio securities or subscriptions after the
fund knows the amount of shares investors ultimately have determined to
tender for repurchase. The proposed amendments would better reflect the
multi-layered liquidity management practices employed by portfolio
managers and would allow funds to tailor their liquidity frameworks to
the unique characteristics of their underlying strategies and implement
policies and procedures to manage their liquidity sufficiently to meet
repurchase obligations.
Demand for liquidity can fluctuate over time, with periods of
heightened repurchase activity, in particular, in response to market
events or uncertainty. It is important that an interval fund be able to
manage its liquidity in order to meet its obligation to timely
repurchase tendered shares without requiring a sale or disposition of
the fund's portfolio investments at a price that deviates significantly
from the value of those investments. The proposed amendments aim to
preserve this function while allowing interval funds and their boards
the flexibility to determine a suitable approach based on each fund's
circumstances, rather than imposing rigid, prescriptive mandates that
have the potential to negatively impact interval funds that pursue
certain investment strategies and their investors.
In order for a fund's compliance policies and procedures to be
reasonably designed to prevent non-compliance with the proposed
amendments, they would need to be reasonably designed to ensure that
the fund manages its portfolio's liquidity so that the fund can satisfy
its repurchase requests without requiring a sale or disposition of the
fund's portfolio investments at a price that deviates significantly
from the value of those investments. To do so, the fund generally would
need to consider, in addition to anticipated obligations to repurchase
investor shares, other obligations the fund may have, such as
obligations on any outstanding senior securities. Each fund operates
under its own unique circumstances which also should be considered when
developing its policies and procedures. For example, funds executing
strategies with significant exposure to less liquid private market
assets would need to include policies and procedures that anticipate
and address issues inherent with those asset classes. Such policies and
procedures might include, as relevant, monitoring and managing private
equity portfolio company investments, valuation of illiquid and hard-
to-value securities (including the use of third-party valuation agents
and fair value methodologies), the management of liquidity risk and
cash flow forecasting, the timing and process for calling and deploying
capital commitments in underlying private funds, the handling of in-
kind distributions or other non-cash proceeds received from portfolio
investments, and the management of key-person events or other material
developments affecting underlying portfolio companies or fund managers.
Inadequate liquidity management, along with insufficient policies
and procedures, can increase the risk that a fund may need to sell less
liquid assets that are not easily converted to cash at significantly
reduced prices. ``Fire sales'' can lead to substantial losses for the
fund and its investors, further destabilizing the fund's portfolio and
harming remaining shareholders. Because we are proposing to restructure
the current liquidity requirement provision, we are also proposing to
remove the requirement in the rule that states if the fund fails to
comply with that requirement, the board of directors shall cause the
company to take such action as it deems appropriate to ensure
compliance.\108\ However, while the proposal would remove the direct
requirement of board oversight from rule 23c-3(b)(10), the board of
directors would continue to exercise oversight under rule 38a-1.
---------------------------------------------------------------------------
\108\ See rule 23c-3(b)(10)(ii).
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We request comment on the proposed changes to the interval fund
liquidity framework, including:
43. Should we, as proposed, remove the requirement that funds hold
at least 100 percent of the repurchase offer amount in assets that can
be sold or
[[Page 63410]]
disposed of in the ordinary course of business, at approximately the
price at which the fund has valued the investment until the repurchase
pricing date and replace it with a requirement that a fund must manage
its portfolio's liquidity so that the fund can satisfy repurchase
requests without requiring a sale or disposition of the company's
portfolio investments at a price that deviates significantly from the
value of those investments? Would this increased flexibility in
liquidity management allow funds to reduce cash drag or a similar
decrement in fund performance while still ensuring that interval funds
provide shareholders reliable access to liquidity? Would this increased
flexibility in liquidity management improve the ability of funds to
optimize asset allocation?
44. To what extent could funds benefit from the enhanced
flexibility and adaptability offered by the proposed principles-based
framework for liquidity management? How might such an approach allow
funds to more effectively respond to evolving market conditions and
unique operational challenges, compared to the current more
prescriptive liquidity requirement? What are the drawbacks to the
proposed principles-based framework for liquidity management for
interval funds? What are the benefits and drawbacks to investors?
45. To what extent does the current liquidity framework impede the
establishment of new interval funds and create challenges for existing
interval funds? Does the current liquidity framework act as a barrier
to the creation of new interval funds, as suggested by commenters in
2019, or has the growth since then mitigated the need for this change
in some way?
46. What challenges or issues currently facing funds could be
improved or resolved by implementing the proposed principles-based
framework?
47. What potential concerns might shareholders or potential
investors have about the elimination of an express, prescriptive
liquidity requirement, and what strategies or mechanisms could be
implemented to effectively address or mitigate those concerns?
48. What mechanisms or strategies could a fund include in its
policies and procedures to ensure its ability to meet repurchase offers
under the proposed amendments?
49. Should the proposed liquidity amendments apply to non-interval
funds making a discretionary repurchase under paragraph (c)? Are there
particular aspects of the proposed amendments that should be modified
to address circumstances associated with non-interval funds?
C. Other Proposed Amendments to the Interval Fund Framework
1. Grandparent Clause
When the Commission adopted rule 23c-3 in 1993, certain regulated
closed-end funds were already making periodic repurchase offers to
their shareholders.\109\ Accordingly, the rule included a ``grandparent
clause'' to accommodate these funds.\110\ The provision permits funds
that were already making periodic repurchase offers for their shares
before May 14, 1993 to treat their existing repurchase practices as a
fundamental policy for purposes of the rule. The 1993 Adopting Release
reasoned that since shareholders were already aware of a fund's
repurchase practices, there was no need to require a shareholder vote,
provided the fund's board adopts a resolution stating its repurchase
policies, including specifying its intervals, which conform to the
frequency of the fund's prior repurchase offers. We are proposing to
remove the grandparent clause in rule 23c-3(b)(2)(iii). Given the
significant amount of time that has elapsed since the provision's
adoption, we believe it is highly unlikely that any fund continues to
rely on, or has a continuing need to rely on, this provision.
Accordingly, to the extent that no existing fund continues to rely on
this provision, retaining the grandparent clause in the rule would
serve no meaningful regulatory purpose. We do not expect the removal of
this provision to have a practical impact on interval funds. Rather the
provision's removal would be appropriate and consistent with our
broader objective of maintaining a clear, streamlined, and modernized
regulatory framework for interval funds.
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\109\ See supra section I.A and paragraph accompanying footnote
15.
\110\ Rule 23c-3(b)(2)(iii).
---------------------------------------------------------------------------
We request comment on the proposed removal of the grandparent
clause, including:
50. Are there any funds that continue to rely on this provision?
51. What potential concerns should we consider if we proceed with
finalizing this amendment as proposed?
2. Form N-23c-3
Reports on Form N-23c-3 are required to be submitted by registered
closed-end investment companies or BDCs that make repurchase offers
pursuant to Rule 23c-3. These reports must be filed with the Commission
within three business days after sending notification to shareholders
of a repurchase offer.\111\ We are proposing amendments to eliminate
certain outdated requirements in rule 23c-3 regarding the specific
procedures a fund must follow when submitting Form N-23c-3 and are
proposing amendments to Form N-23c-3.
---------------------------------------------------------------------------
\111\ Rule 23c-3(b)(4)(ii)
---------------------------------------------------------------------------
Rule 23c-3 currently requires an interval fund (and a non-interval
fund making discretionary repurchases) to file Form N-23c-3 along with
three copies of the repurchase offer notification with the Commission
within three business days of sending the notification to shareholders,
and, as written, requires compliance with the requirements for
registration statements and reports under 17 CFR 270.8b-12 (``rule 8b-
12'').\112\ Part 232 of Title 17 of the Code of Federal Regulations
(``Regulation S-T'') governs the electronic submission of documents
filed or otherwise submitted to the Commission and controls for an
electronic format document in the manner and respects provided in the
regulation.\113\ In 2022, the Commission amended 17 CFR 232.101 to
provide that, among other filings, documents filed with the Commission
under section 23(c) of the Investment Company Act must be made on the
Electronic Data Gathering, Analysis, and Retrieval system (``EDGAR'')
as required by the EDGAR Filer Manual, as defined in 17 CFR 232.11, and
that, notwithstanding 17 CFR 232.104, the documents will be considered
as officially filed with or furnished to, as applicable, the
Commission.\114\ These provisions supersede the stated filing
requirements in rule 23c-3 and the proposed amendments to rule 23c-3
are intended to remove those redundant and/or outdated provisions.\115\
We are also proposing to remove the language in Form N-23c-3 that
states that the form shall be filed in triplicate with the Commission.
---------------------------------------------------------------------------
\112\ Rule 8b-12 dictates the requirements for paper, printing,
and language for investment company registration statements and
reports.
\113\ 17 CFR 232.10(a).
\114\ Electronic Submission of Applications for Orders under the
Advisers Act and the Investment Company Act, Confidential Treatment
Requests for Filings on Form 13F, and Form ADV-NR; Amendments to
Form 13F, Investment Company Act Release No. 34635 (Jun. 23, 2022)
[87 FR 38943 (Jun. 30, 2022)], <a href="https://www.sec.gov/files/rules/final/2022/34-95148.pdf">https://www.sec.gov/files/rules/final/2022/34-95148.pdf</a>.
\115\ See proposed rule 23c-3(b)(4)(ii).
---------------------------------------------------------------------------
For similar reasons relating to outdated provisions, we are also
proposing to remove from Form N-23c-3 the language that states that at
least one copy of the form must be manually signed. Instruction 2 of
Form N-23c-3
[[Page 63411]]
currently states that one of the three copies shall be manually signed
while the other copies may have facsimile or typed signatures. In 2020,
the Commission adopted amendments to 17 CFR 232.302 and the EDGAR Filer
Manual to permit the use of electronic signatures in signature
authentication documents required under Regulation S-T in connection
with electronic filings on EDGAR that are required to be signed.\116\
The signature provisions of Regulation S-T supersede the language of
Form N-23c-3, and the proposed amendment is intended to remove the
outdated manual signature requirement.
---------------------------------------------------------------------------
\116\ Electronic Signatures in Regulation S-T Rule 302,
Investment Company Act Release No. 34096 (Nov. 17, 2020) [85 FR
78224 (Dec. 4, 2020)].
---------------------------------------------------------------------------
We request comment on the proposed changes, including:
52. Should we finalize these amendments as proposed?
53. Should we consider any additional updates or revisions to Form
N-23c-3?
54. Should the proposed amendments to these requirements apply to
non-interval funds as proposed? Are there particular aspects of the
proposed amendments that should be modified to address circumstances
associated with non-interval funds?
D. Expansion of Multiple Share Class Offerings to Regulated Closed-End
Funds
We are proposing to amend exemptive rules 18f-3 and 17d-3 under the
Investment Company Act to permit regulated closed-end funds to issue
multiple classes of shares under conditions similar to those available
to registered open-end funds. Currently, many regulated closed-end
funds issue multiple classes of shares under Commission exemptive
orders. Based on the Commission's experience with these exemptive
orders, multi-class structures have demonstrated value by providing
enhanced flexibility to structure and finance the distribution of these
funds. Multi-class structures provide investors with the flexibility to
select the purchasing method most suited to their individual
circumstance and allow sponsors of registered investment companies to
attract larger asset bases. This asset growth permits the fund to
spread fixed costs over more shares, allows investors to qualify for
breakpoint discounts in advisory fees, and otherwise enables the fund
to experience economies of scale, potentially resulting in lower fees
and expenses for investors. We are proposing to extend these benefits
to all closed-end funds rather than requiring funds to seek
individualized exemptive orders. Further, we are proposing amendments
to Form N-2 to require disclosures about multiple share class
offerings.
Allowing regulated closed-end funds to issue multiple classes of
shares would establish a standardized framework that would eliminate
the cost and delay associated with individual exemptive applications.
The exemptive conditions in the proposed rule amendments are based on
the investor protection conditions the Commission has developed through
its exemptive practice with multi-class structures over decades. The
proposed disclosures help to inform investors of the complexity of
these structures and the differences in costs. Accordingly, the
proposed amendments would simplify and modernize the regulatory
framework related to regulated closed-end fund multi-class issuance,
while maintaining appropriate investor protections and safeguards.
Most investment companies today are sold through multiple
distribution channels, including both direct sales by the funds and
sales through intermediaries, such as investment advisers and broker-
dealers. The multi-class structure has become common for investment
companies because it allows them to offer share classes with
distribution and servicing fee structures to match each of these
channels. These structures may benefit both shareholders and fund
sponsors. For example, they may increase investor choice, result in
efficiencies in the distribution of regulated closed-end fund shares,
and allow fund sponsors to tailor products more closely to different
investor markets. They may also enable funds to attract larger asset
bases, permitting them to spread fixed costs over more shares, qualify
for discounts in advisory fees, avoid the need to set up more costly
structures, and otherwise experience economies of scale, lowering fees
and expenses. The Commission has long allowed regulated closed-end
funds to issue multiple classes of shares, subject to certain
conditions, pursuant to individual exemptive orders. Indeed, shortly
after the Commission promulgated rule 18f-3 in 1995 to allow registered
open-end funds to issue multiple classes of shares representing
interests in the same portfolio, continuously offered regulated closed-
end funds began to apply for and receive exemptive orders to issue
multiple classes of shares. The Commission has continued to issue such
exemptive orders and has recognized the flexibility multi-class
structures have provided in distributing regulated closed-end funds.
This proposal is an effort to expand the benefits of multi-class
structures and achieve efficiency for registrants and Commission staff
by codifying into rule and Form N-2 the conditions implemented during
years of now routine Commission exemptive orders in this area.
The issuance of multiple classes of shares by a regulated closed-
end fund is restricted under section 18 of the Investment Company Act.
Most significantly, offering shares through classes with different fee
structures and distribution arrangements may result in the issuance of
a ``senior security'' in violation of section 18(a)(2) of the
Investment Company Act. If a regulated closed-end fund were to issue
more than one class of such senior security, the arrangement would also
violate section 18(c) of the Investment Company Act, which prohibits a
regulated closed-end fund from issuing more than one class of senior
security that is a stock. In addition, the differential voting rights
that commonly accompany multi-class structures, such as class-specific
votes on distribution plans, may conflict with section 18(i) of the
Investment Company Act, which requires that each share of a registered
investment company carry equal voting rights. These section 18
prohibitions are made applicable to BDCs by section 61(a) of the
Investment Company Act. Separately, to the extent that a multi-class
structure involves arrangements under which a regulated closed-end fund
pays distribution costs out of fund assets to an affiliate, such
arrangements may implicate section 17(d) of the Investment Company Act,
which restricts joint enterprises between a fund and its affiliated
persons (or their affiliated persons), and rule 17d-1 thereunder, which
requires Commission approval for such arrangements absent an applicable
exemption.
The proposed amendments would extend to regulated closed-end funds
the same multi-class relief currently available to registered open-end
funds, subject to conditions adapted to reflect the structural
characteristics of regulated closed-end funds and consistent with the
relief the Commission has provided regulated closed-end funds via
individual exemptive orders.
1. Rule 18f-3
Rule 18f-3 permits registered open-end funds to issue multiple
classes of voting stock representing interests in the same portfolio
provided that certain conditions are satisfied. The amendments to rule
18f-3 would require any regulated closed-end fund
[[Page 63412]]
relying on the amended rule to meet the current requirements in the
rule for registered open-end funds. Specifically, such regulated
closed-end funds would be required to adopt a written plan approved by
the board of directors, including a majority of directors who are not
interested persons of the fund, setting forth the separate arrangements
and expense allocations applicable to each class, including any
differences in distribution arrangements, shareholder services, or fee
structures. The written plan could be amended only upon board approval,
and the board would be required to find that any material amendment to
the written plan is in the best interests of each class of shareholders
and the company as a whole. These board approval and oversight
requirements are designed to address potential conflicts of interest
among classes.\117\
---------------------------------------------------------------------------
\117\ See Exemption for Open-End Management Investment Companies
Issuing Multiple Classes of Shares; Disclosure by Multiple Class and
Master-Feeder Funds, Investment Company Act Release No. 19955 (Dec.
15, 1993) [58 FR 68074 (Dec. 23, 1993)]. Consistent with the current
rule, a regulated closed-end fund's board would be required to meet
the fund governance standards of 17 CFR 270. 0-1.
---------------------------------------------------------------------------
As with registered open-end funds under the current rule, the
proposed amendments also would impose conditions governing the
allocation of expenses across share classes and the mechanics of any
conversion or exchange features of shares of regulated closed-end
funds. With respect to expense allocation, each class would be required
to bear only those expenses directly attributable to that class, while
all other fund-wide expenses,\118\ including advisory fees and other
portfolio-level costs, would be allocated among classes on the basis of
relative net assets or another reasonable and equitable basis.\119\ No
class would be permitted to bear the distribution or service fees
attributable to another class.\120\ This proposed requirement is
designed to prevent cross-subsidization among classes at the expense of
shareholders who do not benefit from the relevant distribution or
servicing arrangements. Moreover, matters that affect a particular
class, such as approval of a class-specific distribution plan, would
need to be submitted for approval solely by shareholders of that
class,\121\ while matters affecting the fund generally would be voted
on by all shareholders voting together.\122\
---------------------------------------------------------------------------
\118\ Fundwide expenses are defined as those expenses of the
company not allocated to a particular class under rule 18f-3(a)(1).
See rule 18f-3(c)(2)(ii).
\119\ See rule 18f-3(c)(2)(iii)-(iv).
\120\ See rule 18f-3(a)(1)(i)-(iii).
\121\ See rule 18f-3(a)(2)-(3).
\122\ See rule 18f-3(a)(4).
---------------------------------------------------------------------------
In addition to applying these existing requirements for registered
open-end funds, we are proposing a number of conditions specific to
regulated closed-end funds that are generally consistent with the
conditions of the exemptive orders currently issued to such funds and
the terms and conditions in the associated applications. First, the
regulated closed-end fund's common stock would be required to be
offered on a continuous basis.\123\ Rule 18f-3 is designed, in part, to
give funds flexibility in tailoring many aspects of their multiple
class structures, particularly their distribution arrangements.\124\ If
a closed-end fund is not continuously offering its shares, however,
then the fund is not engaged in the distribution activities rule 18f-3
seeks to facilitate. Accordingly, the exception provided by the rule
would be limited to those funds for which it is necessary. This
requirement is also consistent with the types of regulated closed-end
funds that have received exemptive orders to date.
---------------------------------------------------------------------------
\123\ See proposed rule 18f-3(g)(1).
\124\ See Exemption for Open-End Management Investment Companies
Issuing Multiple Classes of Shares; Disclosure by Multiple Class and
Master-Feeder Funds; Class Voting on Distribution Plans, Investment
Company Act Release No. 20915 (Feb. 23, 1995) [60 FR 11876 (Mar. 2,
1995)] (``Rule 18f-3 Adopting Release'').
---------------------------------------------------------------------------
Second, if the regulated closed-end fund offers to sell its common
stock at a price other than the current NAV of such stock, the same
offer would be required to be made to all classes of common stock.\125\
Section 23(b) of the Investment Company Act generally prohibits
regulated closed-end funds from selling their common stock at a price
below the current net asset value, exclusive of any distribution
commissions or discounts, but does permit such sales under certain
circumstances.\126\ However, Congress did not anticipate that regulated
closed-end multi-class structures would make such sales even as
permitted under section 23(b) as these structures are not permissible
under the statute. Our routine exemptive orders also do not contemplate
below-NAV offers, as the orders find that repurchase offers will not
discriminate against any holders of classes of securities. If a
regulated closed-end fund were to make a below-NAV offer to specific
classes of common stock, it would result in dilution for those classes
that were not given the offer. Similarly, our routine exemptive orders
do not contemplate offers to sell common stock above NAV, as such
purchases would result in dilution to new shareholders purchasing above
NAV. Therefore, such offers should be made to all classes.
---------------------------------------------------------------------------
\125\ See proposed rule 18f-3(g)(2).
\126\ Specifically, the Investment Company Act permits the sale
by a fund below NAV (1) in connection with an offering to the
holders of one or more classes of its capital stock; (2) with the
consent of a majority of its common stockholders; (3) upon
conversion of a convertible security in accordance with its terms;
(4) upon the exercise of certain warrants; or (5) under such other
circumstances as the Commission may permit by rules and regulations
or orders for the protection of investors. See 15 U.S.C. 80a-23(b).
---------------------------------------------------------------------------
If a regulated closed-end fund imposes an asset-based distribution
or service fee, that fee would be required to be charged under a
written plan which, along with any agreements with any person relating
to the plan's implementation, must comply with 17 CFR 270.12b-1 (``rule
12b-1'') as if the fund were a registered open-end fund.\127\ This
requirement is designed to help ensure that any distribution or service
fee arrangement associated with a multiple share class structure is
fair to all classes and reflects similar requirements that apply to
registered open-end funds currently relying on rule 18f-3. The proposed
amendments would permit the incorporation of this rule 12b-1 plan into
the plan approved by the board pursuant to rule 18f-3(d).\128\
---------------------------------------------------------------------------
\127\ See proposed rule 18f-3(g)(3).
\128\ See id.
---------------------------------------------------------------------------
Rule 12b-1, adopted by the Commission in 1980, was designed to
address concerns that registered open-end funds were financing
distribution costs through fund assets without adequate board
oversight.\129\ The rule permits a registered open-end fund to use its
assets to finance distribution activities, but only pursuant to a
written plan approved by the fund's board, including its independent
directors. Rule 12b-1 prescribes the substantive requirements of such
plans, including provisions governing the duration and continuity of
the plan, reporting obligations to the board, the circumstances under
which the plan must be terminated, and record-keeping
requirements.\130\ Applying these requirements to regulated closed-end
funds that impose asset-based distribution fees is appropriate because
the investor protection concerns that animated the adoption of rule
12b-1, principally the potential for conflicts of interest and
inadequate oversight when a fund finances its own distribution, are
[[Page 63413]]
equally present when a regulated closed-end fund employs a similar fee
structure. Requiring regulated closed-end funds offering multiple share
classes to comply with rule 12b-1 would also give closed-end fund
shareholders the same protections that apply to registered open-end
fund shareholders paying distribution fees under existing 12b-1
plans.\131\
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\129\ Bearing of Distribution Expenses by Mutual Funds,
Investment Company Act Release No. 11414 (Oct. 28, 1980); [45 FR
73898 (Nov. 7, 1980)] (``Rule 12b-1 Adopting Release'').
\130\ Rule 12b-1(b) and (f).
\131\ Regulated closed-end funds are not otherwise subject to
section 12(b) of the Investment Company Act.
---------------------------------------------------------------------------
The proposal would also require that the registered closed-end
fund's common stock not be listed, offered, or traded on a secondary
market.\132\ The exemptive orders have excluded regulated closed-end
funds that have share classes continuously offered directly to
investors if they also have share classes that are listed on an
exchange or otherwise traded on a secondary market. Such additional
classes may raise novel issues, such as, for example, shareholders of
the different classes being provided different pricing and liquidity
opportunities that could in turn raise questions as to the relative
fairness of the structure that would need further consideration. To the
extent a regulated closed-end fund seeks to offer such a multiple share
class arrangement, such fund could request this relief though our
exemptive application process, and the Commission would assess all
relevant policy considerations in the context of the facts and
circumstances of each particular applicant.
---------------------------------------------------------------------------
\132\ See proposed rule 18f-3(g)(4).
---------------------------------------------------------------------------
The proposed amendments also would require any offer to repurchase
common stock to be equally made to holders of all classes of common
stock.\133\ For example, a regulated closed-end fund offering to
repurchase five percent of its outstanding shares could not limit that
offer to any particular common class or classes or limit the ability to
which any common class participates in the offer. Similarly, an offer
of repurchases in kind to one common class and repurchases in cash to
another would not be considered to be made equally to all common
classes given the difference in the nature of the form of payment to
shareholders. Our exemptive orders do not contemplate any such
differences, as the orders find that proposed repurchases will not
unfairly discriminate against any holders of the class or classes of
securities to be purchased. Accordingly, the proposed amendments would
require that repurchase offers must be made equally to all classes of
common stock.
---------------------------------------------------------------------------
\133\ See proposed rule 18f-3(g)(5).
---------------------------------------------------------------------------
In addition, the percentage taken up and paid for in any repurchase
offer would be required to be allocated on a fund, not class,
basis.\134\ In particular, for purposes of determining whether the
shareholders have tendered more than the repurchase offer amount, and
for performing pro rata calculations with respect to any oversubscribed
redemption offer, a fund must make calculations on a fund, not class,
basis.\135\ For example, should a regulated closed-end fund offer to
repurchase five percent of outstanding shares, the percentage
calculation would be based on the fund's total outstanding shares
rather than the outstanding shares of a particular class. This helps to
ensure that repurchase offers made by the fund are equitable to all
classes. It would be unfair, for example, to allow a closed-end fund
selectively to repurchase only certain classes of common stock,
particularly given that the fund's assets as a whole would be used to
pay for the repurchased shares.
---------------------------------------------------------------------------
\134\ See id.
\135\ See also rule 23c-3(b)(5) and Exchange Act rule 13e-
4(f)(3).
---------------------------------------------------------------------------
The last proposed condition for regulated closed-end funds that
plan to rely on rule 18f-3 is that any exchange offer involving a class
of a regulated closed-end fund's common stock would be required to be
made in a manner that complies with rule 11a-3 as if the fund were a
registered open-end fund.\136\ Further, if it is an interval fund,
shares of the interval fund that are exchanged for shares of other
companies would be required to be included as part of the ``repurchase
offer amount'' for purposes of rule 23c-3.\137\ This provision is
designed to prevent the inducement of fund shareholders to exchange
their shares for those of a different fund solely for the purpose of
exacting additional sales charges by placing conditions on any sales
load, repurchase fee, administrative fee, or combinations of those
fees, charged in connection with the exchange. \138\ For example, rule
11a-3 requires the uniform application of any administrative or
redemption fee,\139\ including any waivers of those fees, and that any
sales load charged with respect to the security being acquired is
generally a percentage that is no greater than the excess, if any, of
the rate of the sales load applicable to that security in the absence
of an exchange over the sum of the rates of all sales loads previously
paid on the exchanged security. As discussed above,\140\ rule 11a-3 is
designed to regulate the charging of sales loads in connection with
exchange offers in an equitable manner and currently applies to
registered open-end funds. Requiring closed-end funds to comply with
the rule in connection with exchanges as a condition of reliance on
rule 18f-3 would extend these protections to investors in the closed-
end funds. For interval funds, inclusion of the shares of the company
to be exchanged as part of the repurchase offer amount would ensure
that when an exchange offer involves the repurchase of interval fund
shares, the amount repurchased does not exceed the limitations on the
amount repurchased (e.g., five percent) under rule 23c-3(a)(3).
---------------------------------------------------------------------------
\136\ See proposed rule 18f-3(g)(6).
\137\ See id.
\138\ Specifically, rule 11a-3 governs sales loads and other
charges that may be imposed on an exchange between funds within the
same fund group, and is intended to help ensure that shareholders
receive credit for all sales charges incurred on a particular
purchase of fund shares and are protected from the sales practice
abuse of switching, i.e., the practice of inducing shareholders of
one fund to exchange their shares for those of a different fund
solely for the purpose of exacting additional sales charges. See
Offers of Exchange Involving Registered Open-End Investment
Companies, Investment Company Act Release No. 17097 (Aug. 3, 1989)
[54 FR 35182 (Aug. 24, 1989)] (``Rule 11a-3 Adopting Release'').
\139\ Consistent with the approach to interval funds charging
deferred sales loads, the proposal would require that regulated
closed-end funds treat repurchases and repurchase fees in exchange
offers as if they were redemptions and redemption fees under rule
11a-3(b)(2)(i). See supra footnote 95.
\140\ See supra section II.A.6.
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We are not proposing to require a regulated closed-end fund's sales
and service charges to comply with certain FINRA distribution fee rules
as a condition to relying on rule 18f-3 because the question of whether
a regulated closed-end fund's distribution expenses are excessive is a
concern that is not limited to multiple share class funds. Currently,
the exemptive orders that permit multiple share class regulated closed-
end funds are based on applicants' representations that any sales and
service charges will comply with either FINRA rule 2341 (in the case of
registered closed-end funds) or FINRA rule 2310 (in the case of BDCs,
with the conditions requiring that BDCs that privately offer their
shares apply that rule as if the fund were conducting a public
offering). These rules, among other things, set caps on the fees and
charges that distribution participants can charge to investors. These
rules, by their terms, apply only to the activities of FINRA members in
connection with securities of interval funds (rule 2341) and BDCs
engaged in public offerings (rule 2310). Rule 18f-3 is designed to
[[Page 63414]]
ensure that a fund's expenses are borne equitably across a fund's
classes. The expense allocation and whether it is in the best interest
of each class individually and the company as a whole must be
considered by boards prior to approving multiple share class plans
under rule 18f-3(d). Consistent limitations on distribution fees
charged by funds more generally go beyond the scope of the proposal and
are covered by other regulations, including FINRA rules.
We request comment on the proposed expansion of rule 18f-3 to
permit regulated closed-end funds with multiple share class structures.
55. The proposal would subject regulated closed-end funds seeking a
multiple share class structure to, among other things, the existing
requirements of rule 18f-3, which were designed for registered open-end
funds. Are there any changes that should be made to those existing
provisions as they would apply to regulated closed-end funds?
56. Are there other regulated closed-end fund requirements that we
should consider in permitting multiple share class structures?
57. Should we permit multiple share class structures for regulated
closed-end funds that are not offered on a continuous basis? Under what
circumstances might such a regulated closed-end fund seek to issue
multiple classes?
58. Are there any provisions in the current exemptive orders we are
seeking to codify that pose practical limitations we should be aware
of?
59. Recently, the Commission provided exemptive relief that would
permit, under certain conditions, a multiple-class regulated closed-end
fund to list classes of its common stock on an exchange and trade on a
secondary market using distributed ledger technology.\141\ Consistent
with previous individual exemptive orders, we are proposing that, for a
regulated closed-end fund to issue multiple classes of shares under the
proposed rule, its common stock must not be listed, offered, or traded
on a secondary market because such an arrangement may raise novel
issues that may be more appropriately considered as part our exemptive
application process as discussed above. We request comment, however, on
whether there are conditions we should consider that would permit
regulated closed-end funds to issue a class of common shares that is
traded on a secondary market in a manner that avoids unfair treatment
among the fund's shareholders. Are such issues ripe for broad-based
consideration as part of a rule or should we explore them in the
exemptive application process before wide-spread adoption?
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\141\ See In the Matter of ARK Venture Fund and ARK Investment
Management LLC, Investment Company Act Release No. 36308 (Aug. 24,
2026) (Notice) and Investment Company Act Release No. 36333 (Sep.
21, 2026) (Order).
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60. How would regulated closed-end funds that have a multiple share
class structure close a class or fund? In the staff's experience,
regulated closed-end funds rarely liquidate classes, and when open-end
funds liquidate classes, they generally do so by share class
conversions or mergers that would not be prohibited by the conditions
in rule 18f-3. Are there, however, any provisions in the proposal that
would impede the orderly wind-down of a multiple share class regulated
closed-end fund or a class of the fund? For example, would the
requirement that any offer to repurchase common stock be made equally
to all common classes and the percentage taken up and paid for be
allocated on a company basis interfere with the liquidation of a class
of a regulated closed-end fund? Do commenters anticipate that a
regulated closed-end fund may seek to liquidate a class via a
repurchase offer to shareholders of that class and, if so, should we
revise the proposed amendment to permit this?
61. The proposed requirement for repurchase amounts to include fund
shares exchanged for other companies would apply only to interval
funds. Rule 23c-3(c) permits all regulated closed-end funds to engage
in discretionary repurchase offers. Should the proposed requirement
also apply to non-interval funds making exchange offers as part of a
discretionary repurchase offer under rule 23c-3(c)?
2. Rule 17d-3
We also are proposing to amend rule 17d-3 to extend the rule, which
currently only applies to registered open-end funds, to multiple share
class regulated closed-end funds, permitting greater flexibility in
distribution agreements by those funds. The proposed amendments would
permit an affiliated person of, or principal underwriter for, the fund,
or an affiliated person of the affiliate or principal underwriter, to
enter into a written agreement to permit the fund to make payments in
connection with the distribution of its shares.\142\
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\142\ See proposed rule 17d-3.
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Rule 12b-1 allows a registered open-end fund to finance
distribution with fund assets subject to conditions enumerated in the
rule, many of which are intended to address the conflicts of interest
between the fund and its investment adviser when a fund bears its own
distribution expenses. Rule 17d-3, adopted in conjunction with rule
12b-1, provides an exemption from section 17(d) and rule 17d-1 to
permit certain affiliates of open-end funds to enter into rule 12b-1
distribution arrangements with the funds.\143\ Rule 17d-3 currently
applies only to affiliates of open-end funds. Currently, the exemptive
orders that permit multiple share class regulated closed-end funds that
impose asset-based distribution and service fees in a manner analogous
to rule 12b-1 fees effectively extend relief like that provided in rule
17d-3 to permit such distribution arrangements. They do so by providing
an exemption from section 17(d) and rule 17d-1 to permit asset-based
distribution and service fees to the extent such fees would be a joint
transaction in violation of those provisions. This exemption is
conditioned on the regulated arrangement meeting certain conditions,
including complying with rule 17d-3 (including its requirement that the
distribution agreement complies with rule 12b-1) as if the fund were a
registered open-end fund. Rule 17d-3 works in tandem with rule 12b-1 to
the extent rule 12b-1 plans implicate a joint transaction and, as we
are proposing to require compliance with rule 12b-1 as a condition of
the exemption for multiple share class regulated closed-end funds in
the proposed amendments to rule 18f-3, we are proposing to also extend
rule 17d-3 to these arrangements to the extent such relief is
needed.\144\
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\143\ Bearing of Distribution Expenses by Mutual Funds,
Investment Company Act Release No. 10862 (Sep. 7, 1979) [44 FR 54014
(Sep. 17, 1979)]; see also Rule 12b-1 Adopting Release. Rule 17d-3
permits an affiliated person of, or a principal underwriter for, an
open-end fund and an affiliated person of such a person or principal
underwriter to enter into distribution agreements and make payments
thereunder notwithstanding section 17(d) and rule 17d-1, subject to
the conditions in the rule. This rule prevents such distribution
arrangements from otherwise constituting a violative joint
transaction.
\144\ See Bearing of Distribution Expenses by Mutual Funds,
Investment Company Act Release No. 10862 (Sep. 7, 1979) [44 FR 54014
(Sep. 17, 1979)].
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We are proposing to extend the existing requirements of rule 17d-3
that apply to such arrangements with registered open-end funds to
similar arrangements with multiple share class regulated closed-end
funds. This would require multiple share class regulated closed-end
funds relying on rule 17d-3 to adopt an agreement that (1) is made in
compliance with rule 12b-1 and (2) does not permit joint sharing of
distribution costs with other registered
[[Page 63415]]
management investment companies that are affiliates (or affiliates of
affiliates) of the fund.\145\ Further, we propose to extend this
prohibition on joint sharing of distribution costs to arrangements with
BDCs given that they would also rely on the rule. These requirements
draw upon our past experience and are designed to address potential
conflicts of interest attendant to joint transactions.
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\145\ See also 12b-1 Adopting Release.
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We request comment on the extension of rule 17d-3 to arrangements
with multiple share class regulated closed-end funds.
62. To what extent do multiple share class regulated closed-end
funds seek to impose asset-based distribution and service fees?
63. Are there other requirements specific to multiple share class
regulated closed-end funds that we should consider?
64. Rule 12b-1 does not apply to closed-end funds, and thus rule
17d-3 does not apply to closed-end funds. Nevertheless, is there a
reason to limit this relief (as proposed) to multiple share class
closed-end funds, consistent with the routine exemptive orders? Should
we allow any closed-end fund to rely on the rule, provided it complies
with the rule's conditions (which conditions include compliance with
rule 12b-1)? Do distribution payments made by a single class closed-end
fund differ from those made by a multiple share class closed-end fund
for purposes of section 17(d) and rule 17d-1?
3. Disclosures and Reporting
We are proposing to amend Form N-2 to require enhanced disclosures
regarding multiple share class structures similar to those currently
required for registered open-end funds, as well as other enhancements,
such as expense disclosure in shareholder reports. In particular, we
are proposing to require detailed disclosures regarding multiple share
class structures in the plan of distribution section of Form N-2 and
instructions on how to present multiple share class information in a
way that would be easier to follow. The proposed disclosure
requirements would help ensure that information presented to
prospective investors in multiple class closed-end funds is comparable
across multiple class closed-end funds and consistent with corollary
disclosure required of multiple class open-end funds. We are also
proposing to extend the existing open-end fund reporting on Form N-CEN
regarding multiple share class information to regulated closed-end
funds to the extent applicable. These changes would help investors
better understand the multiple share class and fee structures that
would be permitted under the proposal.
Form N-2 is the form used by regulated closed-end funds to file
registration statements with the Commission pursuant to the Investment
Company Act, the Securities Act, or both. Currently, Form N-2 does not
meaningfully provide for the disclosure of multiple share class
structures.\146\ Conversely, Form N-1A, which is used by registered
open-end funds, requires significant disclosure relating to multiple
share class structures, including instructions on how to present those
classes in disclosure items. Currently, the exemptive orders that
permit multiple share class regulated closed-end funds require such
funds to provide disclosure similar to that provided in Form N-1A in
their registration statements and shareholder reports. The proposal
would standardize this disclosure by requiring certain disclosures in
Form N-2 registration statements for multiple share class regulated
closed-end funds. These specific additions and changes to Form N-2
would require enhanced disclosure about these structures that would
help investors to better understand the multiple share class fee
structures. The proposal would also add an expense example in the
shareholder reports of all regulated closed-end funds that file Form N-
2 that would help investors understand the fees charged by these funds
in light of the expanded fee types that would be permitted under the
proposal. Table 2 highlights the proposed changes to Form N-2:
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\146\ The only multiple share class-specific disclosure
currently in Form N-2 is an instruction that the registrant can
select which class to include in the line graph comparing initial
and subsequent account values at the end of each of the most
recently completed fiscal years of the fund required in the
registrant's annual report. See Item 24.4.g.(2)(A)2. of Form N-2. We
are not proposing to amend this item.
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BILLING CODE 8011-01-P
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BILLING CODE 8011-01-C
(a) General Instructions for Parts A and B
[…truncated; see source link]Indexed from Federal Register on October 5, 2026.
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