The repurchase machinery, element by element. Section 270.23c-3(a)(1) defines "periodic interval" as "an interval of three, six, or twelve months." Section 23c-3(a)(3) defines the repurchase offer amount as a percentage of common stock outstanding on the repurchase request deadline and provides that it "shall not be less than five percent nor more than twenty-five percent," with the directors setting the figure before each offer. Section 23c-3(b)(1) requires the fund to repurchase for cash at the net asset value determined on the repurchase pricing date, permits the fund to deduct "only a repurchase fee, not to exceed two percent of the proceeds," and states that a fund "may not condition a repurchase offer upon the tender of any minimum amount of shares."
The dates are fixed relative to one another. Under section 23c-3(a)(5) the repurchase pricing date "shall occur no later than the fourteenth day after a repurchase request deadline," and under section 23c-3(a)(4) payment follows seven days after the pricing date. Section 23c-3(b)(4)(i) requires the fund to notify every holder of record and beneficial owner "no less than twenty-one and no more than forty-two days before each repurchase request deadline," and enumerates nine items that notification must contain, including the repurchase offer amount, the three dates, the risk that net asset value moves between the request deadline and the pricing date, and the pro rata procedure.
Oversubscription is where the liquidity promise becomes conditional. Section 23c-3(b)(5) allows a fund whose holders tender more than the repurchase offer amount to take an additional amount "not to exceed two percent of the common stock outstanding on the repurchase request deadline." Beyond that, the fund "shall repurchase the shares tendered on a pro rata basis." The SEC states the consequence for the investor directly: repurchase "is generally done on a pro rata basis," so "there is no guarantee that you can sell the number of shares you want in response to a given repurchase offer by the fund." A holder who wants out of a fund whose other holders also want out gets a slice, and waits for the next interval for the rest.
Two provisions back the promise with assets and with prices. Section 23c-3(b)(10)(i) requires that, from the moment the notification is sent until the pricing date, "a percentage of the company's assets equal to at least 100 percent of the repurchase offer amount" consist of assets sellable in the ordinary course, at roughly their carrying value, within the request-to-payment window, or that mature by the next payment deadline. Section 23c-3(b)(7) requires net asset value to be computed at least weekly, and daily on the five business days preceding a repurchase request deadline. The repurchase policy itself is a fundamental policy under section 23c-3(b)(2)(i), changeable only by a majority vote of the outstanding voting securities, so the interval and the maximum lag between deadline and pricing are not something management can quietly alter.
Two structural provisions explain why the fund can look like an open-end fund without being one. Section 23c-3(d) states that a fund making these offers "shall not be deemed thereby to be an issuer of redeemable securities" within Investment Company Act section 2(a)(32). A redeemable security is the defining feature of an open-end fund, so this is the provision that keeps an interval fund on the closed-end side of the line despite buying back its own shares. And section 23c-3(e) deems such a fund to have registered "an indefinite amount of securities" under section 24(f), which is what allows the continuous offering of new shares. The rule is available to a registered closed-end company or to a business development company, and section 23c-3(c) separately permits a discretionary repurchase offer outside the fundamental policy, so long as it is not made within two years of another discretionary offer.
The comparison that matters, because it runs against the parent structure. A listed closed-end fund sells a fixed number of shares once and its shares then change hands between investors on an exchange, which is why its price can drift to a premium or a discount to net asset value. An interval fund is legally the same kind of company and behaves the other way. The SEC observes that "most interval funds' shares do not trade on a national securities exchange like typical closed-end fund shares do," and instead the fund "buy[s] back, or 'repurchase[s]' shares directly from shareholders." Transactions happen at net asset value with the fund, so there is no persistent discount to buy at or be trapped by. The trade is that the exchange-listed holder can sell any day at whatever the market offers, while the interval-fund holder can sell a limited quantity, a few times a year, at a price they will not know when they decide to tender.
Set against a mutual fund and an exchange-traded fund, the SEC's own comparison reads: a mutual fund transacts once a day at close of business at net asset value with the fund; an exchange-traded fund and a listed closed-end fund transact intraday at market prices on an exchange; an interval fund transacts "every three, six, or twelve months at NAV from fund."
What the structure buys, and what it costs. Because the manager is not bracing for unplanned redemptions, the SEC notes, the fund has "more flexibility to invest in less liquid assets, such as private companies, derivatives, or certain debt instruments," and may give individual investors indirect access to assets otherwise reserved for institutions. It also flags the other side: those assets "could increase risks because it may be hard for interval funds to sell these investments or they may need to be sold at a discount," and interval-fund fees "may be higher than those charged by other types of funds," partly because managers with expertise in illiquid assets cost more and partly because the assets themselves carry a higher cost of investing that is passed to shareholders.
