Securities Act of 1933 – Rule 486(b)
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
IM Ref. No. 20107151014
Your letter dated July 23, 2010 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (“Commission”) under Section 5 or Section 6(a) of the Securities Act of 1933 (the “Securities Act”) against Energy Income and Growth Fund (“FEN” or “Fund”) or First Trust Active Dividend Income Fund (“FAV” or “Fund,” and together with FEN, the “Funds”), each of which filed and had declared effective by the Commission a shelf registration statement on Form N-2 (“Registration Statement”), if a Fund files a post-effective amendment to its Registration Statement pursuant to Rule 486(b) under the Securities Act, under the circumstances set forth in your letter.
You state that each Fund is a closed-end management investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”). Each Fund filed and had declared effective by the Commission its Registration Statement pursuant to which it has issued shares of common stock on a delayed basis in accordance with Rule 415(a)(1)(x) under the Securities Act and the positions of the Commission staff.1 First Trust Advisors L.P. serves as the investment adviser to the Funds. Energy Income Partners, LLC serves as the sub-adviser to FEN, and Aviance Capital Management, LLC serves as the sub-adviser to FAV. Each Fund’s common shares are registered under Section 12(b) of the Securities Exchange Act of 1934. FEN’s common shares are listed and traded on the NYSE Amex. FAV’s common shares are listed and traded on the New York Stock Exchange. Each Fund has a fiscal year ending November 30.
You state that each Fund’s board of trustees (the “Board”), including a majority of the independent trustees, has concluded that the continued ability to raise capital through the public offering of additional shares of common stock on a delayed and continuous basis would benefit each Fund and its shareholders. You state that each Fund’s Board also has concluded that a continuously effective shelf registration statement would be beneficial to the Funds and their shareholders. You state that each Fund, therefore, needs a continuously effective Registration Statement and has filed a post-effective amendment to its Registration Statement pursuant to Section 8(c) of the Securities Act (“Post-Effective Amendments”) to bring the Fund’s financial statements up to date. You further state that each Fund and its shareholders would benefit if Post-Effective Amendments filed for the purpose of bringing the Fund’s financial statements up to date or registering additional shares were effective immediately upon filing with the Commission, as permitted by Rule 486(b) under the Securities Act. You state that utilization of Rule 486(b) would reduce expenses incurred by the Funds in the Post-Effective Amendment process. You further state that, due to the limited purposes for which the Fund could use Rule 486(b), the Funds believe that the Commission’s public policy to protect investors would not be compromised.
Rule 486(b) under the Securities Act, in relevant part, states that a post-effective amendment to a registration statement filed by a registered closed-end management investment company or business development company which makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act (“Interval Fund”) shall become effective on the date on which it is filed with the Commission, provided that certain conditions are met. The conditions of Rule 486(b) require, among other things, that the post-effective amendment be filed for no purpose other than, among other things, registering additional shares or bringing the financial statements up to date, and that the registrant make certain representations concerning the purpose for which the amendment is filed.
In adopting Rule 486(b) in 1994, the Commission recognized that Interval Funds may have a need continuously to raise capital, and therefore need continuously effective registration statements and would benefit if certain filings could become effective automatically.2 The Commission staff in 1998 recognized that registered closed-end management investment companies such as the Funds, which are not Interval Funds, also may benefit from the flexibility to take advantage of favorable market conditions to raise additional capital through continuous or delayed offerings of their securities.3 You assert that the Funds and their shareholders also would benefit if the Funds’ Post-Effective Amendments that comply with the conditions of Rule 486(b) could become effective immediately pursuant to that Rule.
You represent that FEN’s Post-Effective Amendments will comply with the conditions of Rule 486(b), as well as with the undertaking currently found in Section 8 of Item 34 of Part C of the Fund’s Registration Statement.4 You represent that FAV’s Post-Effective Amendments will comply with the conditions of Rule 486(b), and that FAV will sell newly issued shares at a price no lower than the sum of FAV’s net asset value plus the per share commission or underwriting discount.5
Based on the facts and representations set forth in your letter, we would not recommend that the Commission take any enforcement action under Section 5 or Section 6(a) of the Securities Act against the Funds if the Funds file Post-Effective Amendments to their Registration Statements pursuant to Rule 486(b) under the Securities Act. This response expresses our view on enforcement action only and does not express any legal or interpretive conclusion on the issues presented. Because our position is based upon all of the facts and representations in your letter, any different facts or representations may require a different conclusion.6 We note that each Fund has acknowledged that the staff may withdraw any assurance granted in this letter if the staff finds that the Fund is misusing Rule 486(b) or for any other reason.
Michael S. Didiuk
1 See Nuveen Virginia Premium Income Municipal Fund, SEC Staff No-Action Letter (Oct. 6, 2006); Pilgrim America Prime Rate Trust, SEC Staff No-Action Letter (May 1, 1998) (“Pilgrim Letter”).
2 See Post-Effective Amendments to Investment Company Registration Statements, Investment Company Act Release No.20486 (Aug. 24, 1994), n.22 and accompanying text. An Interval Fund operates pursuant to a fundamental policy that requires the Interval Fund to make periodic offers to repurchase its common stock in an amount not less than five percent of the outstanding shares. See Rule 23c-3 under the Investment Company Act. These repurchase offers may create a need for the Interval Fund to replenish its assets by making a continuous or intermittent offering of its common stock. See Continuous or Delayed Offerings by Certain Closed-End Management Investment Companies; Automatic Effectiveness of Certain Registration Statements and Post-Effective Amendments, Investment Company Act Release No. 19391 (Apr. 7, 1993).
3 See Pilgrim Letter, supra note 1, at n.12 and accompanying text.
4 Specifically, the undertaking states:
(8) [FEN] undertakes to file a post-effective amendment pursuant to Section 8(c) of the Securities Act of 1933 in connection with any offering of its securities below net asset value.
5 See Pilgrim Letter, supra note 1, at n.4 and accompanying text.
6 The Division of Investment Management generally permits third parties to rely on no-action or interpretive letters to the extent that the third party’s facts and circumstances are substantially similar to those described in the underlying request for a no-action or interpretive letter. See Informal Guidance Program for Small Entities, Investment Company Act Release No. 22587 (Mar. 27, 1997), n.20. In light of the very fact specific nature of the Funds’ request, however, the position expressed in this letter applies only to the Funds, and no other entity may rely on this position. The staff is willing to consider similar requests from other registered closed-end management investment companies or business development companies.
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