SEC Adopts Safe Harbor for Research and Development

Mondaq Business Briefing, August, 2003

The Securities and Exchange Commission (SEC) recently adopted a new rule under the Investment Company Act of 1940 (Act) to provide a nonexclusive safe harbor from the definition of investment company for certain research and development companies (R&D Companies). The effective date of new rule 3a-8 (Rule) is August 19, 2003.

Background of the Rule

R&D Companies often have few tangible assets and hold large amounts of capital in liquid investments. They often raise significant amounts of capital, investing the proceeds and using the principal and interest on these investments to fund future research and development (R&D) activities. In addition, R&D Companies often enter into strategic alliances or collaboration agreements with other companies that include...