Registration of Investment Companies

Earlier we mentioned that the Securities Act of 1933 was unable to control abuses in the investment company industry, because it didn’t contain enough rules that specifically addressed investment companies. Through the 1930s, sponsors (the financial institutions that create the investment company) used investment companies to aid other parts of their business at the expense of fund performance. For instance, they used their funds as dumping grounds for unmarketable underwritings. They sometimes used fund assets as collateral for their own questionable investments. Sponsors would fill their funds with highly speculative securities or concentrate their fund portfolios in a few securities. Investment advisers often traded frequently within the fund to generate excessive commissions, passing on expenses to shareholders. Many investment companies even managed to avoid registering their securities, because of their highly complicated business structures.

Section 8 of the Investment Company Act addressed these issues by requiring the issuing companies themselves to register with the SEC. To register, an investment company must simply file a notification of registration on Form N-8A, stating the company’s name and address and its intent to file a registration statement.

Once the notification has been filed, the regi