Registration of Investment Companies

Earlier we mentioned that the provisions of the Securities Act of 1933 were unable to control all abuses in the investment company industry, largely because the act did not 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 sometimes used their funds as dumping grounds for unmarketable underwritings, and at other times they used fund assets as collateral for their own questionable investments. Sponsors would also 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. Their highly complicated business structures even allowed many investment companies to avoid registering their securities.

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