Instructions

Register with the SEC. Closed-end funds are governed under the Investment Company Act of 1940 and the SEC is the primary regulator. By SEC rules, a closed-end fund is further classified as a management company that must be structured as a corporation with a board of directors to oversee fund management. Other investment companies may not require such a formal corporate structure. The SEC’s Investment Company Registration and Regulation Package requires a closed-end fund to file two forms with the agency: Form N-8A for notification of registration and Form N-2, a registration statement for closed-end management investment companies.

Enlist investment advisers. The investment portfolios of a closed-end fund are managed by investment advisers that are generally separate entities. Investment advisers have discretionary asset management responsibilities and are paid a fee, usually a percentage of the total value of the assets managed. Investment advisers must be SEC-registered if assets managed are more than $25 million. The fund company’s board is responsible for appointing an investment adviser as the portfolio manager by signing an advisory contract.

Tips & Warnings

References

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