SEC Allows Closed-End Fund to Issue Multiple Classes and Impose 12b-1 Fees
The SEC has granted exemptive relief under the Investment Company Act to allow a closed-end fund to issue multiple classes and to impose an asset-based distribution fee. The applicant agreed to follow Rules 18f-3 and Rule 12b-1, which allow multiple classes and asset-based distribution fees for open-end funds. Without relief, a multiple class closed-end fund could run afoul of Section 18, which prohibits senior securities. An asset-based distribution fee could violate Section 17(d)’s prohibitions on joint enterprises with affiliates.
OUR TAKE: The relief is fairly broad, which should open the door to other closed-end fund sponsors seeking exemptive relief. Absent relief, a closed-end fund sponsor would have to create a fund-of-funds structure to vary service and distribution expenses for different target markets.
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