On the recordJuly 11, 2016
The Investment Company Act of 1940 governs investment companies such as mutual funds, closed-end funds, unit investment trusts, and exchange-traded funds. Its purpose is to protect investors in such funds and to provide for impartial oversight of these companies. Among other things, the 1940 act regulates the type of activities that such companies can undertake and establishes standards for their conduct. In doing so, it describes investment companies' functions and their structure; regulates various transactions among affiliated persons; limits the amount of leverage they can undertake; outlines accounting, recordkeeping, and auditing requirements of funds; and describes how securities may be redeemed and repurchased. These matters sound technical, but they provide fundamental protections for investors in U.S. investment companies. Due to a historical artifact, however, all funds that are located and organized in and sold only to residents of U.S. territories are exempted from the 1940 act. The reason for such an exemption was that, at the time the act was being considered in 1940, the U.S. territories were deemed to be too distant from Washington, D.C., thus making travel to them cost prohibitive. Obviously, the cost of air travel is no longer cost prohibitive and not a reason to exempt territories from the 1940 act. As a result of this exemption, investment companies located in U.S.…
