ICA Section 3(a)(1) generally defines an entity to be an "investment company" if, among other things, it "owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis." However, there are two statutory exclusions for private investment funds that are permitted to invest freely in all types of securities: (i) ICA Section 3(c)(1) and (ii) ICA Section 3(c)(7).
Both exclusions require that all sales of securities issued by the fund be effected in private placements. Both exclusions limit the manner in which the fund’s securities may be sold: Section 3(c)(1) funds may not sold in public offerings (which generally has the effect of limiting sales to accredited investors) and Section 3(c)(7) funds may likewise not be sold in public offerings and may be be sold only to "qualified purchasers" (a significantly higher standard than accredited investors). A number of rules under the Investment Company Act relating to transfer of securities issued by both types of funds add further specificity to the scope to both exclusions. The very significant statutory difference between the two types of exempt private funds is that Section 3(c)(7) funds may be sold to an unlimited number of investors that are qualified purchasers, while Section 3(c)(1) funds are limited to 100 investors (counted under the special rules that apply to Section 3(c)(1) funds, which require a look-through of certain types of investors and which may require the "integration" of separate funds that have largely the same trading strategy; see; e.g., Joseph H. Moss (SEC No-Act, January 27, 1984)).
For a comprehensive list of exemptions and exclusions from registration available to investment companies, see the topic page on Exemptions from Registration under the Investment Company Act.