In response to a recently filed no-action letter, the SEC has rejected a proposal that would dramatically change Section 3(c)(1) of Investment Company Act. Currently, Section 3(c)(1) excludes from the definition of an investment company (subject to mutual fund regulations) any issuer whose outstanding securities are beneficially owned by not more than one hundred persons and which is not making and does not presently propose to make a public offering of its securities. This exclusion allows certain investment funds to avoid having to register as a mutual fund with the SEC, and thus, saves a fund an enormous amount of money and time spent ensuring regulatory compliance. Under the proposed requested relief, an investment fund could have more than 100 beneficial owners as long as this fund did not have more than 100 non-qualified purchaser accredited investors. A non-qualified purchaser accredited investor is an investor who fails to meet the statutory definition of a qualified purchaser in Section 51 of the Investment Advisers Act, but meets the definition of an accredited investor in Regulation D Rule 501 of the 1933 Securities and Exchange Act. Hence, under the proposed 3(c)(1) Plus Fund, an investment fund could significantly increase the size of its client base. To illustrate how this change would affect the composition of investment companies, the fund which actually proposed the change to Section 3(c)(1) would have been allowed to create an investment fund of 224 clients without having to register with the SEC. This fund would have been composed of 151 qualified purchaser accredited investors and 73 non-qualified purchaser accredited investors. The SEC rejected the proposal because the change to Section 3(c)(1) would have violated the public policy concerns behind the registration exemption. Funds are allowed to take advantage of Section 3(c)(1) because those funds with than fewer than 100 beneficial owners do not affect the national public interest as discussed in Section 1 of the Investment Company Act. Once a fund exceeds the bright line 100 beneficial owner mark, the national interest is implicated and registration is required. The change to Section 3(c)(1) would exceed the bright line.