A regulated investment company (RIC) must meet, among other requirements, two quarterly asset diversification tests:
- First, at least 50% of the value of a RIC's total assets must consist of cash and cash items, US government securities, securities of other regulated investment companies, and securities of other issuers as to which (a) the RIC has not invested more than 5% of the value of its total assets in securities of the issuer and (b) the RIC does not hold more than 10% of the outstanding voting securities of the issuer.
- Second, no more than 25% of the value of the RIC's total assets may be invested in the securities of (1) any one issuer (other than US government securities and securities of other regulated investment companies), (2) two or more issuers that the RIC controls and which are engaged in the same or similar trades or businesses, or (3) one or more qualified publicly traded partnerships (including master limited partnerships).
Noncompliance with either of the two asset diversification tests solely as a result of post-acquisition value fluctuations will not cause a RIC to fail the diversification requirements. However, the RIC cannot use this exception if its failure is even partly due to the acquisition of any security or other property. As a practical matter, asset value fluctuations may co-exist with acquisitions (including any acquisitions through a subsidiary blocker corporation employed by the RIC), creating circumstances that prevent RICs from availing themselves of this exception.
As the June 30, 2026, quarter-end approaches, RICs holding SpaceX stock should pay careful attention to the impact of the SpaceX value on their diversification tests, and must take into account other acquisitions, including any acquisitions of greater-than-5% positions and acquisitions that increase the size of any corporation in which the RIC holds more than 10% of the voting stock (such as a subsidiary blocker corporation).
For additional information about RIC diversification testing, see "Asset Diversification Test: A Timely Refresher."
