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Do all ETFs fall under the Investment Company Act of 1940? If not, how would a buyer know? Are there legal or financial terms to look for in the prospectus, or will be it spelled out explicitly?

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No.

ETFs that invest in commodities and grantor trusts (HOLDRs) are not covered by the Investment Company Act of 1940. The prospectus usually states this in the risks section. For example, the GLD ETF's prospectus says:

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940 or the protections afforded by the CEA.

As a buyer, you need to understand what you are buying. Some "ETFs" aren't really ETFs at all... I'd suggest reading "When is an ETF not an ETF" as a starting place.

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Thanks I hope this answer and the article inform ETF buyers. My eyes were opened when I got a K-1 tax form for buying what I thought was an ETF. –  Vik David Mar 7 '12 at 17:31
    
@VikDavid The currently regulatory regime in the US is pretty bizarre. Many ETFs are complex instruments that the bulk of retail investors do not understand. Another investment that confuses people at tax time are MLP's -- which are popular investments for folks looking for an income stream. –  duffbeer703 Mar 7 '12 at 18:18
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