Investment Company Classification Under the Investment Company Act of 1940
Chapters in this video
- 0:00 The three legal classifications under the 1940 Act
- 1:54 UIT: the fixed-portfolio time capsule
- 2:50 Open-end funds as infinite inventory vending machines
- 3:35 Closed-end funds as limited sneaker drops
- 4:36 Leverage: senior securities prohibition versus allowance
- 5:26 The 75-5-10 diversification math test
- 7:46 Rapid-fire exam recap
What this video covers
- The three types of investment companies under the 1940 Act: face-amount certificate companies, unit investment trusts (UITs), and management companies
- Why face-amount certificate companies are historical relics and where the exam actually focuses its attention
- How UITs function as fixed portfolios with set termination dates, no active management, no board of directors, and no investment adviser
- The critical distinctions between open-end funds (mutual funds) and closed-end funds: share issuance, forward pricing at net asset value (NAV), secondary market trading, and premium or discount to NAV
- Why open-end funds are generally prohibited from leverage while closed-end funds may issue senior securities with asset coverage requirements
- The 75-5-10 diversification test: what each number means and why the 5% and 10% limits apply only to the 75% portion, not to total assets
- How a fund can legally call itself diversified even while concentrating 25% of assets in a single issuer
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.
Start on this site: free Series 7 practice questions · Series 7 pass rate