In a remedial practice session, the fact pattern is framed this way. The exam wants the best state-securities answer, not a practical business answer. A closed-end investment company that is NOT registered under the Investment Company Act of 1940 offers its shares in a state. How are these shares treated under state securities law?

AThey are automatically exempt as investment company securities
BThey are federal covered securities subject to notice filing only
CThey must be registered with the state because they do not qualify as federal covered securities✓ Correct answer
DThey are exempt if the company has been operating for at least three years

Explanation

Why C — They must be registered with the state because they do not qualify as federal covered securities

Under NSMIA and USA Section 102(6), only securities issued by investment companies registered under the Investment Company Act of 1940 qualify as federal covered securities. A closed-end fund that is not registered under the 1940 Act does not meet this criterion and therefore must register its securities at the state level unless another exemption applies. This version tests the same concept with a different fact pattern wrapper.

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