Investment Companies

Question 1

Investment Company Act of 1940

Answer 1

Act passed to regulate Investment companies

Question 2

Investment Advisers Act of 1940

Answer 2

Act passed to regulate Advising companies

Question 3

Fixed Unit Investment Trust (UIT)

Answer 3

Buy large block of bonds (usually municipal) and sell off interest. Once matured will send out principal payments and the UIT will no longer exist.

Question 4

Non-fixed UIT

Answer 4

Buys mutual fund shares for benefit of investors. Allow access for investors to mutual funds that have very large minimums.

Question 5

Face Amount Company

Answer 5

Don’t exist in real world anymore. Investment company that assisted people saving for retirement.

Question 6

Management Company AKA…

Answer 6

AKA Mutual Fund. Pools investors assets and invests them in a portfolio of securities in order to meet a stated objective.

Question 7

Open End Investment Company

Answer 7

Continuous Primary Offering.

Question 8

Closed End Investment Company

Answer 8

Issues a fixed amount of shares.

Question 9

Compare Open End vs. Closed End Investment Companies

Answer 9

See Screenshot on desktop.

Question 10

Capitalization

Answer 10

How much money a mutual fund can take in

Question 11

How are Open Ended Investment Companies Priced?

Answer 11

Formula. NAV + Shares Charged = POP

Question 12

How are Closed Ended Investment Companies Priced?

Answer 12

Supply and Demand

Question 13

Diversified Mutual Funds

Answer 13

75% in securities issued by other entities. No more than 5% of portfolio invested in one company. This 5% can’t be more than 10% ownership in companies. The idea is diversify not control. Because mutual funds are so large 5% of their portfolio could take over a company- hence the 10% rule.

Question 14

Investment Company Registration Stipulations

Answer 14

Minimum net worth of $100,000.
At least 100 shareholders within 90 days of registration.
Clearly defined investment objectives.

Question 15

Board of Directors for Mutual Funds

Answer 15

Max of 49% can be ‘interested’ in the company (hold a job there).
At least 51% must be non interested.
Role of the board- set investment objectives for the funds. Hire investment advisor.

Question 16

Investment Advisor

Answer 16

Hired by BOD. Asset selection. Goal is to meet the objectives set forth by the BOD. Paid a fee based on % of NAV. (Net Asset Value). More aggressive objectives bring a higher % fee.
Determines tax consequences for investors when the mutual funds makes distributions to shareholders

Question 17

Custodian Bank

Answer 17

Safeguards the portfolio. Holds the shares/assets of the mutual fund.

Question 18

Transfer Agent

Answer 18

In charge of issuing and redeeming shares.

Question 19

Expense Ratio

Answer 19

The sum of the fees paid to the entities. This allows investors to see how much they spend on investing their money.