2.1 Investment Company Offerings

Question 1

What are the two Management Investment Company sub types?

Answer 1

Open-End (Mutual Fund)

Closed-Ended

Question 2

A corporation or trust that pools investors’ money and then invests that money in securities on their behalf.

Answer 2

Investment Company

Question 3

What regulates investment companies?

Answer 3

Investment Company Act of 1940

Question 4

A contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some set date in the future.

Answer 4

Face-Amount Certificate (FAC)

Question 5

Classified as an investment company, pay a fixed rate of return, and do not trade in the secondary market but are redeemed by the issuer.

Answer 5

Face-Amount Certificate Companies

Question 6

An investment company organized under a trust indenture. Has portfolios with debt and equity securities. Sell redeemable interests, also known as units or shares of beneficial interest. May be fixed or nonfixed.

Answer 6

Unit investment Trust (UIT)

Question 7

Has boards of directors (they have trustees), employ investment advisers, or actively manage their own portfolios (trade securities)

Answer 7

Unit Investment Trusts (UIT)

Question 8

Typically purchases a portfolio of bonds and terminates when the bonds in the portfolio mature.

Answer 8

Fixed UIT

Question 9

Purchases shares of and underlying mutual fund.

Answer 9

Nonfixed UIT

Question 10

Investment companies as defined under the Investment Company Act of 1940, shares (units) are not traded in the secondary market, they must be redeemed by the trust, they are not actively managed, and there is not board of directors or investment adviser.

Answer 10

Unit Investment Trust (UIT)

Question 11

Most familiar type of investment company. Actively manages a securities portfolio to achieve a stated investment objective.

Answer 11

Management Investment Company

Question 12

Will raise capital for its portfolio by conducting a common stock offering, much like any other publicly traded company that raises capital to invest in its business.

Answer 12

Closed-End Investment Company

Question 13

Shares are fixed, no prospectus after initial public offering; shares are not redeemable; issues common stock, preferred stock, and bonds; trades in secondary market (exchange or OTC); priced by supply and demand; commissions paid; ex-date determined by FINRA

Answer 13

Closed-End

Question 14

Only issues one class of security and that is common stock. Shares are redeemable securities.

Answer 14

Open-end (mutual fund)

Question 15

Securities are continuously offered; a prospectus is required; shares must be redeemed;issue common stock only; no secondary trading; priced by formula; 8.5% maximum sales charge; ex-date set by board of directors

Answer 15

Open-end (mutual funds)

Question 16

The first day one can trade for a security and not be entitled to receive a dividend contribution previously declared by the issuer.

Answer 16

Ex-date or Ex-dividend date.

Question 17

At least 75% of the funds total assets must be invested insecurities issued by companies other than the investment company or its affiliates; the 75% must be invested in such a way that no more than 5% of the funds total assets are invested in the securities of any one issuer and the fund may not own more than 10% of the outstanding voting securities of any one issuer.

Answer 17

75-5-10 rule for diversification

Question 18

What rule must a diversified investment company meet?

Answer 18

75-5-10 rule

Question 19

Funds that chose to concentrate their assets in an industry or a geographic area such as technology stocks, health care stocks, or South American stocks.

Answer 19

Specialized Funds or Sector Funds

Question 20

What are private investment companies also known as?

Answer 20

Hedge Funds

Question 21

Hedge funds are made available to ordinary investors through mutual funds called what?

Answer 21

Funds of Hedge Funds

Question 22

A type of fund that is also an equity security, invests in a specific group of stocks to deliberate mimicry of a particular index, such as the S&P 500.

Answer 22

Exchange-Traded Funds (ETF’s)

Question 23

A company that manages a portfolio of real estate, mortgages, or both to earn profits for shareholders.

Answer 23

REIT pronounced reet

Question 24

Own commercial property (equity REIT), own mortgages on commercial property (mortgage REIT), or both (hybrid REIT)

Answer 24

Characteristics of REIT’s

Question 25

Holds an undivided interest in a pool of real estate; trade on exchanges and over the counter; are not investment companies (open or closed); offer dividends and gains to investors but do not pass through losses like limited partnerships and, therefore, are not considered to be direct participation programs (DDPs)

Answer 25

REIT’s

Question 26

What are the three types of investment companies offerings?

Answer 26

Face Amount Certificate (FAC)
Management Investment Company
Unit Investment Trust