Chapter 4 - Investment Companies Flashcards
The investment act of 1940 breaks down investment companies into what 3 types?
Mutual funds, unit investment trusts, and face-amount companies
What is the difference between a fixed UIT and a non-fixed UIT?
A fixed UIT purchases government or municipal debt, while a non-fixed purchases shares in a mutual fund
What is the main difference between an open-end mutual fund and a close-end mutual fund?
An open end mutual fund offers shares to any investor willing to invest (so its market cap is potentially unlimited), while close-ended offer shares to investors through an IPO which then trade on the secondary market
The investment act of 1940 outlined what must be follower in order to be classified as a diversified mutual fund; what is the 75-5-10 rule?
75% of the funds assets must be invested in securities of other issuers, or cash and cash equivalents
The management company cannot invest more than 5% of its asset s in a single company
The mutual fund cannot own more than 10% of a company’s outstanding voting stock
In order to register with the SEC as an investment company, what 3 criteria must be met?
Minimum Net worth of $100,000
At least 100 shareholders
Clearly defined investment objectives
What is an investment company prohibited from doing?
Taking over or controlling other companies
Acting as a bank or savings and loan
Receiving commission for executing orders or acting like a broker
Operating with less than 100 shareholders or less than $100,000 net worth
What does the investment act of 1940 require of the board of directors for a management company?
It requires that 51% of the board be noninterested persons. This means a majority of the board must not have any other affiliation with the fund other than being a member of the fund
Are officers, directors, and employees of the investment company require to be covered by a bond (for negligence)
Yes.
Who does the management company have to hire to manage the fund’s portfolio?
An investment adviser, which is a company
Which entity is hired by the management company to hold its cash and securities?
The custodian Bank
Who is the transfer Agent?
Is a company (often same as the custodian bank) that deals with theissuance, cancellation, and redemption of mutual fund shares
What is a no-load mutual fund?
A mutual fund that can sell its shares directly to investors
What key information is contained in the mutual fund prospectus?
The fund’s investment objectives, sales charges, management expenses, fund services, and performance data for the past 1,5,10 years
What are some of the key criteria to be a money market fund?
Securities in the portfolio must have a maximum maturity of 13 months
The average maturity for securities must not exceed 90 days
Investments are limited to the top two tiers of nationally recognized ratings agencies
At-least 95% of the mm portfolio must be in securities rated at the top tier
What is the maximum allowable sales charge for an open-ended fund?
8.5% of the public offering price
