Unit 14: Pooled Investments

Question 1

What are the rules set out in the Investment Company Act of 1940 that all Investment Companies must follow?

Answer 1

Investment Companies must:
1. Board of Directors with no more than 60% interested persons
2. No buying securities on margin, joint accounts, short selling, or buying more than 3% another investment company
3.Majority vote of shareholders for changes to IPS
4.Net worth of $100k
5.Advisory contracts require majority vote of directors
6.Affiliated persons (own 5%) can’t sell personal securities to the fund, borrow money from the fund, or purchase any other securities from the investment company
7. Use a custodian or broker/dealer
8.Must send proceeds within 7 days when someone redeems
9: Annual report to SEC, Semiannual report to Shareholders

Question 2

What are the 3 types of Investment Companies?

Answer 2

Face Amount Certificate Companies (FACC)
Management Investment Companies (Mutual Funds)
Unit Investment Trusts

Question 3

What is the difference between Open End Mutual Funds and Closed End Mutual Funds?

Answer 3

Open end- registers open offering with SEC, continuously issuing new shares, common stock only
Closed end- publicly traded funds - initial offering of fixed number of shares of common stock, can also issue bonds and preferred stock