Podcast
Questions and Answers
Which of these options are correct to take advantage of breakpoints applicable to large investments in the Ajax Fund?
Which of these options are correct to take advantage of breakpoints applicable to large investments in the Ajax Fund?
Which of the following investors may not take advantage of breakpoints?
Which of the following investors may not take advantage of breakpoints?
Which of the following investment companies is limited to offering investors a single class of common stock?
Which of the following investment companies is limited to offering investors a single class of common stock?
What are the tax consequences when exercising the conversion privilege within a family of funds?
What are the tax consequences when exercising the conversion privilege within a family of funds?
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In an effort to raise additional capital, which type of registered investment company may issue debt securities?
In an effort to raise additional capital, which type of registered investment company may issue debt securities?
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One of the goals of target date funds is to help manage what risk?
One of the goals of target date funds is to help manage what risk?
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In which of the following markets would an investor expect to find closed-end investment company shares traded?
In which of the following markets would an investor expect to find closed-end investment company shares traded?
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Study Notes
Investment Companies Overview
- Ajax Fund is a growth-oriented mutual fund where Class A shares offer breakpoint discounts for large investments with a front-end load.
- Class B and Class C shares incur annual 12b-1 fees and contingent-deferred sales charges, while Class D shares have a level sales load and redemption fee.
Breakpoint Discounts
- Breakpoints are available only to legal entities; investment clubs cannot access these discounts, whereas trusts and corporations can.
Mutual Funds
- Mutual funds issue a single class of common stock and are categorized as open-end management companies.
- Other entities like face amount certificate companies, unit investment trusts, and closed-end management companies have different structures and regulations.
- Closed-end companies conduct a one-time IPO and shares trade in the secondary market.
Tax Consequences
- Exchanging funds within the same family is treated as a sale and new purchase, impacting cost basis and capital gains for the old fund.
- Section 1035 exchanges only apply to insurance products, allowing movement between investments without immediate tax consequences.
Capital Raising Methods
- Closed-end investment companies are distinctive in that they can issue debt securities and preferred stock, unlike open-end companies and unit investment trusts, which can only issue equity.
Target Date Funds
- These funds aim to manage investment risk by gradually adjusting asset allocation as the target date (usually retirement) nears.
- They may not effectively manage inflation risk due to heavy investments in fixed income as the target date approaches.
Trading of Closed-End Shares
- Closed-end company shares are traded similarly to regular stocks, available on exchanges or in the over-the-counter market, but not maintained by the investment company itself.
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Description
Test your knowledge on investment companies, including the different classes of mutual fund shares, breakpoint discounts, and tax consequences. This quiz covers essential concepts needed to understand how mutual funds operate and their structures. Brush up on your knowledge of growth-oriented mutual funds and their fees to ace this quiz!
