Investment Companies Overview Quiz

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.